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Seed Capital From Angel Investors: Dave McClure, Founder, 500 Startups (Part 1)

Posted on Tuesday, Oct 12th 2010

By guest authors Irina Patterson and Candice Arnold

This is the thirtieth interview in our series on financing for entrepreneurs. I am talking to Dave McClure, an angel investor and the founder of 500 Startups, which is a seed fund and startup accelerator based in Mountain View, California.

Irina: Hi Dave, Let’s start briefly with your background.

Dave: I grew up in West Virginia and went to school in Maryland. After I graduated from Johns Hopkins in Baltimore, I came out to the West Coast.

The first two years I was a programmer and database developer. And after two years realized I couldn’t work for anybody else, so I started my own consulting company. I ran a small consulting group from 1994 to 1998. That was about 20 people.

I made pretty much made every mistake you can think of as a first-time entrepreneur. Still, I managed to get a small acquisition out of that deal. That was my first business; I was learning the ropes. It was a consulting business doing Internet, intranet, and e-commerce.

Irina: What did you focus on at that time?

Dave: It was an early attempt at building an integrated consulting business around the Web. So, we did business for a couple different companies, Intel, Intuit, I believe, and the Gap; we worked with Microsoft consulting on a few contracts and some other startups here in the Valley and at Stanford University for a bit.

We were mostly building websites, either Internet sites, intranet sites, or e-commerce sites, and we had a range of people who were network engineers, programmers, contract developers, or designers. This was fairly early on, in the mid-1990s, and not too many people were doing that.

And I learned a lot about being a small business owner and how to be an entrepreneur. We managed to get a small win out of that but probably came close to going bankrupt multiple times.

So, it was an experience in getting experience more than building a huge business. We had about 20 people and about $2 million in revenue at various points. I ran the business for the company that acquired us for about a year and a half after the acquisition.

It was acquired in 1998; Aslan Computing was the name of the company, and it was acquired by a company called Panurgy. As I said, I ran the business for about a year and a half after we’d been acquired, then decided to move on and take a vacation for the first time in about four or five years.

Irina: How did you come to be a seed investor?

Dave: After the acquisition, I was doing consulting for a few different startups, around 1999–2000. And that was really where I started doing startup consulting and advisory work. I wasn’t an investor at that point.

One of the companies I was an advisor for was acquired by Microsoft in, I guess, 2001. Then another company got acquired.  And I ended up joining PayPal in 2001 but started to think more about the whole startup scene. I spent three years at PayPal during the post-dot-com blowup years.

I started and ran the developer network program there, mostly technology evangelism, technology marketing, and education for e-commerce, developers, and merchants. I met a bunch of amazing people at PayPal. I got to understand more about how Internet startups are really run and scaled, and I learned more about venture-backed startups.

PayPal was a tremendous place to learn through a lot of great experiences. After the company went public and was acquired by eBay, I stayed a few more years and then in 2004, I left PayPal and started doing some angel investing in 2004.

Then I joined a company called SimplyHired early on and ran marketing there. I also became an investor in SimplyHired.

I’d say between 2004 and 2008, I first started doing angel investing and learning about that. I did about 13 investments over that four-year period, with about $25,000 average investment size. Some were smaller and some larger.

I put about $300,000 in 13 different startups. This was not a huge amount of money by Silicon Valley standards. Some people buy houses, and I put money into a bunch of startups.

At the time, almost all of my investments were in the Bay Area. I think one was in Seattle. A friend was running a company up there. But over the four-year period, I got a better understanding of what angel investing was all about. The first two years, I was really just trying to get an understanding and get my feet wet.

This segment is part 1 in the series : Seed Capital From Angel Investors: Dave McClure, Founder, 500 Startups
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