When 500 Startups says it’s the most-active investor in Silicon Valley, it’s not kidding. In four years it’s completed 800 deals and deployed around USD100m. The programme just ramped up to accelerating around 120 companies per year. With an outpost in Latin America and a strong focus on international teams, 500 Startups is investing at the very forefront of tech innovation in all corners of the globe.
In the latest of our pieces on startup accelerators, StrategyEye catches up with venture partner Sean Percival at its Mountain View headquarters to find out what makes 500 Startups tick.
¤ 500 Startups covers a broad range of sectors, but you’re particularly interested in bitcoin?
Yes very, there were five in the last batch. That’s my focus and so that’s where most of my investing is around.
¤ What stage are we at with bitcoin?
The hype is outstripping use. There are only 1m holders of bitcoin right now worldwide. That’s small. Right now it’s more about infrastructure and on-boarding. If bitcoin is the internet, this is 1993 - when there’s a lot of talk and interest, but people don’t know how to use it.
¤ Will it stay niche?
I hope not. If it’s a niche then we probably won’t keep on investing in it, but it’s going to take two or three years until there’s widespread adoption. We’re investing in the early stages of the ecosystem so that when the adoption comes, those services and companies are there and willing to support and build a product.
¤ Are any fin tech sectors overcrowded?
Lending got overcrowded for a while there. Payment processing has ups and downs, but it’s big. Stripe is the big one that’s come out of here recently and that’s where bitcoin is fitting in because it’s a very efficient means of payment processing and so it’s cheaper, faster and better than a lot of companies out there today.
Fintech is very mature, there are large companies that are pretty deeply entrenched. They’re all using technology that’s 40 years old so we’re trying to bring new concepts, new people. We work with a company called Simple. Their idea was to make the very simple bank – low fees, easy to use, they were bought by a very large bank too. A lot of these smaller fintech companies will be sold to a bigger fintech company looking for more staff or some innovation in product.
¤ In the UK we’re seeing more partnerships, is that happening here?
Not as much. Banks are slow. They’re not really excited about bitcoin yet and they are mostly concerned about it because of the legal issues and money laundering and so forth. Big banks are dealing with trillions of dollars, bitcoin is only USD7bn. Most of them are taking a wait-and-see approach. There’s a great quote that says, ‘big companies do not want innovation, they want the status quo with better margins’. That’s where they’re at. They aren’t keen to work with startups and they do not want to give away their business that they’ve been building for the last 20 years and have ownership of or a monopoly on.
¤ What about consumers?
There are people thinking they don’t want to pay fees or wait or go through a long process. Consumers are more willing to try new apps, whether that’s sharing a payment at a restaurant or something like that. They’re willing to try new ideas with a high interest in sticking around to see what happens. PayPal was a crazy idea when it first launched, but everyone knew it was different and new and potentially better and it just took off. Consumers are a lot more willing to test things, especially millennials. They don’t want to go into a bank and talk to anyone.
¤ Is there still room for innovation?
Definitely. Most of these companies and banks are so old and nobody has challenged them. Now these companies can challenge them for less capital. It used to cost USD10m to launch a startup, now you can do it with USD10,000. The barrier of entry is much lower so we’re seeing many more companies willing to challenge a big bank or financial system.
¤ The US startup scene is very mature. Does that make it harder to gain ground?
There’s a lot of noise and competition. The only place it’s difficult is acquiring technical talent because it’s really hard to find and if you’re a startup you don’t have much money. You’re competing with Facebook and Google and they’re giving offers that are just huge, like a quarter of a million a year. It’s a fight out there. But the nice thing is that there’s so much opportunity, there are so many investors. If your idea doesn’t work there are a lot of opportunities to sell to a bigger company.
¤ Is there a positive attitude to failure?
Failure is definitely okay. Investors here sometimes love when you’re on your second or third business, even if the first two fail, because you learn so much. The reason I’m here is because my startup failed. Failure is okay here and it’s encouraged. We’d rather people take a risk than not. There is an ecosystem that supports it. If you’re talented you’ll always get a job. If your company does not work out there is a long list of opportunities for you.
¤ Can more be done to boost tech talent at universities?
Probably earlier. Grade school never teaches you anything you really need like balancing your cheque book or buying a car or anything real. Teaching people how to code and write a business plan – these are valuable lessons they could teach at an earlier age. There are a lot of entrepreneurs that don’t go to college. I never went - a lot don’t because they’re doing so well and they just want to build their business. To us, we’d rather you took USD100,000 to build your business than get USD100,000 into debt going to school and having to learn it all anyway.
Going to lower income and minority communities that don’t have as much access to computers or programming skills to teaching them would help infuse the talent pool a lot more.