You would have heard about a third generation entrepreneur, but unlikely to hear about a third generation venture capitalist. Tim Draper is one. The co-founder of Silicon Valley's venerable venture capital firm Draper Fisher Jurvetson has an unusual family background. His grandfather Gen. William Draper Jr. is the founder of a Mississippi venture firm. His father William Draper III was also a venture capitalist.
Draper, a Harvard Business School graduate and a former investment banker, co-founded DFJ in 1985, and has ever since backed over 500 companies such as Hotmail (acquired by Microsoft), Baidu (went public), Skype (acquired by Ebay), Overture (acquired by Yahoo), and Parametric. Draper is a maverick VC and can be likened to another maveric businessman Richard Branson. Draper has not hesitated to turn up in spacesuits and batman costumes at parties. Draper was in India on a recce last week. VCCircle's Sahad PV caught up with him in Mumbai for a quick chat.
Can we call you the Richard Branson of venture capital?
Thanks, that's a huge compliment. He is one of my real heroes. He has figured out a few things very well. One is branding. Every single thing he does seems to brand his business Virgin. Even I like to focus on branding for the companies and little bit for ourselves too.
Do you think DFJ is a branded VC? You have been tying up with two dozen funds attached to a common brand of DFJ. Is there anything you want to share on how to brand a VC?
I learnt from a friend of mine who died recently that a brand is more than a logo. Our logo is a delta and a globe, which is about changing the world. A brand is about how you treat your customers, investors, entrepreneurs, and how you treat your employees. A brand is who you work with, how you act and is that something that create a perception of you and your business. We do better due diligence because we have a good sense of what is going in the other parts of the world before making an investment. We have got good partners who can help make introductions to people around the world if the entrepreneurs need them.
There are other branded VCs such as KPCB and Sequoia. Also VCs build their brands as their investee companies' success have a rub-off on them. DFJ has Skype, Hotmail, Baidu and others. What is the key to become a VC of choice?
We do get reflected glory of our entrepreneurs when they become big such as Skype, Baidu, Parametric. They all became very glamorous and successful and are household names. They built extra-ordinary brands in very short time-periods. So our brand has to take reflected success and as a result it takes a longer time to spread. It spreads among a group that matters to – investors, entrepreneurs and potential customers of entrepreneurs.
I actually had a hand in spreading a brand far and wide using viral marketing (Editor: Draper played a role in spreading Hotmail via viral marketing). However, I haven't figured out how to create viral marketing for venture capital business. But that kind of a thing can spread a brand very quickly and efficiently without any marketing dollars.
We have done a lot of creative things at DFJ to spread a brand. We are the first Silicon-valley based venture capitalist to invest internationally, to try doing a public offering of fund and the first to create a network of affiliates. We have tried a lot of new exciting things and some of them have worked and some not. People know us as an innovator, leader, pioneer and I think that helps solidify our brand.
You talked about viral marketing. Hotmail was the earliest email service. But it has not been able to retain the edge despite its first mover advantage. Gmail now seems to be the fastest growing email application. So how do you retain your edge?
When Hotmail was sold to Microsoft we could no longer focus on building a business for the long term as we were out of it. Baidu is a little different , we have an opportunity to help out as and when we can. That business has not been sold to anyone and hopefully never will. It has a chance of being one of the great businesses that lasts for 60 or 100 years. And if you can build something to last that long, it's really an extraordinary thing. Once it's sold off, the acquiring company does not want the acquiree board to stay in there and allows the acquirer to take it forward in the way they want.
Do you think established companies like Microsoft acquiring game-changing startups like Hotmail and Skype could halt innovation?
It all depends. I think Microsoft did a fine job of taking advantage of the real strength of Hotmail using viral marketing. That was one of their greatest marketing tools and suddenly they could reach hundreds of millions of people. I would have taken it in a slightly different direction but I still think they did an extraordinary job.
For an acquirer of a business it is always a little tricky. eBay has taken Skype in a direction that I am not sure I would have taken in , they are clearly doing the kind of things that they need to do make it successful.
Sometimes a company makes an acquisition and do things that they think are going to work for them, but they work against them. Sometimes it's the structure of the deal that actually messes it up. But on the other hand there are some companies that really know how to acquire companies and to make the most of them. Cisco is one of them. Cisco acquired a company and they immediately turned that operation and they rolled it out in a really beautiful way which all made sense. They have done that over and over again now.
You had earlier talked about two misses that you had – Google and Yahoo. Google is interesting as you had already funded six search engines and your partnership did not approve of the seventh.
You never know if it would have worked out exactly the same way. Different people do different things and different boards make different impact. It's (Google) a great company though, and I really admire the guys who were able to make it successful.
Before Google, Microsoft controlled the online/tech space. Yahoo too could not retain the edge. So how long do you think Google will maintain its online supremacy? When will another world changing application come and takeover Google?
Well, I would not be surprised if Rediff and Baidu ended up being bigger than Google because they are working on a larger base of people. And as the population becomes free and more tied to the free markets, I think that is when each and every person in India and China will become equivalent to a person in the US in terms of market.
There will be another Google, a bigger Google and another bigger Microsoft and I will tell you why. Because the world is more interconnected no than ever before, there are many more computers and mobiles on the planet now. And anybody who comes up with something extra-ordinary will have a faster opportunity to proliferate.
Do you have a sense of what kind of company will that be?
If you have a great new application for cellphone and the carriers figure out how to work with that company. There is a huge opportunity there.
The global economy has taken a downturn. The funds are worried if they will be able to raise money, the startups are worried if they will get money. What's your take on this?
The sad part is that there will probably be venture funds with really good teams who may not be able to raise money. But the few top brands that you mentioned will not have problems. It may become an industry of the few winners. On the other hand it is a very big growing industry globally. So the Silicon Valley venture funds might consolidate into the top few but the global funds will be still expanding and there will be opportunities there.
We are going to have a huge advantage at DFJ because we have a global network and I think investors understand that. But I also think that these times, when things are really bad and when things are really good, are major opportunities. Because at these times entrepreneurs become the most creative. I think the best companies are funded at times like this (bad times) or when they are at the top.
What's your advice to the startups who may not probably find it easy getting funding now for a year or so?
Manage the cash well. If you don't think you can get to profitability before the money runs out, you need to possibly shake-up your model, may be the model is not right. This is the best time to come up with creativity inside your organisation.
A lot of internet portals keep burning cash. Do you think its time to focus more on cash flows?
You don't ever burn your cash. Manage your cash properly, invest it very well, figure out what to do with and go after it. If you have a lot of cash, then you can take risks. But if there is not much cash in the bank and if you are burning a lot of it, then one should rethink it. Investors have these periods when they freeze investments and it looks like there will be such a period, but hopefully a short one.
Are you raising an India exclusive fund?
I can't answer that. I am not allowed to talk about as it's against the law.