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So the next guest on stage came on the plane to Europe, ladies and
gentlemen, a big warm welcome for Heather Russell and Dave
McClure. Where are you guys? I can't see you. The lights are
blinding me. Ah, there they are. Yeah, of course. So welcome,
being on Friday at Six Show. I mean main priority of course
when you go to Europe, go to the Friday at Six Show.
Dave: Okay. It's a lot after six now.
Derk: Yeah, it's after six. Are you still looking for that
explanation why it's called Friday at Six Show?
Dave: No, I'll wait. I'm usually late to most things.
Derk: Okay. Me to, excellent explanation. Welcome to the show.
They are here because of Geeks on the Plane. Maybe, Dave you're
the main reason why the Geeks on the Plane is there.
Dave: I'm the main geek.
Derk: You're the main geek. So tell us what the Geeks on the Plane
is?
Dave: Geeks on the Plane is a bunch of geeks, we get on planes, we go
to three or four cities the world and we hang out with other
startups and usually do a little bit of geeking out. We look at
their projects, find out more about what's going on in the local
market and then have some good food and beer.
Derk: Okay. Sounds like a cool concept. Is it working, Heather
Russell because you are in the group this year?
Heather: Yes, it's really great and I'm having a wonderful time. I was
really apprehensive about coming because there aren't that many
women on this tour.
Derk: Okay.
Heather: Also I really didn't know anyone so...
Dave: But that means she's in a position of power so she gets to
choose what's going on.
Heather: I am a CEO. I am a boss, right. So I really think it's great,
the number one thing about it, it's kind of like a mini NBA
because all these guys are geniuses and its learning so much.
Derk: Yes, mini NBA is kind of like Fred Wilson playing this type of
thing, right, with this NBA [inaudible 00:27:04]
Dave: I don't think there's anything at all similar to the NBA and
what's going on [inaudible 00:27:08]
Derk: Okay. Maybe you have to talk about the [inaudible 00:27:11],
bun are you having fun, it is fun?
Heather: It's awesome. You're making deep relationships to really
awesome people so I definitely recommend it.
Derk: Not something to take lightly because it's all about the
relations right, that you build and the matter of time you are
building your products. What we're going to talk about,
practical things later because first I have to properly
introduce these people because they have their own businesses
and now on a trip but they're working on their own stuff and it
also gives you a chance to kind of look at some of the things
are said and done while I'm introducing them because their
online viewers will see, like screen shots of your websites and
looking at things that you do.
So Dave McClure first started his own consulting company in the 90s
and sold it in 1998 and he's a prolific angel investor advisor
and he launched a 500 startup spun in 2010 that until now has
invested in 257 startups, so that's Dave McClure. Any more
applause for that, I mean it's quite an achievement, I think.
Yes. Thank you so much. You're enjoying it, I can tell by the
applause. It's making him all warm. Warmed up.
So Heather Russell is the founder of Rinkya.com and it's a large
middleman shopping service connecting Japan and the world. So
Rinkya was founded 11 years ago.
Heather: Correct. Actually, yes 11 years ago.
Derk: Eleven years ago and was close to $4 million in revenue last
year and allows anyone to bid on items on Japanese auctions
sites.
Heather: Correct.
Derk: This is correct, finally.
Heather: Good job, good job.
Derk: Because, I mean [inaudible 00:28:51]
Heather: I'll hire you as my PR.
Derk: Yes, well, I think you can pay me but okay. But I mean Japan
being in an American startup and then...you lived in Japan,
right?
Heather: Correct.
Derk: Tell us something about your experience there because maybe
some Berlin or German businesses want to go to Japan and
experience what it's like, interact with this culture, what's it
like to do business in Japan?
Heather: Well I don't know if you call it doing business. For someone
like me it was very difficult. I started...I moved there in
2000 and the thing about the Japanese is like a lot of people
like to say, oh they're racists, they don't like other people,
they won't allow anyone else into their club. That's not true,
they're just xenophobic, just because their in a homogenous
society, they're kind of scared of foreigners which...it's kind
of not conducive doing business with them.
And then being a woman is another dynamic to that, so I started my
company there because I didn't want to work necessarily with
that, and so I was able to control my future there. And because
I did that I kind of ostracized myself off and insulated myself
from those nasty things about the Japanese. But knowing how
they are, it's an overt process so you know you're getting so
you know how to take it, deal with it and build around it. So
it was difficult in the beginning, I mean it was a challenge and
when you have a challenge like that it forces you to be more
creative.
Derk: You talk quite explicitly about the Japanese, but why then
Japan because it doesn't sound like the most ideal place to
start?
Heather: Well, if you can make it in the most difficult environment you
can probably make it anywhere so I mean the Japanese...I chose
Japan because I'm a geek, love Japan since I was a kid, a huge
Godzilla fan, loved anime, video games, all that stuff so I was
just in love with the culture.
