500 startups

Everything You Need To Know About 500 Startups – The Complete Guide

Elena Hudgens
By Elena Hudgens 13 Min Read

Dave McClure and Christine Tsai started 500 Startups in 2010 as an early-stage venture fund and seed accelerator. 500 Startups is a venture capital seed fund and startup accelerator based in Silicon Valley. 

He invested in more than 1500 firms in more than 50 countries and received thousands of startups applications each quarter for 30 slots in their accelerator. 

The accelerator program at 500 Startups focuses on design and user experience, distribution and customer acquisition, and lean startup processes and analytics. The investment teams and mentor networks at PayPal, Google, YouTube, Yahoo, AOL, Zynga, LinkedIn, Twitter, Apple, and Facebook have operational experience.

The 500 Startups accelerator is a four-month fast-paced program held in San Francisco and Mountain View. The typical terms for the San Francisco & Mountain View accelerator are $125,000 in exchange for a 5% equity stake, plus a $25k participation fee.

Having access to expert mentors is one of the most valuable aspects of the 500 Startups Accelerator program. 

For critique and support, you’ll have access to the 500 Partners, seasoned entrepreneurs, experienced investors, or people with outstanding industry knowledge as founders going through the program. 

Top domain experts on essential issues like distribution, design, data, fundraising, and more are mentors.

You’ll be exposed to a variety of great speakers, office hours, events, and hands-on mentorship in topics like distribution, customer acquisition, metrics, design and UX, funding, PR, business development, and more from week to week. 

Here is a sample of what happens every week, but it is not exhaustive.

  • Weekly roundtable meetings are held with all hands present to report victories and losses.
  • For assistance and mentorship, direct interaction with appointed 500 Startups partners or EIRs.
  • Breakout sessions by the fire, collaborative lunches, and brainstorming meetings are held every week, along with weekly motivational conversations with successful IT company founders and CEOs (Box and Mailchimp, to name a few).

The above-mentioned points are what happens every week in 500 startups.

What are the types of investments that 500 Startups makes?

One of the first questions people ask me when you talk to aspiring VCs at industry events is what are the necessary skills for entrepreneurs. They think about how many hours are spent working and the expensive mistakes it takes for an early-stage investor to develop their competency in this field. With so much capital chasing fewer high-potential startups as a result of economic factors like inflation, investors must arm themselves with something stronger than gut instinct. 

For those who want to break into the industry but don’t know-how, they can hone in on their opportunity assessment framework (and filters) that allow them to mitigate risk while maximizing returns by determining which startup is worth investing time or money on! So, the following are the points that you should consider while expecting funds from 500 startups.

  • Opportunity Assessment set of criteria or questions that will make you say yes or no to an investment. Opportunity assessments are especially important for VCs and come in handy when evaluating early-stage investments as there isn’t any financial data to project with them. By approaching your evaluation of new investments more systematically, you’ll save yourself some war stories down the road! When they evaluate opportunities for 500 Startups, their goal is simple: they prefer a large portfolio of diverse early-stage companies instead of taking on riskier (but potentially higher return) bets as other traditional VC firms do on Sand Hill Road. In summary – at 500 startups they advocate lots larger portfolios rather than taking risks with just one company!
  •  The team is looking for a cross-functional, talented, and technical staff ready to get things done. What this means is you must have design expertise, engineering skills, and marketing talent in order to be successful on the team.
  •  The product or service should help solve an issue that the target customer faces. In many cases, it will go hand-in-hand with a market shift – so solving their problem would not have been obvious before! 
  • Take notice of capital efficiency; they are looking for companies operating at less than $1M in external financing which has low CAPEX needs or revenue ticking upwards. 
  • A company’s burn rate also matters when they are seeking funding from 500 startups as early-stage investors: if they’re running out of money already trying to raise again then chances are they might already be too late!!! Startups die off because of one reason alone: lack of funds!!

500 Startups like investing in companies with a functional prototype that can be shown, early customer usage, and traction.

They are looking for the company to have some revenue or attractive unit economics trending upwards, and scalable internet-based distribution (search, social media) or proven ability to scale sales.

What kind of businesses do 500 Startups seek?

Ultimately, this is one of the first questions you hear when talking to aspiring Investors at industry events and programs like VC Unlocked. Ask around, and you’ll hear about hours clocked in order to make mistakes that a VC has to experience in order for them to succeed here.

