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Dave McClure – The Controversial Yet Visionary Tech Investor

In Silicon Valley‘s tightly knit tech community, Dave McClure stands out as one of the most prominent angel investors and startup incubators of the past two decades. As a member of the "PayPal Mafia" – the group of former PayPal executives and early employees who went on to become tech industry power players – McClure already had strong credibility. But over the years, through his uncanny eye for promising startups and his blunt, no-nonsense style, McClure cemented his position as a leading tech investor and advisor.

However, McClure has also been a controversial figure due to his brash personality and the sexual harassment allegations leveled against him in 2017. While the harassment accusations led to his ouster as CEO of 500 Startups, the incubator he co-founded, McClure remains an active force in the industry with his new venture fund.

From Small-Town Beginnings to Silicon Valley Success

David "Dave" McClure grew up in rural West Virginia, a world away from the epicenter of technological innovation where he would make his name. After graduating from Johns Hopkins University in 1988 with a degree in engineering and applied mathematics, McClure headed west to Silicon Valley.

He cut his teeth doing consulting and software development work for large tech companies like Microsoft and Intel. Then in 1994 McClure founded his own consulting firm, Aslan Computing, focused on databases and client-server systems. He ran Aslan for five years before selling it off in 1999.

The first of McClure‘s major career breakthroughs came in 2001 when he joined PayPal. Originally hired to run their marketing efforts, McClure eventually headed the company‘s developer network as well. He spent three formative years at PayPal, leaving after its $1.5 billion acquisition by eBay. From his time at PayPal, McClure formed connections with future tech luminaries like Peter Thiel, Reid Hoffman and Elon Musk who would forever alter the startup landscape.

The Solo Investor Years

McClure briefly worked at job search engine Simply Hired before striking out on his own in 2005. Under the company name 500 Hats, McClure spent three years investing in and advising early-stage internet startups.

Some of McClure‘s success stories from those years include:

  • Mint – The popular budgeting and finance app that was acquired by Intuit for $170 million in 2009
  • oDesk – The online workplace platform that later rebranded as UpWork after a merger (Current market cap: $1.7 billion)
  • Jambool – Social gaming startup known for pioneer social apps, acquired by Google in 2010
  • SlideShare – The slide hosting site purchased by LinkedIn for $100 million in 2012

Clearly McClure had sharp foresight for identifying potential unicorns during their infancy stages. His bold attitude and offbeat, direct manner of communicating also made him accessible to young founders in a way few other investors were at the time.

During these solo investor years, McClure developed an early stage investment strategy that he would later systemize and replicate. He specifically targeted internet and mobile startups with strong founding teams tackling big market problems. McClure also had a sixth sense for consumer trends, identifying shifting online behaviors that could translate into viral products.

The Founders Fund Chapter

In 2007 McClure joined Founders Fund, a San Francisco VC firm started by his former Paypal Mafia colleagues. The move gave McClure access to more capital allowing him to ramp up investing activities. Over his three years at Founders Fund, McClure made over 40 seed stage investments. Among them were several category-defining startups:

  • Lyft – Ridesharing platform currently valued at over $15 billion
  • Twilio – Cloud communications company with a $30 billion market valuation
  • Credit Karma – Personal finance service acquired for $7.1 billion in 2020
  • SendGrid – Email API platform purchased by Twilio for $3 billion

The number of his investments that have achieved over $1 billion valuations demonstrate McClure‘s almost uncanny ability to identify ideas and founders capable of massive success early on.

McClure‘s engaging personality and reputation for hands-on mentorship made him an ideal fit for the early-stage partner role at Founders Fund. He met frequently with promising founders from the firm‘s portfolio, helping them refine their ideas and business models. McClure had an intuitive sense for the pain points and roadblocks founders would encounter at various stages.

McClure‘s Criteria for Startup Investing

Over his career, McClure has refined a methodology for evaluating early-stage startups that has proven successful over hundreds of investments. Here are some of his key criteria:

Founding Team – McClure looks for determined, visionary founders who demonstrate resourcefulness and "hustle". He believes the team is more indicative of success than the idea itself. Strong technical and business expertise are also valued.

Addressable Market – The startup should target a sufficiently large market opportunity, preferably an industry facing massive upheaval from changing consumer behaviors or technology shifts.

Traction – Some signs of early organic traction or usage momentum are seen as a positive signal. However, McClure knows that user adoption can happen suddenly so does not expect full-blown virality.