Derk: But did you have any experience with doing business?
Heather: Yes, a couple times, I mean we were in talks with Yahoo! Japan
auctions. And yeah, that obviously...I and still working at
Rinkya. Yahoo! Japan and never acquired us, partnering up with
us. So it was very, very difficult.
Derk: How big a role does tech lay in this, in your venture?
Heather: We definitely have a technology layer. We're an e-commerce
product so tech is very important for us. So I mean, that's why
I came on this tour so I could learn more...how I can implement
more tech into my business.
Derk: Okay. So what are your main areas of focus in here, when
talking about this technical part in your e-commerce company?
Heather: Well, you know I started my company 12 years ago when I didn't
know anything about startups, actually anything about business.
And quite frankly, I still don't know. However, I'm always
learning so in terms of tech knowledge, I mean, analytics,
recommending things to your customers, trying to be more like
what Amazon does actually, so that's what we're aiming at right
now.
Derk: So an exciting plan. Dave tell us something about 500 Hats,
what's that?
Dave: Well, 500 Hats was originally a website that I started to just
write about experiences in Silicon Valley. I started doing
consulting in the late 90s and early 2000s. I worked at PayPal
for a while, when I left PayPal I started to doing some angel
investing and eventually that turned into the funds of 500
Startups was a fund we created to invest in companies both in
Silicon Valley as well as in other places, as in the U.S. and
around the world.
Derk: I kind of hate this question, but it's so relevant, how big is
the fund?
Dave: Our first fund was $29 million and we're still raising for our
second fund, hoping it to be $50 million.
Derk: Yes, because, I mean to question because it doesn't say
anything about the portfolio you have, but for some kind of
reason it makes, I mean it makes you look a little more
important. Right?
Dave: Yes, I guess so, that's not so much the goal. We're in
business to make money for people that invest in our funds
sometimes that can be done with a small fund or a larger fund.
Derk: Yes, because what is the average that you put into companies?
Dave: Most of our investments are probably between $50,000 to
$100,000 on the first check and then for some portions of our
investment they might be up to $500,000 to $1 million.
Derk: But it is like a portion of 15 to 30, is that enough for
Silicon Valley to get going?
Dave: Our strategy pretty different from most other venture capitals.
A traditional firm invests anywhere from 25 to 35 or 40
companies is over a four year cycle. They probably write checks
in the range of $1 million to $5 million maybe up to $10 million
to $20 million. We do a lot of small bets, so we probably do
250 companies for funds and initially those checks are about 50-
$100,000 and maybe other people investing more money as well.
And our hope is that probably 5% to 10% of the portfolio does
very well and maybe another 25% does pretty well.
Derk: Okay. So the answer is no, but maybe they make it?
Dave: What do you mean in terms of [inaudible 00:34:22]
Derk: Only like the really strong companies survive, in that sense.
Dave: Most companies, most startups, probably fail, probably at least
1/3, maybe up to ½ fail in the first year or two. Maybe if
we're lucky about 1 out of 5 have some positive outcome and
maybe 1 out of 20 might have a very large outcome that's north
of a $100,000,000.
Derk: So, I mean 500 as a goal is of course a lot, so . . .
Dave: That's just the name, that's not the goal. We'll probably
invest in quite a bit more than 500 companies.
Derk: Yes, quite a bit more. So how do you decide to invest in a
company or not. What do you take a look at?
Dave: You know, I usually go drinking with them and if I beat them at
Poker I don't invest. No, we do have some type of process.
Usually what we're looking for is a team that has some
engineering skills, maybe some design in marketing skill. We
like to see that there's a functional product that's already
been built it doesn't have to have a lot of customers, or usage,
but at least demonstrates that they can build a product, and
then we want to understand how they money and at least have a
good idea of how it can make money. Then we usually make
decisions somewhat on gut and then 6 to 12 months later we find
out whether we were right or wrong or not. And then if we're
right we keep investing in the company and hopefully we find a
few that work.
Derk: And why you think it's fun to look at all these proposals,
because they're so early stage, I mean, looking at them
[inaudible 00:35:52]
Dave: It's not always fun.
Derk: Okay. Tell me a little bit about that because you have to
decide really quickly?
Dave: Well, we have a large network of founders and mentors that help
us make decisions so at this point, probably over 6 or 700
people that refer companies to us. So usually we like to see
that they have strong opinion about the people involved. Then
again, we'll still be wrong about a lot of the times. But that
helps us decisions faster and easier.
Derk: So do these startups some advice from you or how do you divide
your time to all these startups?
