Inside500 Startups: the fund as API



My partner AJ Shanley and I dropped by the 500 Pirates’ Den the other week, more officially known as the 500 Startups accelerator in Mountain View.  For those who don’t spend too much time inside the world of high velocity startups, it offers a fascinating look inside the engine room of modern company building.

500Startups is the poster child of high velocity seed investing.  I won’t go into their quasi statistical investment strategy, suffice to say it’s an adaptation of the Moneyball method to the startup world because, after all, ‘no one knows who the next Mark Zuckerberg will be”.  An experiment it certainly is, but for the record I am a believer, particularly well suited to the Valley Vortex.

In a building formerly known as the Doghouse, Dave McClure, Paul Singh, Christine Tsai and team took over an old 10,000 s.ft. RedHat datacenter in September 2010 and turned it into a dense founder hive.  150 desks on wheels (each costing a whopping $60) allow them to cram over 30 companies into their regular 100 day accelerator program.  Given the investment pace of 500startups, that should allow them to take every single investee through their analytically focused acceleration program.

Acceleration, baby

The acceleration program is a hands-on execution-focused mentoring and best practice camp where relevant mentors continuously rotate through the space and work with the teams on campus.  There are five events every week, batch meetings, tactical speaker lunches.  Mentors maintain regular Office Hours.  The first month tends to be focused on product, then the emphasis shifts to distribution and later data/revenue/funnel.  The grand ceremony of Demo Day rounds it off.

The program, as long as it maintains its quality and forces startups through an accelerated improvement cycle, constitutes the core of the brand appeal of the 500Startups machine.  Most of the 250 companies funded should have a chance to rotate through the program if they so wish.

As Paul Singh puts it, “functional expertise trumps everything“.  By doers, for doers.

The stats are interesting: 44% international, 24% women, 90% have product and a full 50% have some kind of revenues.  The hive is full from 2pm to 2am every day.

Fluid space

The way the space itself functions is fascinating. Teams are forced to huddle together in pods to maxmimize informal interaction and generate real peer pressure.  The wheel mounted desks allow for continuous re-organisation of the space so the pods can constantly be modified.  Heavy industrial plugs hanging from the ceilings, despite by a health hazard (bandaged heads abound) are the simple enabler of this continuous flow of desks on the fully open concrete floors.  Heavy floors marks are a witness to the industrial past of the space.

As you walk through the environment, besides enjoying 360 views of downtown Mountain View, you see a mixture of heavy duty coding, ad-hoc meetings, whiteboarding and general business.  How-to guides and infographics cover the walls, mixed with layers of ideapaint drawings that constitute the memory of the space.

Meeting rooms are few, small and not ventilated, forcing a continuous flow of short (and heated) meetings.  There is one boardroom with broken seats and a photograph of Spock.  The main space is a mix cafeteria, lounge, event space and party space, with active DJ desks and AV equipment loosely wired.

In a nice touch towards #changetheratio, one of the small rooms turns into an ad-hoc nursery when required.

The venture firm as an API

The 500Startups name famously comes from the declaration by Dave that he planned to invest in 500 companies.  It also refers to the number of mentors that the group wants to attract, 500 strong.

As Paul puts it, “we want to design a system that can function without us“.  Mentors and almuni provide sourcing and mentoring.  The value of the outfit is delivered through its component parts.  All companies that get invested come through some form of referral and usually feature multiple common connections.

Most venture firms (ours included) function as “destination sites” where a specific partner is the reason why you engage with the group in the first place.  With a strong parallel to OccupyWallStreet, 500 Startups aims to function as an API that connects ecosystem participants around a physical space and a distributed talent pool.  The leverage is obvious.  You can draw parallels to the likes of First Round Capital or the more classic incubators like Techstars.

The team is also moving the needle with its use of data.  I don’t want to reveal too much but let’s just day the word Hadoop got dropped a few times :-)  Operating leverage through better data.

I use the word API, Dave refers to it as platform, either way you’re looking at companies that leverage the ecosystem around them hard in all aspects of their development, from investment to mentoring to market expansion.  It’s no wonder then that 500 Startups also started using Angellist profiles and Angellist authentication as the backbone of its data model.  @Nivi after all we the first to push the idea of delinking funding from mentoring.  500Startus and Angellist were born to mate.

All coming together.  After the Oakland A’s, here come the Mountain View Pirates.

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I love it when geeks play bad boys with funky stickers

 

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Watch your head, these industrial plugs hurt

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The fluid office = not just a concept

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A smiling team member never hurts (Bedi Yang)

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#ChangeTheRatio — the Mother’s room notice

I will leave you with a video from LoicLeMeur:

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  • http://profile.typepad.com/tydanco Tydanco

    Wow. Red wine? 11 mins of @davemcclure @500startups without 1 F-bomb? #middleagedmellow http://bit.ly/zeSsUj via @freddestin.

  • http://profile.typepad.com/aacook Aacook

    Great post Fred – hadn’t seen the video until now… wow.

  • http://profile.typepad.com/dmc500hats Dave

    hey fred: actually the woman pictured in front of our lobby area is Bedy Yang, not Christine Tsai… altho both are on our team :)

    (if u have a a chance to update that would be great)

    dmc

  • http://profile.typepad.com/d101584568098068236 A Facebook User

    Regarding the Bedy/Christine mix-up, my only comment: ALL LOOK SAME.

    :-)

  • http://profile.typepad.com/kenberger Ken Berger

    Re the 500 name: Dave was loooong known as the “Master of 500 Hats”. He even drove a mini van around the Valley, the rear window filled with hats.

    Maybe I stand corrected, but those who know him guessed that 500 Startups was mostly an extension of that meme. He didn’t literally mean that actual number as a roster line count target.