Defensibility – Business models that have data, network effects or unique IP to establish competitive barriers to entry fare better in McClure‘s analysis.

Additionally, McClure tends to favor startups innovating on mobile platforms, financial services, AI/machine learning, digital health, and consumer products. In recent years he has increased focus on diversity, evaluating founding teams just as much on their grit and potential as their credentials.

500 Startups Phenomenon

In 2010, McClure teamed up with former colleague Christine Tsai to launch 500 Startups, an accelerator and seed fund for early-stage startups. The "500" name came from McClure‘s earlier company as well as the hopes to eventually fund 500 new startups.

As CEO and founding partner of 500 Startups, McClure focused intently on increasing diversity and inclusion in the historically homogenous world of venture capital. 500 Startups ended up investing in over 2000 startups spanning 75 countries. Over 180 of their portfolio companies have been acquired or gone public.

Some major 500 Startups success cases:

  • Twilio – The unicorn cloud communications company had a Series A round led by 500 Startups.
  • Grab – Valued at over $40 billion, this "super-app" for transportation, delivery and payments holds the record for highest valuation company to have 500 Startups invest in their early rounds
  • Canva – 500 Startups participated in the graphic design startup‘s $3.6 million Series A round. Canva is currently valued at $40 billion.
Year Investments Made Total Invested Value of Exits
2011 89 $8.9 million $24 million
2012 156 $14 million $128 million
2013 171 $29 million $640 million
2014 205 $45 million $985 million
2015 229 $85 million $3.56 billion

Table showing key investment metrics during 500 Startups‘ early years. Source: Crunchbase

Powered by McClure‘s investment acumen and fundraising capabilities, 500 Startups saw meteoric growth. They raised over $500 million to deploy toward startup investments and reached a valuation of over $200 million at their Series A round. McClure‘s hands-on support and uncensored mentorship was crucial during the early growth phase as 500 Startups scaled from seed investments to running an accelerator program. By 2015 they were backing over 200 companies per year spanning fintech, adtech, edtech, blockchain and other sectors.

Leadership Style and Managing Portfolio Companies

McClure has an unusual management approach that founders seem to find refreshing. He is blunt, opinionated and has no qualms swearing up a storm. McClure calls things as he sees them rather than sugarcoating criticism. After investing, McClure takes an extremely hands-on role advising portfolio companies through product pivots, rebranding efforts, partnership discussions and more.

He arm twists introductions to relevant experts in his network and pushes founders to address weaknesses aggressively. McClure has even been known to take over company messaging or marketing for a few days. Founders walk away from encounters with McClure full of tough love, connections and a revamped priority list.

McClure oversees management at his funds through similar direct, hyper-transparent communication. At 500 Startups, he instituted open "brown bag talks" where employees could pose anonymous questions and feedback. McClure addressed employee concerns directly, rebuilding trust and morale.

Such transparency does lend itself to the spread of rumors and gossip though. Especially during the sexual harassment scandal, reporters easily obtained internal communications exposing McClure and 500 Startup‘s missteps. Some believe McClure‘s casual culture set the stage for boundary violations.

The Harassment Scandal and Fallout

In mid-2017 multiple women came forward with allegations of sexual harassment and inappropriate behavior by McClure. Most accused him of unwanted advances during professional events, conversations or pitches. Some also cited meetings pushed to bars late into the night instead of offices.

Initially McClure denied serious misconduct and called the interactions mutual. As more accusers came forward, 500 Startups initiated an internal investigation. Their findings showed a pervasive pattern of sexual language and poor decision-making by McClure with female founders and employees.

500 Startups confronted the findings with McClure directly and requested he step down as CEO. Given the number of their portfolio companies demanding action, he resigned after a few weeks of crisis talks but stayed on as a general partner and investor.

In the aftermath, 500 Startups overhauled their policies, codes of conduct and reporting processes. They now require external HR support at all events, forbid excessive drinking and have strict harassment response procedures. Multiple partners stepped down or distanced themselves from McClure as the firm aimed to rebuild trust in the ecosystem.

For his part, McClure admitted inappropriate behavior, issued several public apologies and attended counseling sessions. Still his reputation as a stalwart of the Silicon Valley establishment took a major hit. The episode sparked a broader conversation around misogyny and misconduct that the tech industry arguably needed to have.

It clearly tarnished McClure‘s public image though as questions arose around the archetype of the Silicon Valley boy‘s club. It seemed to embody the worst impulses of an ecosystem mired in systemic discrimination against marginalized groups.

