VC Fund Secondaries Unlocked | Dave McClure | Superclusters | S3E2

Jul 8, 2024

In this discussion, Dave McClure, a Silicon Valley entrepreneur with over 25 years of experience, shares his journey from near bankruptcy at Aslan Computing to founding Practical Venture Capital. He dives into the undervalued risks of secondaries and outlines his innovative three-bucket method for valuing companies. Dave highlights the importance of education in secondary transactions, the dynamics of LPs selling stakes, and his quest for quicker liquidity in venture capital. He also reflects on missed investment opportunities and the lasting impact of the PayPal network.

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ADVICE

Use A Three-Bucket Triage

Triage portfolio companies into unicorns, centaurs, and horses before pricing a secondary deal.
Anchor price on the likely unicorn(s) and heavily discount small, low-exit-probability assets.

INSIGHT

VC Portfolios Become Concentrated Over Time

VC portfolios show a power-law where one or two companies dominate value by year 7–10.
That concentration makes late-stage underwriting hinge on a few core assets.

ADVICE

Ask Why Sellers Need Liquidity

Expect non-institutional LPs to seek liquidity earlier for life reasons and plan outreach accordingly.
Ask sellers why they want liquidity to assess urgency and price sensitivity up front.

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Dave McClure has been a Silicon Valley entrepreneur and investor for over 25 years. He has invested in hundreds of startups around the world, including 10+ IPOs and 40+ unicorns (Credit Karma, Twilio, SendGrid, Lyft, The RealReal, Talkdesk, Grab, Intercom, Canva, Udemy, Lucid, GitLab, Reddit, Stripe, Bukalapak).

Prior to launching PVC in 2019, he was the founding partner of 500 Startups, a global VC firm with $1B AUM that has invested in over 2,500 companies and 5,000 founders across 75 countries. Dave created 20 VC funds under the 500 brand and invested in 20 other VC funds around the world.

Dave began his investing career at Founders Fund where he made seed-stage investments in 40 companies, resulting in 4 unicorns and 3 IPOs. He led the Credit Karma seed round in 2009 (acq INTU, over 400X return). His $3M portfolio returned more than $200M (~65X) in under 10 years.

Before he became an investor, Dave was Director of Marketing at PayPal from 2001-2004. He was also the founder/CEO of Aslan Computing, acquired by Servinet in 1998. Dave graduated from the Johns Hopkins University (BS, Engineering / Applied Mathematics).

You can find Dave on his socials here:

Twitter: https://x.com/davemcclure LinkedIn: https://www.linkedin.com/in/davemcclure/ And huge thanks to this episode's sponsor, Alchemist Accelerator: https://alchemistaccelerator.com/superclusters

OUTLINE:

[00:00] Intro

[03:37] How did Narnia inspire the start of Dave's entrepreneurship?

[08:32] On the brink of bankruptcy

[11:42] The lesson Dave took away from his first acquisition

[13:19] What did Dave do that no one else did as a marketing director?

[16:06] What do most people fail to appreciate about secondaries?

[22:31] The 3 bucket method for secondaries

[28:46] How much do fund returners matter for secondaries?

[33:01] When do LPs typically think about selling fund secondaries?

[42:04] What are two questions that Dave asks to see if a portfolio is good for a secondary?

[46:10] Why is it complicated if a GP wants to buy an LP's stake?

[55:03] When do most funds return 1X? 2-3X?

[57:13] Underwriting VC vs PE secondaries

[1:01:49] How do institutional LPs react to VC secondaries?

[1:07:01] The founding story of Practical VC

[1:15:36] Closing Josh Kopelman in Fund I

[1:18:47] How often does the PayPal Mafia get together?

[1:23:49] What's the most expensive lessons Dave learned over the years?

[1:27:38] Thank you to Alchemist Accelerator for sponsoring!

[1:28:29] If you enjoyed the episode, would deeply appreciate you sharing with one other friend! Follow David Zhou for more Superclusters content:

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