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After a Sex Scandal, 500 Startups and Its Former CEO Plan Their Next Acts

Lizette Chapman
After a Sex Scandal, 500 Startups and Its Former CEO Plan Their Next Acts

(Bloomberg) -- Outspoken tech investor Dave McClure helped fund 1,800 early-stage companies in 60 countries as the chief executive officer of 500 Startups—until he stepped down two years ago in a sexual misconduct scandal that roiled the industry. Now, both McClure and the VC firm he co-founded are taking steps to rebuild themselves, this time without one another.It was 2017, when McClure abruptly resigned from 500 Startups, retreating from the spotlight amid allegations from women that he’d behaved inappropriately. He acknowledged he’d made advances toward multiple women in work-related situations in a since-deleted blog posted titled “I’m a creep. I’m sorry.” He handed the leadership reins to his 500 Startups co-founder, Christine Tsai. No legal action was taken against McClure or the firm.Today, McClure is working on a second act, albeit a lower-profile one. He’s raising a new fund to invest in other venture firms worldwide, according to two people familiar with the plans. McClure declined to comment for this story.

With the working title Practical Venture Capital, McClure’s new effort will be vastly different from the early-stage venture work he built his career on, said the people, who asked not to be identified because the matter is private. The new fund is designed to purchase stakes in smaller funds, sometimes called micro-venture capital firms and also buy stakes from those funds’ investors when they’re seeking liquidity. The initial target for the fund is $100 million, although the final amount could be larger, the people said.McClure is the latest in a string of male venture capitalists unseated in the #MeToo movement who are now attempting to re-enter the industry by starting a fresh venture fund. Fred Destin, a former Accel and Atlas Venture partner, moved to Europe and helped raise more than $50 million for a firm called Stride.VC last summer. In 2017, a startup founder accused him of making unwanted advances at a party several years earlier; Destin said at the time he misread the situation and had never used his position as a VC in an inappropriate way. Steve Jurvetson, who parted ways with Draper Fisher Jurvetson a little more than a year ago, raised a new $200 million fund called Future Ventures last month. Jurvetson had stepped down amid misconduct allegations, which he strenuously denied.  The VCs follow other public figures accused of misconduct, including comedian Louis CK and Pixar co-founder John Lasseter, who have made controversial bids to reclaim their careers.

500 Startups, meanwhile, is adjusting to its own post-scandal reality—without the leader who helped propel it to prominence. Started by McClure and Tsai in 2010, 500 Startups has stakes in Twilio Inc., Credit Karma Inc., Signapore’s Grab and seven other companies each worth more than $1 billion, in addition to having a stable of portfolio companies notable for its female and international founders. By the time McClure left, 500 Startups’ fund and accelerator had 150 employees.

But recently, it has slimmed down its operations, Tsai confirmed to Bloomberg. The firm laid off what she described as a “handful” of people. Its Japanese division also recently broke off as an independent venture.

“We decided to make some changes to our back-office departments in order to better scale the firm, which means a small number of people leaving the team,” she wrote in an emailed statement. “We are also actively bringing in new hires for other departments.”

Tsai declined to elaborate further on the job cuts, saying only that it was part of a new chapter for the firm, which included last month’s promotion of longtime employee, Tim Chae, to be the fourth general partner. “I’m excited about the year ahead,” Tsai said in the statement.

Despite its place in the VC firmament, even before McClure’s departure, 500 Startups had struggled to raise its fourth fund in 2015. It lowered a $200 million target to $150 million in 2016. By September 2017, a few months after the scandal, the fund had raised just $62 million of that amount, according to the most recent filing with the Securities and Exchange Commission.

Today, 500 Startups is raising fresh investment for its fifth global fund, expected to be the firm’s largest ever, according to a person familiar with the plans who asked not to be identified because process is private. Tsai declined to comment on the fundraising, per SEC regulations, but told Bloomberg TV last year that Abu Dhabi Financial Group would be the anchor investor. The Middle Eastern investment management group took a minority stake in 500 Startups and joined the board last year.

To contact the author of this story: Lizette Chapman in San Francisco at lchapman19@bloomberg.net

To contact the editor responsible for this story: Anne VanderMey at avandermey@bloomberg.net, Alistair BarrMark Milian

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