Throw into the mix an influx of capital chasing fewer high-potential startups, it becomes increasingly clear that early-stage investors need something stronger than just gut instinct on their side.

For those looking to break into the industry, this means honing in on their opportunity assessment framework or filters which allow them to reduce risk while maximizing returns.

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However, there are a few things they check for in general:

Strong Team: All significant firms are built on the foundation of a strong team. They often seek out a small cross-functional team with a mix of technical talents, creative talent, and marketing expertise, or at least two of the three.

They are looking for clever, passionate people who can collaborate well and are motivated to solve challenges for a specific customer segment. It’s a plus if the founders have worked together for at least a few months.

Themes of Investment: All of the startups they invest in have a web-based distribution model. They are usually grouped under the following headings:

  • E-commerce for consumers
  • Productivity in Small Businesses
  • Cloud Services and SMB Productivity
  • Tablet + Smartphone (iOS & Android)
  • Payments and Financial Services are two of the most critical aspects of the payments and financial services industries.
  • Education and “Family Tech”
  • Languages, both international and cross-border
  • Food Technology; Healthcare/Wellness

Product: 500 startups have a high preference for companies whose products have been released and have shown some evidence of usage validation (beyond just friends and family). 

The product should solve a problem for a specific target market and rely on scalable distribution mechanisms, such as internet platforms (search, social, mobile, local).

Traction is a proof-of-concept indicator. If the data indicate that things are improving, your chances of being accepted to 500 will increase.

They like businesses that are capital efficient. Uncomplicated and straightforward revenue models are their preferred business models. Examples are subscription, lead generation, transaction/SaaS, and similar services.  

They look for businesses that can get up and running with less than $1 million in investment.

What will you get by participating in the 500 Accelerator Program?

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Mentorship

Having access to expert mentors is one of the most valuable aspects of the 500 Startups Accelerator program.

For critique and support, you’ll have access to the 500 Partners, seasoned entrepreneurs, experienced investors, or people with outstanding industry knowledge as founders going through the program. Talks and fireside chats are also held at the 500 Accelerator.

Top subject experts on vital issues like distribution, design, data, fundraising, and more are among the speakers.

Founders tell us that the most valuable thing they get from their community is support. Starting a company can be solitary and challenging, but working with other people going through the same challenges helps.

500 Startups Network

The 500 Startups network comprises a rising number of founders and mentors. They have a wide range of backgrounds, skills, and locations.

You’ll get access to a growing network of growth hackers, engineers, designers, marketers, and founders from all over the world, including Brazil, China, India, Japan, Russia, and other emerging countries. It’s a close-knit group that actively communicates and supports one another.

500 startups genuinely are a large international entrepreneurial family.

Not only do you get business advice from the 500 networks, but you also have a chance to make useful connections with other companies. Between their official partners and ties to Valley tech companies, it is not uncommon for accelerator programs to build relationships and strike partnerships that they would not be able to do without 500.

Brand and PR

500 Startups has a good reputation as one of the world’s best accelerators. It’s beneficial to associate your startup with the 500 Startups brand.

Their brand allows us to attract a large number of tech investors and reporters to their Demo Days and continue to expand their network.

Funding

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Accelerator businesses receive a $50,000 investment in exchange for a 5% stake in the company. They also invest up to $250k in follow-on investments in firms doing well.

They have a 10,000 square foot office space in Mountain View with a breathtaking view of Silicon Valley.

Being here with other founders will foster a sense of community since you’re all facing similar issues; they know what you’re going through. Each of you may provide assistance, guidance, and encouragement, as well as just support.

It’s been compared to summer camp by previous classes. During your time here, you become pretty close.

You have to build a solid business and then go out there and pitch it. We can provide advice, but getting into 500 is not a guarantee you’ll raise a big round.

Conclusion 

Collaboration, Innovation, creativity, taking risks, having fun, and being authentic are all encouraged in the 500 Startups culture. You’ll be working hard, but it’ll be exciting, fun, and unlike anything you’ve ever done before. 

Each batch has its personality, but the most common outcome of the program is that company within each batch bond and retain strong bonds long after the program has ended.

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Posted by Elena Hudgens
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Elena Hudgens is an entrepreneur with 10+ years of experience. She started her journey by building her own e-commerce website on Shopify and turned her $1000 savings to millions in just 2 years. Soon she started different ventures in which she failed and succeeded. And now, she's on a mission to help other entrepreneurs with her life and business lessons.
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