Why Asia’s obscure startups will be the ones to shape the region

In his trademark blunt style, 500 Startups founder Dave McClure told it like it is at Echelon, a startup conference in Singapore. In front of a packed hall at Max Atria, he said that most entrepreneurs will never be as cool or brilliant as Tony Stark or Michael Jordan, nor should they try to be.

Referencing Mark Zuckerberg of Facebook, as well as Sergey Brin and Larry Page of Google, Dave remarked that these guys have spent the past decade building gigantic platforms for the rest of us to stand on.

“Be a mental midget and kick ass,” he said, advising against executing on another “crazy’ social media startup or attempting moonshot ideas like 3D printers or Google Glass, endeavors which are potentially world-changing but carry spectacular risk.

A more realistic path to success would involve reinventing web 1.0 businesses by adding web 2.0 elements like search and social, then acquiring customers and revenue. Although boring, niche-specific, and not headline-grabbing, these startups have the best chance of bringing Asia’s ecosystem to a new level of maturity by creating a cycle of exits and serial entrepreneurship.

These sort of businesses have become easier, faster, and cheaper to create in recent years because unlike the Dot Com era, web technology infrastructure — think cloud computing services like Hadoop, Heroku, and GitHub — are already available to allow startups to scale quickly.

Dave McClure’s advice is counter-intuitive and seems to run counter to the startup ethos of being ambitious and creating billion-dollar companies.

But he’s eating his own dog food: 500 Startups is built on the philosophy of seeding as many viable ideas as possible with the expectation that only a few of them will have modest exits, and an even smaller minority will have ground-shaking ones.

In more specific terms, he expects 80 percent of investments to fail, another 10 to 20 percent to have small exits with 5x returns valued at USD 5M to USD 50M, and between 5 to 10 percent to have 20x exits at USD 50M to USD 100M.

“We’re not aiming for billion dollar, Black Swan outcomes,” he said.

In Asia, there are several challenges that would prevent Silicon Valley type ideas from taking off. Aside from market fragmentation, lack of investor support, and cultural differences, there’s also a lack of a large early adopter crowd to give novel products the initial lift it needs.

His reasoning is also grounded in the reality that not everyone is a polymath that combines sheer intellectual brilliance with business acumen and intuition (the Elon Musk or Jack Dorsey types).

Startup accelerators, according to Dave, should have 3 or 4 rockstar teams in each batch that can compete with and sharpen one another. That way, they’ll be able to pull the ‘B’ students along and give them a better chance of succeeding.

It’s likely we’ll see 500 Durians — Dave’s USD 10M micro-fund for Southeast Asia — invest in startups that focus on revenue and marketing early.