Episode 13: Tim Draper - Founder of Draper Fisher Jurvetson

0:00Today, I'm honored to be sitting down with none other than Tim Draper. A scion of a Silicon Valley investing dynasty, Tim is the founder of venture capital firm Draper Fisher-Jurvitson and Draper Associates. He's made hundreds of investments in companies like Tesla, Coinbase, Theranos, Robinhood, Baidu, Hotmail, Skype, and the list goes on. One of the largest independent Bitcoin holders in the world, Tim made headlines in 2014 when he purchased 29 ,656 Bitcoin at a U.S. Marshall's auction of assets seized from the online black market, the Silk Road. He has been dubbed Silicon Valley Superman and is an advocate for Bitcoin, decentralization, and financial freedom.

0:50Tim has been recognized as one of the 100 most powerful people in finance by Worth Magazine, ranked number seven on the Forbes Midas list of venture capital tech investors, and named one of Harvard's 50 most influential alumni. A tireless advocate for global entrepreneurship and innovation, he is dedicated to driving progress and empowering future leaders. I'm excited to share this conversation with you, and I hope you all enjoy. Thank you for joining me, Tim. I really appreciate you taking the time. My pleasure. My pleasure. Here, I'll hit the record thing. Okay. Great. Yeah, thanks for having me.

1:33It's always fun to talk to high schoolers. Thank you. What year are you? I'm a sophomore. more oh great dude you got a lot a lot ahead of you that'll be yeah yeah as far as high school we go yeah um so i just kind of want to start off going over your career so you can give insight to students and i spoiler than anyone looking to get into venture capital or becoming an entrepreneur about the path you took so i want to learn a little bit about your early life i'm correct You grew up in Atherton. What was that environment like? How did you feel it shaped you, etc.? So growing up in Atherton was very rural at that time.

2:19Now it's a very fancy, a lot of fancy houses because they had a one acre minimum, but that was mostly because it was a rural property. and so we would cut across each other's yards to get to different places um we used to take a shortcut and it was never a shortcut but it was always an adventure and we um uh had you know i went to school with a bunch of other kids and we had fun it was occasionally dangerous uh because some of the kids would get a hold of a knife or a gun or whatever. But, um, but it was also, uh, really a great way to grow up. Plenty of space, plenty of, uh, opportunity to get into trouble and not make too much trouble.

3:14And then I, um, I was particularly good in math. So, um, and I was hard to that my mom had two daughters before she had me and so she didn't really know what to do with a boy and I um I always broke curfew and finally she she suggested that I go I was also going to math uh go away to high school so I I went and I lived in Massachusetts for four years and went to Andover, and that was pretty fundamental to my training because I got to make a lot of my own decisions at a pretty early age rather than having my parents make them all for me. And then I came back to Stanford. First two years at Stanford were very easy for me because Andover was particularly tough academically.

4:15um last two years though everybody caught up so it was not but um and then uh i worked at hewlett-packard which at the time was really good training and they um now it's called hp and they're they're not as great as they used to be um and i worked there for a little while and created a little game called Stanford the Game, where I modeled it after a game called Careers. And they went around the board and got resume stars and units and social points. And then the game, I got in trouble at HP because the game was such a good press item that we were written up in the New York Times and my boss said, hey, what's this?

5:17And then I applied to business school and got in and went to Harvard. and there I uh I studied kind of what I wanted to study as much as what they were feeding me because I I was really much more entrepreneurial than what they were teaching now they teach much more entrepreneurial stuff there I think um but I was just trying to get the most of it I um and And then went to work for Alex Brown, the investment bank, for one year. And my job was supposed to be part investment banking, part venture capital. But really, the whole thing was investment banking because the people I was with were really just investment bankers.

6:10And they were great. They trained me well. They were fantastic. uh but after a year um both they decided and i decided it was time to go and i um and i started a new venture fund and i my dad helped me get started he um he had an sbic a small business investment company that he had created that really didn't have much in it. Or it did, and we had to clear it out. And then there were just private companies in it. And the SBA valued them at$2 million. And according to the SBA rules at that time, I was able to borrow$6 million against it. And so I borrowed$6 million from the SBA. And I remember having this conversation with the guy who ran the SBIC program and he was going through his checklist and he said, wait, you have to have 10 years investment experience.

7:18I was 26. And I said, well, I've been investing since I was 10. And he just looks down at the paper and he goes, check. Now they would, you know, you'd have that documented and everything else. um fortunately one thing the government is doing right is that now is uh cutting it back because it it was it was like this paternalistic paternalistic government that was telling us all the things we couldn't do and so it made it less free to go out and try new things and build whatever but back then they were great um anyway i borrowed six million dollars after about three years i had invested in about 40 companies and none of them were worth much on paper and about eight of them had gone out of business and i remember going through that with my father saying oh this one's no good and this one's no good and something but every once in a while there'd be one oh that's got it there's hope there whatever and then the sba called my loan said you gotta pay it back because we don't like what you're doing and i flew back to washington i said no no you can't do this all these things they take a long time to percolate it's going to be a web and uh i i went from their watch list to their dirt list and they called the loan for good and I called back.

