[TechCrunch Beijing] 500 Startups’ Dave McClure: Should Startups Go Global or Remain Local?

The second day of the Techcrunch Beijing 2014 is well under way, and the first keynote speaker this morning is Dave McClure, founder of  accelerator 500 Startups. He shared with the audience on how startups should decide whether or not to go global or remain in the local market, and dished out advice to potential investors.

According to McClure, the basic criteria to determine online spending in a geographical area or language is a combination of three factors – the number of users, multiplied by average GDP and the percentage of internet penetration. For markets that have access to 50-100 million users (such as Japan) there is no need to go global, said McClure.

On the other hand, small countries with a population less than 10 million (Singapore, for example) with a lack of investors or low valuations should try their hand in larger markets such as US or China.

McClure also highlighted that there is a large growing global market, especially markets that speak English, Mandarin, Spanish and Arabic.

“These languages are multi-country, and often have a young, growing population,” he said, pointing out that while English is becoming the language of the world, languages such as Spanish and Arabic in particular are growing languages with rapid internet penetration as well as growing spending power.

The 47-year-old investor also spoke about what makes a successful startup ecosystem, and stated that Silicon Valley is not so much a venue, but a mindset of optimism and belief, which are essential factors an ecosystem. Other important factors include mentorship and educations, platforms and distribution and an IPO and M&A market.

In terms of investment, McClure advised investors not to treat startups as real estate by pouring a lot of money into a few startups because of the high failure rate. Instead, he advocates taking a portfolio approach, investing in 20-50 startups instead of placing all one’s eggs in just two to three baskets.

“I cannot emphasize this enough, doing this is extremely critical to have a chance at success,” he declared. “Make smaller investments over more companies.”

He also called startup business plans an “unnecessary and distracting evil”, as startups often do yet fully understand their product or customer, and went on to say that he believes business plans are for mature companies who know their market and product well. Instead, he emphasized that startups should focus on functional prototypes.

McClure, who stated that he often looks for startups with a functional product when deciding to invest, rounded off his talk by highlighting that microVC and seed stage investment is a 50 billion a year business, with investment opportunities not only in Silicon Valley but also all around the world.