At the Paramount Theater on Friday, outspoken venture capitalist Dave McClure shared insights on investing in startups and challenged the University of Virginia to invest $1 million each year in businesses started by its students.
McClure’s lecture was part of the Founders Summit at the Tom Tom Founders Festival.
McClure is a founding partner at 500 Startups, a global venture capital firm based in Mountain View, California. He previously served as chief marketing officer at Paypal and Simply Hired.
McClure founded 500 Startups with Christine Tsai in 2010. After starting with a portfolio of about 250 companies, the firm has gone on to invest in more than 1,600 startups.
500 Startups was an early investor in several “unicorns”— a Silicon Valley term for startups valued at $1 billion or more. Credit Karma and Twilio are two of the most valuable companies in its portfolio.
McClure said that 500 Startups’ strategy of making “lots of little bets” on early-stage startups was a revolutionary idea at the time of the firm’s founding. He compared the strategic shift to Billy Beane’s radical management of the Oakland A’s baseball team, made famous by author Michael Lewis in “Moneyball.”
McClure described 500 Startups’ staff as a team of renegades who felt excluded from established venture capital firms in Silicon Valley.
“Maybe they didn’t go to the ‘right schools’ to get into venture capital,” McClure said. “They didn’t go to Stanford. They didn’t go to Harvard. Or they weren’t Ph.D.s.”
McClure, a West Virginia native, received a bachelor’s in engineering and applied mathematics from Johns Hopkins University in 1989.
McClure said that starting a company in Silicon Valley was often like jumping out of a plane and putting together a parachute while falling to Earth. To further illustrate the point, he removed his flip-flops, stood on his folding chair and leapt off it.
“What usually happens when you jump out of a plane? You die,” McClure said.
“[Entrepreneurs] don’t really die, most of the time. They just fail. But sometimes it works, and those companies get really big.”
“Silicon Valley is really a crazy place,” McClure said. “It’s a bunch of insane people who all think that they are going to defy the odds. … We are all crazy together.”
“It’s a pretty amazing time to be an entrepreneur,” McClure added. “You don’t need much time to build products that can reach hundreds of millions of people, sometimes billions.”
McClure said that 500 Startups favors companies that employ “hackers” to develop software, “hipsters” to manage design and user experience and “hustlers” for marketing and business.
One University of Virginia student in the audience asked McClure how she could recruit hipsters and hustlers for her startup.
“If you want to be an entrepreneur, you should party a little more and get to know people,” he said, laughing. “Have a beer with them, or whatever you feel like doing.”
When asked what he knew of the startup scene in Charlottesville, McClure said that machine learning software is one of its strengths.
“I see a high probability of a $100 million, even a $1 billion, exit in machine learning,” he said.
The Founders Summit was emceed by Michael Woodfolk, president of the Darden School Foundation, which supports the Darden School of Business at UVa. In conversation with Woodfolk, McClure said that 500 Startups could one day “put business schools out of business.”
“Business schools charge you $100,000 a year to read about other peoples’ success,” he said.
“We will give you $100,000. Maybe you will succeed, and maybe you will fail. But you will definitely learn something.”
Woodfolk praised McClure as an “exceptional” businessman, and invited him to return to Charlottesville to lecture and advise students at the Darden School.
McClure said he would visit Darden and donate at least $10,000 to the school if it committed to making $50,000 investments in 20 UVa student startups each year.
“Don’t you think one in 1,000 people [at UVa] are worth investing in?” McClure said.
Woodfolk said that, while he liked the idea, McClure might need to donate even more money to make it a reality.