Q&A: Draper Associates' Tim Draper

Q: How did the DFJ affiliate network start?

A: It started back when it was just me as Draper Associates. Oil prices had dropped to $6 a barrel and the Alaska government wanted to develop a new economy, so asked me to come up and put together a fund - the Polaris Fund. It did well, but only because we invested half the money in Silicon Valley. We backed Redgate, a Florida-based company that was sold to AOL for stock. Depending on where they sold AOL it was either a good fund or a miracle fund. The Alaska government didn't offer to re-up and we didn't ask them. We felt we were on to bigger and better things. But what I learned was that venture capital didn't have to be limited to one or two regions, to Silicon Valley and Route 128 in Boston.

Q: What happened next?

A: I ran into a friend from Harvard Business School who knew I'd done a small business investment company (SBIC) and wanted to set up one for Utah. That was Wasatch Ventures. After that it was rapid fire. We saw we could create a hub-and-spoke network for venture capital and it would see much more deal flow and be much more in tune with what was going on around the US. We did Pittsburgh, Los Angeles, Denver, Chicago, Houston - we had most of the US covered and then we met a couple of guys who wanted to take it international. That led to DFJ ePlanet. Along the way we noticed that the hub-and-spoke network was actually a star network with everyone connected to everyone else and learning from each other. We funded Skype, which was based in Estonia but started by a Swede and a Dane, and we helped get Baidu going in China. We were the first venture capital firm ever to seed billion-dollar enterprises in three continents - and we are close to doing it in a fourth.

Q: So the first market you entered in Asia was China?

A: We first went into Asia with DFJ ePlanet, which was a representative office in China. It was followed by what is now Draper Dragon, another office that was DFJ only, and then DFJ Compass. Now we are down to just Draper Dragon. It will be our central brand in China.

Q: The original Alaska initiative was government-driven. What about the others?

A: Most of the US groups were private. Some of their money might have come from various government entities, but generally they were privately funded privately driven. We interviewed about 20 different groups in New York before we decided which one we wanted to bring into the network. The idea was that we pick a location with potential and work with a team that is building its own venture presence.

Q: What does a location need?

A: A government that understands competitive governance. A population base that is large enough, and ideally good technical universities and maybe a good business school as well. Most of the cities we went into we were the first VC firm so we had to teach the whole ecosystem model that was here in Silicon Valley. We talked to all the stakeholders and tried to create a forum in each place. A successful entrepreneur from the region would address the audience and then we would have a networking session. We wanted to get people thinking that they could start their own businesses.

Q: How involved should governments become in developing these ecosystems?

A: Government can be a really good cheerleader and create a business environment that is very friendly. When I started with a SBIC the US government levered my money 3:1, so I was able to borrow $3 for every $1 I invested and put a lot of money to work. I wouldn't have been able to that in another way at the time. But the more strings governments attach the worse the returns end up being. If they say they want to be a LP and they want you to set up an office somewhere, that light touch governance can be very helpful. If they say you can only invest in people who live in this city it can be very limiting. Most companies if they are any good are going to be global and those constraints can limit the idea.

Q: You launched Draper University to provide crash courses in entrepreneurship. Is it possible to teach this?

A: I watched venture capital evolve with my father and grandfather. People said to me you can't teach venture capital, but whenever anyone tells me I can't do something, I start thinking about how can do it. We are looking for those 18-28 year-olds that have extraordinary capabilities and vision. We have created a 6-8 week course of study that is somewhat transformative to the way they think. We teach in a way that makes our students more dynamic, worldly and prepared to be entrepreneurs.

Q: How do you achieve this?

A: We teach future instead of history, we teach by team rather by individual. We have survival training as well as activities that are business and design-oriented. They learn about finance, contracts, marketing, social media and crowd sourcing. Much of what we do no rational school board would consider a good thing to pursue. That is where we have a real edge. We allow our students to try many new things. We encourage them to try and fail.

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