Following Sam Altman’s commitment to offer follow-on investments to all companies that go through Y Combinator, McClure says 500 Startups has a different approach:
We make follow-on investments when we think we are going to make money and we don’t when we don’t think we are going to make money. It’s pretty simple. I think if other investors are worried more about my opinion than they are about the company’s performance, there is already a problem. I recognize it happens but that’s just part of the market. We generally wait until after Demo Day and after they have a term sheet from another investor. Signaling is important before Demo Day but we don’t worry about it after Demo Day.
McClure says 500 Startups does follow-on investments for 20-30% of its companies.