For startups looking for funding, the Milken Institute Global Conference is not a bad place to be to learn from some of the most creative minds in the venture capital industry. The conference featured a colorful panel discussion entitled How New Investors Are Influencing Venture Capital. SmartBrief chatted with Dave McClure, founding partner of 500 Startups, after the session to hear more of his thoughts on the current VC landscape.
There was a lot of talk during the panel about whether or not we are in the middle of a VC bubble in the US, but you said you are more concerned about China. Why?
I would love to be investing in China. There are great entrepreneurs there, but I think $#!+ is overvalued. It is starting to calm down a little bit now. The public market in China blew up during the last year or so. The private markets are still a little crazy, but maybe that will calm down enough for us to jump in more frequently next year.
Which regions or countries in the world look attractive to you?
Southeast Asia is going great for us. We’ve done more than 100 investments in that market in the last two years and we will probably continue investing at that pace. India is becoming more and more interesting. We’ve done about 65 investments there during the last 4 or 5 years, but I would say we are going to try to ramp that up to at least 20 per year if we can.
In which sectors are you seeing the most activity?
We are doing more and more stuff that is e-commerce, marketplace and SaaS. Fintech is certainly becoming more of an area of focus. We’ve been doing a lot of fintech. I worry a little bit that everybody else is piling in as well, but we are trying to do that in markets that maybe people aren’t paying as much attention to.
Are there any specific areas within fintech where you are focused?
We focus mostly the consumer and small business. Out tagline is: ‘financial services for the rest of us’, with a heavy emphasis on female, millennial and emerging market. It will be around 70% within the US, with the rest outside the US.
What do you think of current landscape for corporate venture capital?
We didn’t get to talk about that much on the panel, but I think there is tons of stuff we can do with corporate. Corporate VC and corporate M&A are growing. M&A may have taken a little bit of break, but corporate VC has probably doubled or tripled in the last few years. They sometimes have a different investment philosophy. It is not always purely return-focused, so a lot of it is strategic. I think that gives some different opportunities for companies that might not always raise big Series-B or Series-C rounds and gives them a different path on financing. We are looking at ways to match up Series-A and earlier stage companies with corporate VC so they can get a little further along the path. We are working on building out an M&A group that will handle some of that business internally.
More and more government agencies at the local, state and federal level are exploring public funding for VC endeavors. Do you have any advice for the people looking to deploy that capital?
Don’t deploy it all into a small number of big funds; deploy it into a large number of small funds. In particular, I would look at creating accelerators, seed stage, Series-A stage vehicles that will deploy capital at the top of the funnel to help create the companies that will eventually get to Series-B and Series-C level.
People tend to feel like they are just going to fund a couple of funds and those funds will sit on their hands because they are waiting for quality deals at the Series-B level. But if you don’t fund 100 deals at accelerator and seed, you won’t get 30 at Series-A and 10 at Series-B, you’ll just be waiting for Series-B forever.
It can certainly be hit-or-miss. Singapore has generally done a great job with engaging public-private partnerships and funneling capital into a lot of different efforts that have been successful. The work that we are doing internationally in Korea, Taiwan and Malaysia and domestically in Miami and Sacramento is aimed at helping them figure out how to do fund-to-fund strategy on a smaller scale. We are working to help them create an overall ecosystem. Not just the top end of the ecosystem, but the folks who do a lot of the small check work early.