If you were to ask a bunch of Silicon Valley venture capitalists if they'd invest in a startup that had projected revenue of $1 million in revenue in three years, you'd likely get some raised eyebrows. At the same time, many entrepreneurs - fully aware that VCs want big numbers - also find it difficult to put any number in the revenue line of their business model spreadsheets that's under $25 million in the third or fifth year.

Yet, the majority of companies, I'm assuming, don't even reach $10 million in revenue by then.

So, when an investor says that he's willing to invest in a startup that can generate revenue of $1 million to $3 million in its third year of operation, and have a post-money valuation of $10 million, it's a refreshing sign that the startup game isn't just about homeruns.

Dave McClure is a pretty familiar face in the Valley. To that end, most people probably think Dave "only" invests in homeruns, like his fellow early-stage investors. But most people are probably clueless to his philosophy, which differentiates him from other investors. It all comes down to expectations. 

When I asked Dave what differentiates his 500 Startups fund from Floodgate or Greylock Discovery Fund (both of which are targeting seed- to early-stage startups), he said the real difference is in outcome and expectations. 

"We're more open to busineses that don't have to be homeruns," said Dave, explaining that the M&A market has changed in favor of more exits. A lot more non-tech public companies that are consumer facing will feel a lot of pressure to understand online channels, search and mobile. They'll be willing to spend $50 million to $100 million to acquire that knowledge, he said.

In our interview, Dave talks about what a startup needs (financially) to be in that position. He also talks about the business models he likes to see. For instance, he says companies with anywhere between 100,000 and one million users paying between $5 and $50 a year are well positioned to be acquisition targets. Additionally, Dave talks about the areas of investing he's interested in, such as education and small business tools.

Check out our interview and listen to Dave explain his philosophy. As I said in my other interview/post, it's heretical, but commonsensical.