8:54I said, you got to do that. You got to let me do it. The guy said, okay. And about six months later, the IPO window opened up and I was, um, I had five IPOs in my portfolio that companies that I had seeded. And, um, one of them was parametric technology, PTC. You're in, you're in new England, right? I am. Okay. So it's still, the biggest software company in new in bpc and um we funded them i got um i got don fetterson in a guy who knew a lot about mechanical computer-aided design and uh he took the board seat and they the company just took off and it was a huge success and it paid back all the sba It paid back the$2 million my dad had put up on the thing.

9:54So I was off to the races. Then I brought in John Fisher. Two of us raised a fund. The way that we raised the fund was we started very close to home, hoping that we'd get money from family and friends. We got a little bit. But then we looked at it as an onion. So you start with your family and friends. you get a little bit of money and then you ask them to introduce you to other people and then those other people are a little bit richer and then they introduce you to other people and then pretty soon you're reaching people who can fill out your fund and so john fisher and i put that money to work uh in about 20 companies and things went very well and then we hit the internet just right on our next fund with Steve Jurvetson.

10:46And we were the number one venture fund in the world at that time. And so I went from the dirt list of the SBIC to the number one fund in the world where the SBA put my picture on their wall as venture capitalist of the year. I mean, your fortune can come and go and the press can like you and hate you. but you just got to love what you do. I, I love what I do because I'm helping people with their, get their start, you know, coming out of high school, coming out of college, you're going to go, Hey, I want to start a company. And then you're going to go, what do I do? Where do I start? I don't have any money.

11:30I don't have any idea. I don't have any, anything. Um,

11:38and probably best to start with a job of some sort and then that job will give you an idea and then you can build on that idea um some people straight out of college um create businesses and they're hugely successful um bill gates dropped out of college so did zuckerberg so did larry ellison so did steve jobs so did so if you want to be a trillion dollar business drop out of college it seems like the strategy it's a bit of a long shot but it'll it'll work for some of you um then uh i just kept doing what i do i love what i do because i get to meet a lot of interesting people. I get to interview them just the way you are now.

12:35Um, our job is very much like a press job because, uh, we can interview people. We can ask them anything we want. We can learn from them. And, uh, the difference is with a press, then you go back and you write about it with venture capital. You go back and you decide whether you want to, um, partner with them. Uh, that was a long answer to kind of a short question. Go ahead. Give me another. Though it was a, I, I appreciate you condensing your story to 10 minutes. Um, let's say I'm a founder. I just got an idea for a company and I come to you. Of course, there's all those questions about the business due diligence that there's a strategy, all of that.

13:18But to get to know me as a founder, what are some questions you usually ask when taught in the founders? Why are you doing this what are you thinking i asked that and then the true founder comes out

13:39and you've invested in many companies over the last 30 years hotmail robin hood coinbase a bunch more buys you all but um a lot of those companies what are a couple of them that you has had the biggest impact on the way people live today? And what were the stories behind investing in them? How did you need the founder? How did you invest? Yeah. So I'd say the one that probably had the biggest impact on the world was Hotmail because it used to be that you had to write something down on a piece of paper and then fold it up and lick poison and put it into an envelope and then lick more poison, put a stamp on it.

14:23And then you would hope that within three days in the U S or within 20 days internationally, that it would arrive at their house. But hotmail made it so that the, the, um, letter arrived instantaneously. And I think that communication has been absolutely critical for the world for the growth in the world economy i think it's been really important it's pretty easy for me to do business i'm doing i've got funds in many different places that i'm associated with i was just in argentina with one of them argentina might as well have been on another planet when I was before Hotman. And they came up with web-based email.

15:15And then I said, how are you going to get it out to everybody? And I said, can't you just put it on the web? And they said, that would be spamming. And so I said, well, wait, giving this away free, they decided to give it away for free, which I thought was crazy. And then I said, but if you're giving it away for free why don't you put a little ad on the bottom of everybody's screen saying p.s i love you get your email at hotmail and they thought of all the investors that they could have had why'd they get this idiot and i kept pounding the message and finally they said okay we're going to do it but no p.s i love you and i would have think it would have been a more peaceful and loving world if they had kept the PS I love you but it's a much better world for hotmail because it spread faster than any product ever had spread in the history of products and it reached so many people that suddenly you know the founder wrote one email to his friend in India and within three weeks they had 100 ,000 hotmail users in India before there were 100 ,000 computers in India, there were 100 ,000 Hotmail users.

