Dave McClure’s Investment Thesis

I’ve been a fan of Dave McClure since I met him some time ago. He has strong opinions, he shares them liberally, spices them up with foul language, and finds himself involved with a lot of interesting entrepreneurs and companies. In a nutshell, he’s my kind of investor.

Yesterday he outlined his investment thesis on his blog. I’ve heard this thesis verbally from him a few times now, but I am so happy to see him write it all down for everyone to see. If you are a web/mobile entrepreneur, go read it.

Dave clearly articulates the new realities of tech investing. Here is the way he puts it:

Fast Forward to Twenty-Ten, and let's take a look at these fundamentals, with a specific lens on the consumer market & internet startups:

•    PRODUCT now typically means a website or service, run on low-/no-cost open source software, hosted in the cloud on low-cost servers, developed in a few months (or a WEEKEND!) by a small team of 1-5 developers, who continuously test & iterate in real-time with online customers

•    MARKETing now typically means using a variety of online distribution channels via paid & organic search (SEM/SEO) on Google, viral/social amplification on new media platforms & social networks like Facebook, Twitter, & YouTube, and the quickly-growing mobile platforms of Apple iPhone & Google Android. With the exception of search, most of these distribution channels didn't exist 5 years ago, yet they now easily reach over 100M-500M+ users, with very low cost and measurable marketing campaigns such that even a small team can reach billions of people globally.

•    REVENUE can now be collected easily via a variety of online payment, transactional e-commerce, digital goods, subscription billing, lead generation, CPM/CPC/CPA advertising.  Many people buy things online now, and many companies are even bought for usage & users ahead of revenue.  

Longtime readers of this blog will recognize all of these themes but even so, I like the way Dave lays them out. The world has changed a lot for tech entrepreneurs and VCs are adapting to the new realities. Some VCs will adapt. Others will decide not to raise another fund, spend the next five to ten years winding up their older funds, and then retire.

Dave’s thesis is different in some ways than our thesis at Union Square Ventures. We are not as interested in smaller revenue focused companies that aim to be sold for $25mm to $50mm. We’d like to see our portfolio companies aim a bit higher than that. Even so, we will certainly end up with more than a few companies that will sell in that range. That is a successful outcome for us too if we can own 15-20% of the business and have less than $5mm invested, which is the case for many of our companies.

We tend to favor big networks of scale, like Etsy, Meetup, StackOverflow, Twitter, Zynga, Foursquare, Indeed, Tumblr, Disqus, among others. We believe that there are going to be a lot more opportunities like these that we can invest in.

But regardless of whether you are Dave McClure or Union Square Ventures, you need an investment thesis and you need to stick to it. And I believe that you need to make it public, articulate it well, and make sure everyone, particularly your target entrepreneurs, know what it is and why.

Dave did that yesterday and he did it well. Kudos to him. I think it will serve him very well.