Onwards to Practical Venture Capital

In 2019 McClure launched a new venture capital firm named Practical Venture Capital with former 500 Startups exec Aman Verjee. True to its name, Practical VC has a straightforward, ROI-driven philosophy toward startup incubation and seed investing. The lean team and clear-cut process serve as a direct contrast to 500 Startups‘ sprawling approach.

Still, McClure seems to have evolved little with regards to self-awareness or gender attitudes. In an interview announcing Practical VC, he brushed off past harassment as not being "a big deal" and called critics "haters". While he has dialed down visible misconduct, the perspectives remain largely unchanged.

Practical VC also has an unusual strategy of acquiring information rights to companies in 500 Startups current portfolio. This means Practical VC will hold insider knowledge on 500‘s existing investments, essentially making them a non-controlling insider. It serves as both an olive branch to McClure‘s former fund as well as a sly flex asserting they cannot fully shut him out.

So far Practical VC has over $110 million under management and continues backing concepts ignored by traditional VCs. True to form, their current portfolio shows tendency towards scrappy teams and unorthodox models including a wine buying platform, healthcare review app and soccer collectibles marketplace.

As with previous ventures, McClure is bringing big talk and provocative ideas to this new firm. He feels as comfortable as ever ridiculing "lame VC perspectives" and pushing founders to extreme measures. McClure has maintained his reputation as a magnet for offbeat ideas and seems motivated to compete with 500 Startups.

Through it all, McClure still has that uncanny ability to identify ideas and founders capable of defying odds and achieving massive exits. For all his faults, McClure‘s unique intellect and instincts make him a formidable force in silicon valley.

Significant Failures and Lessons Learned

Like all investors, McClure has also backed startups that failed to take off or folded prematurely. Analyzing major failures sheds light on blind spots and flaws in McClure‘s investment framework.

CrowdFlower – Founded in 2007, this crowdsourcing and data labeling startup raised $38 million under McClure‘s guidance. It seemed uniquely positioned to leverage globalization and AI needs to scale rapidly. However the complexities of managing a far-flung workforce while selling mainly to researching proved too difficult. CrowdFlower ended up laying off most of its staff in 2019 before getting acquired by Appen for just $150,000, a significant loss versus invested capital.

WinWin – McClure helped launch WinWin in 2011 as a platform for companies and NGOs to showcase philanthropic initiatives. While it gained some fans, WinWin failed to articulate a compelling value proposition or revenue model. The site exited quietly just three years later. Observers noted a lack of strategic direction and problems retaining key hires as factors in WinWin‘s demise.

Stoovo – This corporate travel management startup had strong early traction but could not keep momentum going. After a promising first few years post 500 Startups backing, Stoovo struggled on the fundraising path. Without enough runway, the company plateaued in growth before leadership changes led it to fold operations.

For McClure, such cases forced careful re-assessment of priorities. He clearly struggled evaluating business models outside his main areas of expertise. McClure also evolved to ask harder questions around monetization and start placing bigger bets on founders with demonstrated business acumen.

These and other failures certainly humbled McClure somewhat and expanded his playbook. But he opts not to dwell too much on past losses. After all to invest in paradigm-shifting ideas that may seem crazy at first, failure comes with the territory.

Legacy Impact and What Lies Ahead

While his once-sterling reputation as a silicon valley leader no longer stands, McClure maintains an undeniable influence. He paved the way for dozens of startups that redefined entire industries. And in many ways McClure ushered in the current era of borders dissolving between technology and financial services, commerce, transportation, etc.

He also served as an early model for radical transparency expectations and liquid funding options. By speaking bluntly and opening the doors to outsiders, McClure made venture capital far more relatable and accessible. The thriving micro-VC movement owes a debt to McClure proving that unconventional backgrounds can yield investment success.

And McClure sparked difficult but necessary conversations on ending systemic attitudes that limit diversity and inclusion in tech. While clearly still struggling to address his own biases, McClure has funded underrepresented founders that larger funds still ignore. Their success speaks to deep flaws in the stale VC evaluation lens rooted more in pattern-matching than forward vision.

As McClure heads toward his seventh decade with a new fund, wealth of experience and endless grit, he seems poised to further shake up convention. Ultimately McClure will be defined not by scandals or investment hits alone. Rather it will be the corpus of his life‘s work – demonstrating over and over that innovation depends most on boldly rejecting the status quo. McClure has always excelled most at speaking an inconvenient truth that sparking people to see possibilities hidden in plain sight.

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