16:29And so I think Hotmail was probably, may have been the biggest, but then Skype sort of followed suit. They were two guys out of Kazaa, and they were considered outlaws of the U.S. because if they came into the U.S., they were getting the music industry had subpoenas out for them and they figured out that with file sharing you could do other things um one was shared wi-fi but the the other that they came up with was that you could do a long distance call and break it up into lots of pieces and then have it reassembled at the, um, at the recipient's, uh, point of where his ears are. And at that time, long distance, um, carriers were making a fortune.

17:28They were making about $3 a minute in the U S and as much as$50 a minute internationally. Uh, and all of a sudden And Skype did this thing and made it free. So that was a major breakthrough. Now we can see each other. We can talk to each other. And it's all for free. The other, Skype had a business model, though. It was free if they were both Skype users. But if they were calling a phone number, then they charged. It was cheap. Something like two cents a minute. totally blew away the bell operating companies so then um the one that made me i mean i think robin hood's opened up investing to a large group of people i think that's great um baidu uh was really just you know google in china and the chinese needed information and that was a great way to get them information So that was a big deal.

18:38And then Tesla is the first one to reach a trillion dollar market cap. So, yeah, so there are a lot of great entrepreneurs that did really great things. And I was lucky enough to be tagging along. And over the time since you started Draper, Fisher, and Jervetson, gone to invest in many businesses, what are the biggest changes you've seen in the venture capital industry?

19:13well when i started draper associates before i brought on fisher and jervinson and all these other partners and then i left them all and started over with draper associates um i was knocking on doors i would look for i'd go to a new drive down 280 and i look for a new or 101 and I look for a new real estate development happening and I and then I go into the building and I'd look for anything that's said something software or something that ended in an x because that is something that usually meant technology and I'd knock on their door and see if they were looking for money and i ended up um funding a uh got a photonics company that way i got turned away um by a receptionist at intuit i was trying to get into into it and and she was um she said go away no solicitors no solicitors i was dressed like this but they were they were very sensitive to it because they were in downtown Palo Alto.

20:27Anyway, I never got to talk to them until much, much later. It's too bad. I missed a really good one there. And today we have deal flow is still the key to becoming a great venture capitalist. You want to make sure you see a lot of companies, but I'm finding it in a lot of different ways. We have Draper University, so we have had 6 ,000 students come through there from 104 different countries. They've started five unicorns. It's pretty cool. They've started about 1 ,500 companies. But those companies are a good deal flow for us, but so are all the friends of all the people who have gone out from Draper University.

21:22And so we're their first point of contact. And then Meet the Drapers is now a show with a lot of viewers. And so Draper Associates gets a lot of deal flow from viewers of Meet the Drapers or contestants of Meet the Drapers who didn't make it or contestants that did. And then our finalists, of course, are usually pretty darn good companies. And then we're using AI now to filter through 250 ,000 companies to find five a week that I want to look at. and then uh let's see what else has happened a lot has happened to venture capital there's lots more money in the venture business and the and when the venture business is doing has done very well and the returns are really good then a bunch of these investment bankers say oh i'm a venture capitalist too and they try to do what we do and then they lose their investors money and then we all get a bad name so uh i'm hoping that um people delineate between venture capitalists and investment bankers and you are very big on bitcoin i see the bitcoin tie yeah you 29 656 at a u.s marshall auction in 2014 so over 10 years how do you think bitcoin will continue to be adopted.

23:00And what do you want to tell the youth today about Bitcoin? Do you think we should own it? What do you think we should know about it, et cetera? God, if you're in high school and you don't own Bitcoin, you must have your head in the sand. That's ridiculous. I understand these old people who say, I like dollars. I like gold. I like whatever they used in the dark ages. But Bitcoin is a major breakthrough. I mean, it is money that you can use that doesn't require a bank. And you look at all those banks, they're big banks. And they're really rich. And they got lots of people working for them. That's on your money.

23:44That's what they've been doing. They've been using your money. And the government with all their big buildings and stuff, that's been regulating your money. well all of a sudden you got bitcoin and it's free from all of that that is huge that is a major breakthrough and uh and actually you know if you uh if you lived in africa you would know how important bitcoin is or argentina or venezuela because they have no trust in their currency the dollar at least has some trust i mean our government does overspend and our government does have when they overspend we get inflation and the dollar becomes less and less and less becomes worth less and less and less but um but other countries are much much worse so the people from all those countries understood bitcoin right away as both a currency and a store of value.

24:48Like if you wanted to store your value, like you built something of value and you earned a bunch of money and you don't need it today, but you want to save it for a rainy day. Bitcoin's a great way to store value.

