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

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. >>>

Seed Capital From Angel Investors: Ira Weiss, Hyde Park Angels (Part 7)

By guest authors Irina Patterson and Candice Arnold

Irina: What are your other notable investments?

Ira: I recently invested in a company called SURGiVIEW, which has an inexpensive way for surgeons to archive the videos of their surgeries and also to remotely broadcast the surgeries to other parts of the world.

I invested in a company a while ago called HxTechnologies (HxTI). We already invested and exited that company. It was bought by a company called MEDecision. It was a pretty good exit, but not great. >>>

Seed Capital From Angel Investors: Ira Weiss, Hyde Park Angels (Part 6)

By guest authors Irina Patterson and Candice Arnold

Irina: What do you do with the companies you don’t invest in?

Ira: We try to refer them to somebody else who may have an interest for one reason or another. Sometimes a company’s too late stage for us and we’ll refer it. Often times we’ll put it on hold and we’ll say, “We really like the idea. We like the business. We want to see a little more traction so if you can bring on more customers; keep us up to date and let us know.” >>>

Seed Capital From Angel Investors: Elizabeth Marchi, Frontier Angel Fund (Part 7)

By guest author Irina Patterson

Irina: What is your biggest investment success to date?

Liz: I think our biggest investment success is that none of our companies has gone broke during this economy. It’s still too uncertain in this economy and the exit market — I’m really excited about a couple of them. I don’t know, we’ll see. But I think not losing a company in this economy is really amazing. >>>

Seed Capital From Angel Investors: Ira Weiss, Hyde Park Angels (Part 5)

By guest authors Irina Patterson and Candice Arnold

Irina: How much do you usually invest in a company?

Ira: I typically invest $25,000. Sometimes it’s as low as $10,000. A few times it’s been $50,000 to $100,000, but it’s usually $25,000. Our group tends to invest somewhere between $300,000 and $750,000, as a group.

Irina: How long does it usually take for a company to get funding from your group?

Ira: It’s usually two to three months. I wish it was shorter, but realistically it’s probably six weeks to 12 weeks. >>>

Seed Capital From Angel Investors: Elizabeth Marchi, Frontier Angel Fund (Part 6)

By guest author Irina Patterson

Irina: How many investments do you have in your portfolio right now?

Liz: We have nine.

Irina: What stage of business development you usually invest in?

Liz: Early. But they have to have a customer and the product. We do not do R&D. And frankly, the customer doesn’t necessarily have to be a paying customer. It can be a beta customer, but there has to be a product that’s out there. We don’t fund development. >>>

Seed Capital From Angel Investors: Ira Weiss, Hyde Park Angels (Part 4)

By guest authors Irina Patterson and Candice Arnold

Irina: If entrepreneurs go through your website, there’s still a fee, right?

Ira: Yes. People are not so happy about angel groups that charge fees, but we do charge $45 for people to submit. It’s primarily because we were getting so many random submissions without it.

One of our students will spend 10 to 20 hours on each company that applies, and our angels will spend another five to 10 hours, so there’s a huge amount of time that we spend on each company that applies. >>>

Seed Capital From Angel Investors: Elizabeth Marchi, Frontier Angel Fund (Part 5)

By guest author Irina Patterson

Liz: You know, one of the things that happens in a bad economy is if a company is doing fairly well, sometimes the entrepreneurs don’t want to exit. Because they’re comfortable. They get their salary, they’re making money, the company’s doing OK . . . so it’s a little harder because the exit opportunities, they’re tough. I mean, nobody’s doing any IPO or anything, so it’s all M&A activity and they would just as soon stay in the company and make good salary.

I do think that’s something we are really going to focus on this year, making sure we’re not holding anything too long, and freaking out on these opportunities because that is a harder piece for angels. >>>