Q&A: 500 Startups’ Dave McClure on China’s tempting but ruthless market

Image credit: Matahari Indonesia.

Maybe it’s the jet lag. When I sit down with Dave McClure, founding partner of 500 Startups, he’s surprisingly mellow. The swashbuckling and infamously swearing seed investor – whose experience in Silicon Valley pre-dates the PayPal mafia – is understated as we chat at the Global Mobile Internet Conference (GMIC) in Beijing.

“Not too many people want to do what I do. Sometimes I don’t want to do what I do,” he tells Tech in Asia. “But I think it comes out that we have a general fascination and interest in learning about other people and markets.”

“That is why I’ve spent a good bit of the last six, seven years on a plane,” he says.

Since launching in 2010, 500 Startups has spread its footprint across 60 countries around the world by investing in more than 1,600 startups, including Credit Karma, Grab, and Twilio. Unlike many VC firms in the Valley, 500 Startups has pursued an aggressive, high-volume investment strategy, where a large portfolio is used to offset the low probability of a return.

The venture capital firm now has about 150 employees based in 20 countries, with accelerator programs in Mountain View, San Francisco, and Mexico City. Having hired a new COO in March to lead its long-term growth plans, 500 Startups has ambitions to scale up its already prolific investment operations.

“I think we are going to increase our presence in probably 10 to 20 metros globally,” says Dave, citing New York, Los Angeles, Berlin, Dubai, Jakarta, Tel Aviv, and other cities as potential locations for accelerator programs. “Easily there’s 20 to 50 cities in my mind that, over the next ten years, we could probably have a five to 20 person team in each of those places.”

At GMIC in Beijing last week, I was able to catch up with Dave, where we picked his brain on China’s “wacky” valuations, corporate accelerators, and more. Below is an edited excerpt of our conversation.

A lot of startup ecosystems in Asia use Silicon Valley culture as a reference or model – do you see anything that gets “lost in translation” here?

I think some people just copy the wrong shit. […] There’s always an over fascination with new trends, and some people get hyped up on the new trends before they understand really what the potential is. You could argue the whole AI, AR, VR craze is – I don’t know if they’re going crazy because of their own markets or things they see in other markets – but I generally see that insanity happening in the US and also over here, but maybe I’m the one that’s wrong.

I think sometimes there’s an emphasis on hiring people and scaling up just for scaling up’s sake before there’s a real sense whether there’s a real product market fit and whether the unit economics are working. That can lead to a lot of wasted capital and negative cash flow businesses, a lot of competition where the margins are slim to none.

I think some people just copy the wrong shit.

I generally don’t want to be investing in that type of environment, so we’re generally looking for differentiation and not just try and beat people out on cash. I think you saw an incredible amount of companies that came out in the group buying sector four, five years ago, and then there’s decimation that happened after that.

So I wonder if that cycle’s happening again with AR, VR content and not companies.