25:05Boy, I don't know if I could tell high schoolers anything they don't already know because Bitcoin, Yeah. Well, one thing you might not be aware of is that Bitcoin is, has a gravitational pull to it. People are, it used to be that Bitcoin was like 40 % of the market for cryptocurrency. And then after a boom and a bust, it was 50%. And then after another boom and a bust, it was 61%. So Bitcoin's a bigger and bigger and bigger share of all cryptocurrencies. So I look at other cryptocurrencies as really fun sandboxes that you can play and try things in. And then the most important things will then be attached to Bitcoin.

25:59So, yeah, you should own some Bitcoin, particularly because if your parents don't own Bitcoin,

26:08they there might be a run on the bank someday i had a my dad gave me a million dollar bill and i went whoa a million dollars what can i do with it and he goes nothing and i said what do you mean that's a million dollars of confederate money they just call it confetti um and i said Confederate money, what do you mean? Why can't I just use it in the South? He goes, no, the South lost the war. Nobody wanted Confederate money. They all moved to union dollars. And that's what we use today. I think we're going to be in a similar situation. People are going to be able to buy their food, clothing, shelter, pay their taxes on Bitcoin.

26:52And then they're going to wonder why they have any fiat currency. And then there'll be a run on that and people will go here's a million dollars for a bitcoin and the bitcoin holder will say no friggin way uh so i think that's coming and yeah probably in my lifetime and definitely in yours that there will be the run on the fiat banks and what would you say to people that are don't want to invest in bitcoin because of its volatility and do you think it's just a volatility is just the characteristic of Bitcoin because it's relatively new and it's in its early days? Well, here's what I would look at.

27:34One Bitcoin is worth one Bitcoin and it always has been. There is no volatility there. One Bitcoin used to be worth like$4 and the dollar has continued to fall against that one bitcoin so that it's worth now 80 i don't know 82 84 000 dollars so it has fallen with the dollar has fallen way way way off against bitcoin so bitcoin is still holding its value in fact in some ways you you could argue it's it's increasing its value because more people are using it and it's more accepted in more places. And the dollar is losing its value. And so which one do you want to hold? You want to hold the one that's increasing value.

28:31And there will be a moment where I think dollars no longer are accepted. I think at first you'll see retailers saying we accept Bitcoin. and longer term you'll have retailers say we don't accept dollars or we only accept bitcoin so yeah i'm i'm holding on to my bitcoin and i'm buying more and recently especially under the new administration a lot of people from silicon valley is have entered politics what do you think about that and would you ever enter politics well i i suggested that once to my wife that I would run for president. And she said, you can do that with your next wife.

29:18I guess that's a no.

29:24But I think it's great that you're seeing business people go into government right now because our government had no natural predator and it was out of control. It was spending out of control government spending as a percentage of GDP was on a tear it went from you know zero back in 1850 to maybe eight percent in 1908 to about now it's about it's more than half so more than half of our money is now spent by the government, not spent by us. So it was just, and there was no natural, nothing that could keep government accountable. And that's when you start becoming like a socialist dictatorship, when you have a government that's not accountable to anybody.

30:25And so what I think they're doing now, but it's not a hundred percent clear is they are, um, shaking it up and they're making it, um, they're making it work for all of us. Cause you, I mean, when, when Facebook has a layoff, nobody even blanks, but 10 ,000 people lose their job. when government has a layoff, they're screaming at the top of their lungs like, oh, how unfair. And that when people there are these people who I don't know, it's probably worth it to watch some of these people whine because they say, well, I would have taken a private sector job, but I would have had to work too hard.

31:11So I took a government job and now they're saying I'm losing my government job. It's like, get out there and work, lazy turd.

31:25Anyway, government is due for a change. So I'm kind of glad they're doing it. And I feel like Elon Musk is a gift from the gods. That is extraordinary. And let's say I'm coming out of high school or college of a business idea. and I want to pitch it to a VC. How do I test the idea before pitching it to you? Yeah. You know, one thing that everybody thinks is that they've got to hide their idea. But your idea, even if somebody else heard it, is different from what they would do with it. So what I would do is I would tell everybody you know what you're doing. And I would not say, should I? I would just say, this is what I'm doing.

32:17I am building a teleportation device. I am cloning humans. I am whatever it is. And, uh, and then, uh, see the reaction and then adjust your pitch based on the action. But always say, I'm doing it. Like this is it. not a question do it yep you gotta you gotta have that you know i'm doing it it's got to be a north star it's good yeah and um and then you know i mean i i look i always say send it to draper because we uh you know we look at everything yeah so anyone who's listening if you have an idea and you want to take action on it, send it to Draper and they'll take a look at it. Wait, hold it.