To hear Tim Draper tell it, the current financial crisis is yet another opportunity for entrepreneurs to build great, disruptive businesses. The founder and managing director of venture capital firm Draper Fisher Jurvetson (DFJ), which has notched up successes such as Chinese search engine Baidu.com Inc., Internet telephony company Skype Inc., acquired by eBay Inc. for $2.6 billion (about Rs12,662 crore now), and Hotmail, bought by Microsoft Corp. for $400 million, calls it a “most exciting time”.
A third-generation venture capitalist (VC)—father Bill Draper set up venture capital firms SutterHill Ventures and Draper Richards, while grandfather William Henry Draper Jr set up Draper, Gaither and Anderson—he is known as much for his penchant for taking risks as for his antics (he has turned up at parties dressed as Batman, riding an elephant and broken into song at conferences).
Exciting times: Draper Fisher Jurvetson founder and managing director Tim Draper says both boom and bust cycles offer great opportunities. Ashesh Shah / Mint
DFJ was among the first Silicon Valley venture firms to go global 10 years ago and has investments in 500 companies across its own and affiliate funds. In India, it deviated from the affiliate model to set up a direct presence in September 2007, headed by Mohanjit Jolly, with an allocation of $100 million out of its $600 million global fund.
Its 15 investments in India include electric-car maker Reva Electric Car Co. Pvt. Ltd, online travel portal Cleartrip Travel Services Pvt. Ltd and e-waste management company Attero Recycling Pvt. Ltd. Draper, on a three-day visit to India, spoke to Mint about the impact of the current slowdown on venture investing, DFJ’s strategy going ahead, and why the slowdown is the best time for risky bets. Edited excerpts:
What has been the impact of the current financial crisis on venture investing globally?
We (VCs) have had booms and busts of our own in 2000-01. (Last year) we had the beginnings of a boom, but we didn’t get crazy and now we’ll have a little bit of bust because of external factors. I actually think these times are the most exciting, when people can say here’s a new playing field. Many great businesses have started because of a financial bust, or difficulty in environment, or just because their employer wasn’t doing it right.
This is one of those times people are able to stop, reassess and go back to what they really want to be doing with their lives. And some of the most creative are gonna say here’s an opportunity I didn’t do before because the situation was different, but now I got laid off and I can make it happen. If people look at this financial problem as financial opportunity, some great things will happen.
We were able to invest through the (dotcom) bust and that’s worked out really well for us. This is a different financial bust than the last one, because we were in the centre of the tornado before. And now we’re on the sidelines watching, but it’s a bigger tornado. Sure, it will affect us and our companies. But as many problems are created, there will be opportunities.
Are you looking at an affiliate network in India?
We might end up with an affiliate network here that could be sectoral or regional. We did look at (a) biotech India fund and we went pretty far down the road. That didn’t work out, but it might some day. India is a very large geography; it’s tough for a single local team to cover the whole place, so (regional)?might?not?be?a bad idea.
Will you raise a dedicated India fund?
We allocate a pretty big part of global fund to (India). We’ll continue to do that. If it’s a dedicated fund, it’s more likely to be an affiliate than part of DFJ.
What sectors excite you these days?
I love the communications sector—Hotmail, Skype, all came out of it. I look for the biggest problems and which entrepreneur is going after that. New modes and new forms of energy, those are really interesting, big problems. I’m looking at three-four nuclear power companies. Transportation is a new twist, we’re looking at any alternative transportation. There are a lot of really creative entrepreneurs out there, some have come to us with flying cars. I have maybe six-seven business plans for flying cars.
DFJ went global at a time when others thought Silicon Valley was where all the action was. Do you feel vindicated now?
I never look at it that way. I look at it more as, maybe, relief. This is a very exciting industry to be a part of. I like to break new ground. I want to make sure we’re pushing the edge in the venture capital business. We’ve tried a lot of new things. We were the first to bet on Internet companies first, to our detriment, to do a public venture capital fund. I came up with viral marketing for Hotmail.
Will you continue to take risky bets in such a volatile market?
This is the best time to take those risks. Two best times are bottom of cycle and top of cycle. At the bottom, (entrepreneurs) are recreating themselves, working out how to do with less money. At the top of the cycle, it’s about how big we can get and how to get there. Cycles create more opportunities, and the greatest come from tops and bottoms.