davemc500hats

here's a rough summary of my track record (personal / professional)

1) my angel investments ($300K portfolio, 2004-2008 vintage): 3 exits (Mint, Mashery, SlideShare) @ $100M+ out of 13 -- roughly 3.5X cash on cash in ~8 years

2) my investments at Founders Fund (~$3M portfolio, 2008-2010): 3 unicorns (Credit Karma, Lyft/ZimRide, Twilio) + 3 large wins (Wildfire, SendGrid, Life360) out of ~40 investments via FF Angel + fbFund -- roughly $50-60M appreciation in value over 7-8 years, >100% Gross IRR

3) 500 Startups main funds: $30M Fund I / 265 companies / 19% Net IRR / 2010-11 vintage, $45M Fund II / 325 companies / 23% Net IRR / 2012-13 vintage -- so far, 2 unicorns (Twilio, Credit Karma), 2 half-unicorns (Ipsy, Udemy), 30+ "centaurs" (>$100M+ value). Fund III is $85M / vintage 2014-15 / 650+ companies -- still pretty early but so far Net IRR trending ~20%

our LPs have been happy with our results so far. my/our track record is likely upper quartile, and at least for my years at Founders Fund top decile. Peter and I may differ in approach & stage, but likely more in agreement than not about the #s, altho he would likely consider or strategy more brute force and inelegant than his. that said, I think made enough money for him at FF & found him 3 unicorns, so hopefully he doesn't think I'm an idiot ;)

we believe we are performing far above average, actually... both in IRR, exits, black swans, and other areas. that said, we are less than 5 years old and most VC funds don't have much measurable results until 4-8 years in.

our first fund is performing at 18% Net IRR (which includes fees; I think the WSJ #s were actually Gross IRR, which would be higher for our fund as well, and likely considerably above mean).

regardless, our second fund is performing at 27% Net IRR, which is performing considerably higher than median 6% IRR as reported by WSJ / Cambridge.

our third fund is still very early (just over 1 year old), however it seems we are performing over 30-40% IRR (44% currently).

so overall: - our funds are performing substantially above median - our performance appears to be increasing over the past 3 funds - I doubt that most LPs have turned us down because occasionally I use some 4-letter words...

thanks,

DMC

i will defer to PG & YC in terms of their data on valuation/caps post-demo day, however our experience is that they probably reached a local max sometime last year, and they are certainly softer this year.

in general, most companies with similar progress are being valued less highly than last year.

which isn't to say they are either cheap, or a bargain -- just not as high as last year.

completely agree with PG -- acqui-hires aren't a big source of capital returns at all, especially anything below $10M.

... and similarly, it's in YC's best interest for valuations (of YC co's) at Series A to go up ;)

indeed there will be some further dilution, but typically there is not dramatic liquidation preference on winners, at least that we have seen thus far. if you like, you can double the exit targets I mentioned, but regardless we are looking for ~10-20 companies that exit north of $50-100M, and 25-50 that exit at between $10-50M.

overall 500 is currently about 22 people. of those, we have ~10-12 investment professionals, each of which is making 10-25 investments per year. if we are lucky, 1 or 2 of those might be larger wins, and 3-5 might be smaller wins.

since we generally do not sit on boards, most of our team is not spending the majority of their time in future years managing a large # of investments, altho they do spend time in the first year or so helping some of them get financing from downstream institutional investors.

hope this helps explain our strategy.

as noted above, 500 has invested in ~50 YC companies over the past 3 years. we are likely the 2nd-most active investor in YC after the Start Fund / SV Angel / A16Z / NEA group... however, we pick selectively rather than indexing (altho indexing YC is likely a pretty solid strategy too).

500 is also an active investor in companies that graduate from TechStars, AngelPad, SeedCamp, Startmate, and several other programs globally.

Thomas Korte has done a terrific job with AngelPad, and I'd rank it as highly as 500 or TechStars, perhaps even higher.

but it's true we are all chasing YC's tail currently.

quotable: "We try harder!" - Avis (and, 500 ;)

500 has invested in ~50 YC companies to date. I believe there are about 30 or so in our first fund.

YC has invested in 2 companies that went thru 500 accelerator first (9GAG and Vayable), and also a few others where we invested at around the same time as YC (Scoutzie, Virool, Microryza, Referly).

also, we are investors in ~20 TechStars companies (including Sendgrid), and also ~10 companies each from AngelPad in SF, and SeedCamp in Europe, and StartMate in Australia.

altho we run our own accelerator program at 500, we are frequent investors in other accelerator programs, including several around the world in East Asia, South Asia, Latin America, Western & Eastern Europe, and the Middle East.

actually, the founders of IconFinder made it possible... we were quite fortunate to be investors rather recently.

actually yes, many of our companies generate revenue, and a good number are profitable. in fact we probably have a slight bias for revenue over growth.

btw, our initial investment at accelerator or seed is more like $50-100k, and follow-on investments at Series A/B are between $100-500k. in about 10 companies we hold aggregate basis positions of between $500K-$1.5M.

500 Startups Fund I has ~256 companies, and currently Fund II has ~220 companies (and will likely be around 275 total). out of each of these funds, we aim for perhaps 50+ companies to get to Series A/B rounds led by institutional investors (in which we will also continue investing as well), and from these perhaps 10-20 may achieve larger exits of $100M or more.

as to performance & exit model expectations, our rough model expects that 5-10% of portfolio (~10-25 companies) will do 20x or better, and perhaps 10-25% (25-60 companies) do 3-5X. at a median initial entry valuation of ~$4M, 20x would be an exit of $80M, and 3-5x would be an exit of $12-20M.

so far, 500 Startups Fund I has had about 10 exits in the $5-30M range, and 1 exit at $350M (Wildfire). still private and growing are 5-6 companies that are valued around or above $100M (Twilio, Sendgrid, Taskrabbit, Makerbot, Viki, Smule). we also have about 25-30 companies valued at between $25-$75M that look promising. with luck, hopefully some of these companies will find exits at or above current valuations (tho likely not all of them).

also different from the earlier SV Angel portfolios, 500 Startups doubles down (& triples down) selectively on our top 20-30% of portfolio companies in later rounds. we believe this enables us to weight our portfolio more towards winners, rather than a pure scattershot index strategy.

in any case, it will take a few more years to see if our strategy works, but so far it looks like it's not completely irrational.

(ps - altho they are usually higher valuation, about 10% of our portfolio is YC companies. since median valuation at YC demo day is more like $7-8M, you might have to double the target exits noted above... however we also have many of our own accelerator companies where our entry valuation is more like $1-2M to offset)

yes it does depend on context; probably diff solutions for diff types of restaurants.

that said, can't see how more efficient systems / process would be an inappropriate benefit for almost any of them... even at the high-end, some systems would probably help both customer and restaurant.

yes, and they are probably the best example i'm aware of so far, however i'm not a big fan of their menus... or at least the way they're laid out. like a big selection of movies to choose from, i get hungry/anxious just trying to make a decision. too many good options!

would be great if i could have a few highly-recommended favorites (either theirs, my previous, or friends), and then i can always go "off-road" and dive into the long tail of options if none of those are what i want that evening.

but yes, +1 for CheeseCake Factory.

>>Of course, the "unnecessary" waiting: for a table, for a waiter's attention, etc. are suboptimal

yes, they're very suboptimal. and whether or not it's an iPad that's used to fix the problem, it's probably some type of basic tech. this is the opportunity that i'm talking about.

if you don't experience the frustration of the wait time, then congrats... guess you're not a customer then.