Excl: Smaller funds allow smaller cheques: Dave McClure & Paul Singh of 500 Startups on micro funds

27 Nov, 2012

Silicon Valley-based incubator-cum-seed fund 500 Startups is looking to ramp up its regional investments with micro funds. The firm is in the process of raising two micro funds, believed to be for India (500 Startup Wallah) and Mexico (500 Luchadores). While the interest in India is not surprising, given the investment group's recent activity in the Indian startup ecosystem, what surprised us was the small size of the fund (just $5 million each for the micro funds). caught up with 500 Startups' top executives Dave McClure and Paul Singh, as well as Pankaj Jain (who is now directly responsible for Indian investments) at the GSF Super Angels Forum 2012, to know more about their plans for Indian investments.

Although the executives declined to confirm or deny whether 500 Startup Wallah would be focused on India investments, they have shared that the idea of generating a micro fund is to write more cheques of smaller quantum.

"Smaller funds allow smaller cheques – that is the underlying economics of the concept," said Singh.

"Our main fund is worth $50 million and it is really difficult to get the economies right if we want to write a cheque of, say $25,000. So these smaller funds help in such a scenario," he added.

So we get an idea of the ticket size of investments that 500 Startup Wallah could be looking at in India. This could also mean backing more pre-revenue startups and betting on business ideas which would boost the startup ecosystem in India. Till date, such small-ticket investments have been largely limited to angel investments in the country and this latest initiative would provide local entrepreneurs an alternate avenue to look for funds besides the existing angel networks.

According to McClure, the local fund would act more like a predecessor in the investment cycle with possible follow-on round from the main global fund.

Watch this space for transcripts of the full interaction.

(Edited by Sanghamitra Mandal)