Derk: Yeah, well. It' not so much based on our time, we have a group
of people that do investing but we also try and build a network
of people that provide various skills and services. So we spend
a lot of time building relationships with companies in the
Valley like Facebook, and Twitter, and Google. We have a lot of
people from those companies that help mentor our companies. The
three areas we tend to emphasize a lot are design, engineering
and marketing. Then we're just trying to help the companies get
to a larger milestone where they can raise more money at some
point.
Derk: Because, I mean the basic question that a lot of people will
ask themselves, and I'm just going to pose it to you, isn't 500
just...no, it isn't to many. Why not take a couple of them and
devote all your time and go all the way with them? It also
sounds a bit easy, you know, just pick. It seems like
mathematics. Now startups are not [inaudible 00:37:20] managed,
right? I mean there's a lot of passion and heart in it.
Dave: Actually, startups are quite a bit of mathematics and actually
if you look at how traditional venture capital being done today
their performance is pretty poor so I think looking at how we've
been practicing the professional the last 20 years you'd
probably draw a conclusion that you should change what you're
doing, not continue to do the same thing that brings bad
results.
But, let's take your example a little further. Suppose I was a
professor teaching a student, do you assume that someone that's
teaching a class of 100 people are they spread too thin or is
there actually a benefit of teaching classes in larger groups.
Let's say the example that I'm a doctor performing a knee operation.
Now do you want to get your knee operated on from someone that
forms that operation five times a year or 50 times a year, or
500 a times a year. There's certain professions where having
practice you do in volume or scale adds to your skill and
capability. And many things where time is not the dependency
where you can actually scale a better and the more companies
that are in there that greater that community might be and
actually provide more chance for success.
Derk: But you also wrote a blog post about this, about the black swan
forming of the Y Combinator like other incubator programs do and
they pick a couple. Also TechStars does the same. When I read
this book post I thought, okay. You saying will never be like
the New York Yankees, like the super sexy. But everyone wants
to be liked, but the top of the bill, right? You don't want to
be mediocre, you want be than best [inaudible 00:38:45]. Why
don't you go for that, it seems so...you're calculating over it.
Dave: I certainly am not planning on being unsexy. I'm trying to be
successful in a different way, but if you're not realistic about
where you are in the market and what your current skills set is
then you're selling someone a line of ***. I think you
[inaudible 00:39:06]
Derk: Is there a lot of *** in the world of startups and
incubators?
Dave: There's a lot of *** in any profession. And I think
understanding where you have skills to add and where you can be
accurate about the situation is helpful. I think that everybody
claiming to be the best is not necessarily going to be helpful
and understanding what your different skill set, where you can
be good at. If you're a basketball player maybe you're not the
best dunker, maybe you're a great passer. Maybe you're not the
person that's going to be running the fastest, but maybe you can
figure out how to get there in the shortest pass. There's lots
of ways to win. And understanding which way is the best way for
you and your skill set is important.
Derk: How could you describe yourself...how do you want to be
remembered in that sense, and what do you want your legacy as an
incubator?
Dave: I think part of the areas where we try to emphasize is doing a
lot of investments in a diverse set of regions, so
internationally we've been focusing on investments in Brazil and
Mexico and India. We've actually done probably over 60 or 70
investments around the world. We've also focused a lot on
investing in women founders, we think that's been overlooked
category, so we think that diversity approach is actually
strength and that's two areas that we spent a lot time
developing relationships.
Derk: So Dave McClure as an incubator is diversification?
Dave: Yes, I think we would choose a few other things, ways to
differentiate ourselves. So we're probably not the most
buttoned down and traditional VC. We tend to be a little bit
more hustle then the average investor and we think that stands
out.
Derk: Okay. You are also talking about women in tech. I mean Heather
is here next to you. We heard Lydia Benko of Corporate finance
Partners say no. Emphasizing that is also [inaudible 00:40:55]
as such as being a woman in tech advertising is a bit of
***. Heather, what's your take on that?
Heather: I don't like to peg myself as a woman entrepreneur. I like to
peg myself as an entrepreneur. And that's what it's about.
Dave: What would you say then to these movements who go to organized
meetings for just girls? Girls in tech should be acknowledged
to be more focused on women in tech.
Heather: Well, I mean, I think whatever you're doing to promote
entrepreneurship is fantastic and I'm not going not hate on
anyone, I'm not one to judge what you're doing and what you're
not doing. That's all on you, good luck, kick ***. I think one
of the main problems in tech is that you have men in tech
designing products for women and that doesn't work. It's an
inherent problem with the industries so I think women should be
designing for women or get some women on your team and keep
positions, not serve the damn drinks at the meetings. I mean
that's what's going on in Japan and that's what women do in
meetings, they serve tea so I mean it's unfortunate I think the
problem is like I said before, in Japan it's overt. You know,
hey, this is what it is. But in the U.S. or even in Europe,
it's covert.
