Venture capitalist David McClure, with investments in more than 500 companies, never bets on a startup unless it already has customers paying good money for its products.
On Monday, McClure told an audience at Google Campus in London that he gets approached all the time with new ideas. People have tried to pitch to him on the dance floor, and even while at a urinal.
Many people who pitch an idea think they are the one in ten million with God-given talent that puts them head and shoulders above the rest. McClure likes to tell them, “There are a lot of people who play basketball who are not Michael Jordan. You’re probably one of them. So learn to pass.”
When asked if he tries to do due diligence to pick companies based on people, McClure says that of the three ingredients that make for lasting success – products, market, and people – people are of course the most important and products the least. However, there is no way to get close enough to really understand the people before making an investment decision.
So McClure winds up basing decisions on the products, with the rationale that good people make good products, and bad products are made by bad people. The problem is, of course, that bad people sometimes also make good products. But then again, there is guesswork in all investment decisions.
When asked about what it takes to establish a healthy startup ecosystem, McClure said that the most important ingredients are optimism and belief. Silicon Valley has a lot of people who are insane enough to be optimistic – even though, as everybody knows, most startups fail. McClure says that the optimism and belief are what has allowed Silicon Valley to produce more startups than the rest of the world.
McClure thinks that building a startup ecosystem in the UK is a tough nut to crack. One of the biggest problems in the UK is that people are afraid of looking silly. “It’s harder to invest in formal, or class-oriented, societies. People don’t like to make mistakes visibly or publicly.“
According to McClure, it’s important for governments to let entrepreneurs fail, and to make failure painful enough for people to learn from their mistakes. This from a man who says he has made many mistakes.
One of the biggest investment mistakes he ever made was to turn down the opportunity to invest in Uber. To make matters worse, he turned down Uber on several occasions, at different prices, and under different conditions. He says he thinks about that mistake every day, and that it makes him humble.
At the end of the day, Dave McClure admits, “I’m still a blind squirrel trying to find a nut.”