500 Startups breaks its referral-only mantra, using AngelList to accept applications

In the US world of tech accelerators there are basically three major players. Though Y Combinator, TechStars and 500 Startups have their individual differences, one place where 500 has stood out specifically is that it had no application process. Up until today, if you wanted to get in to Dave McClure‘s scrappy accelerator you needed a referral from someone who was already within “the network” of previous startups, mentors or investors. Today that changes as 500 taps AngelList for its application process.

I had a few minutes yesterday to chat with McClure and 500 Startups Partner Christine Tsai. McClure tells me that, in the past, “it felt like people were trying to reach us and we weren’t making it easy being referral only.” Seeing as 500 Startups focuses on a somewhat-different target for the companies that it accepts, it’s important to widen the reach of the company.

In a recent blog post (which is well-worth a few minutes of your time) McClure details how he sees 500 Startups being different from other accelerators, and namely Y combinator:

“500 is ideologically more focused on being an organization that teaches great hitting & fielding, rather than one that aims to find the best hitters & help them negotiate the best contracts. In other words, we’re happy to discover we have a few black swans, but our MISSION is to groom ugly ducklings.”

That is to say that 500 isn’t looking for those people or companies that are the world’s best hackers, which is precisely where Y Combinator seems to land. It is, in fact, looking for people who have tremendous hustle behind them, who perhaps need the boost that being part of a Silicon Valley-based accelerator can bring.

But in that search, the 1-degree reach of a referral can only go so far. So 500 has tapped AngelList in order to use a new feature of the site to open an application platform. For McClure, going this route instead of building its own system just made sense.

“It allows us to do something scalable that we didn’t want to do ourselves. Saying no gracefully sucks. not saying no gracefully and having them bitch at you also sucks.”

Applications open today, for the October class, and run through September 20th at 11:59 P.M. Pacific time. Of those who apply, the field will be narrowed down to 10-20% by the algorithmic ranking tools, then the human element will step in. The 500 Startups team of mentors will cull the flock down to around 5% and the final 5 to 10 companies who will be chosen via the system will be decided by 500’s team of investors.

So what is 500 Startups looking for? McClure paints a very specific picture of the “ideal” candidate. He says that they’d like to find companies that are already operating but perhaps just need a bit more traction. Of course it helps if a company is within the established wheelhouse as well. Fortunately the accelerator has been exceptionally transparent about the types of companies that have been accepeted in the past.

The theme of this recruitment group is “Calling All Monsters”. McClure tells me that 500 is offering a new set of terms for those “monsters” — companies that have already raised $250,000 or more. The normal terms for companies sit at $50,000 for 5% equity, with the option to raise up to $200,000 more in later rounds. The “monsters” will get a break from that percentage, raising money on only 2-3% equity instead of the standard 5%.

Fundamentally, the addition of an application process doesn’t change anything about 500 Startups. What it does, however, is exactly what the accelerator wants — it increases reach. Regardless, it’s an interesting move from 500 to dedicate between 5 and 10 of its precious 30 slots to applicants rather than recommendations. What will be doubly interesting is to see the hit rate difference between the two.

➤ 500 Startups – The Application

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