Derk: Which companies did you visit today as part of as Geeks on a
Plane, here in Berlin?
Heather: We visited [Rocket Internet]...
Dave: We went into [inaudible 00:42:29] then . . .
Heather: G...
Dave: General Electric.
Derk: Okay. So...
Dave: General Electric is a small startup, you might not have heard
of it.
Derk: Yeah, right. Yeah, that's famous indeed. Also their
management sucks I have heard. So visiting these companies in
Berlin, and Heather, what was your impression?
Heather: I love the Germans in general because they're very similar to
the Japanese, you know what you're getting. I mean it's,
everything's on time, everything's perfect, everything goes
without a hitch. It's very comforting so it reminds me of Japan
actually, so it's nice, in that respect. In terms of the
technology I think it's really fascinating what's going on in
this community. It's a mixture of technology, art, music. It's
just, and then you have this underlining current of . . . we
grew up in the 80s with like the Cold War and socialism, were
seeing this underling current they used to be there so it's
actually quite fascinating to look at that.
Derk: Dave you've also been to Rocket Internet do you know that's
Rocket Internet is much criticized for photocopying design, for
example Amazon, doing, trying to do an exact copy cat by
photocopying Pinspire, for example. What is your take on that
because you visited Rocket Internet today.
Dave: I think you can't argue with the fact that they pretty
successfully building a very large set of businesses and a
multiple variety of places around the world, so one thing I
observed is that they've been very good at an operational
capacity and a wide variety of global areas. That's probably
because a lot of U.S. entrepreneurs have been, frankly, very
*** at building international businesses, so I don't think
they should be faulted for taking at an opportunities that are
available.
I do think that maybe, after looking at the types of business that
they built. They're extremely similar to maybe other
businesses. That might be [inaudible 00:44:35]
Heather: Down to the slides.
Dave: So , I probably wouldn't choose to do that line of business,
but again, I think they've developed a set of companies that
have been quite successful.
Derk: Is it true that because of Rocket Internet companies in the
Valley now pay more attention to international organizations
because of the fact that they hate the Rocket Internet guys that
much?
Dave: I think that's a little over stated, I think...
Derk: But there is some truth some of that?
Dave: Yeah, I mean the facts of the matter are like 10, 20 years ago
it was very easy for U.S. entrepreneurs to say let's focus on
the U.S. or the English speaking countries is because if they
were focused on the U.S. that's 80% of the English speaking
market, even with many other places it was like half of the
market and so if you're growing your own business 20% or more
per year it doesn't really make sense to focus on a variety of
international markets.
I think the playing field changed, now you have very large blocks,
like EU, you have India and China and incoming up you have
Brazil so the playing field is not the same, there's lots of
people conducting business in English, there's' lots of other
places that have big economic areas so I think if you planning
to be a global entrepreneur you can't just afford to focus only
on U.S. or only on English.
So I think a lot of international entrepreneurs probably have an
advantage over U.S. entrepreneurs given that's the strategy.
You see companies, guys that made Angry Birds came out of one of
the Nordic countries and they are a global business right away.
Skype was a global business right away. So I think we frankly,
U.S. pass the catch up in understanding what the playbook like
when you're trying to build a global business. Look at,
frankly, Mandarin, Spanish, Arabic, languages that are going to
be global languages for 20, 30 years out.
Derk: Okay. Last question for you Dave, I want to ask you to listen
to some pitches that we are going to have later on, to judge
them if you want to. I think, people like you that have a lot
of influence in this whole scene a lot of the times like the
normal questions are forgotten so I think this question I have
to ask, what kind of developments do you see that interest you
in tech scene?
Dave: That's like what's hot and sexy these days?
Derk: Right.
Dave: Actually we've been looking at education in topics and parent
and family and kids, as kind of customers. I think, with the
introduction of the iPad the last few years we're seeing a
really great device for teaching kids. I have a five-year-old
and a seven-year-old, and it's much easier more natural for them
to use those devices. They all have credit cards attached to
them, at least in the U.S. So there's really big opportunities
to disrupt and breakup traditional education methods by building
applications targeted for kids, sometimes those are games, some
are for education.
And we think that's a global market, so I think really figuring out
how you can build education, and opportunities to help parents
and families connect with kids is another member of the family
that's really important and frankly it's a big *** business.
Derk: Thank you. Guys if you also want to have a Friday at Six Show
in a city somewhere in Europe just because you think it's fun to
hang out with each other in an office and to chat a little bit
about a tech. Please don't hesitate e-mail Friday at Six at
info@FridayatSix.com and we'll just come to your city. We might
have to talk about some details but in general we can also come
to your city. So after the music we're going to listen pitches
and one of them actually deals with the field of education. So
Dave who is going to comment on the pitches and on the ideas is
probably very interested in that. So Ashley.