20VC Tim Draper on Investing In Tesla, The Best Pitch He Has Ever Seen & The Evolution of Venture and Startups

Summary Notes


In a special Draper father and son week on "20 minutes VC," host Harry Stebings interviews venture capital icon Tim Draper, founding partner of Draper Associates and DFJ. Known for his successful investments in Skype, Baidu, Tesla, and Hotmail, among others, Tim shares insights on the evolution of venture capital, his early days knocking on doors in Silicon Valley, and the importance of being either a supportive VC or a hands-on entrepreneur. He highlights the global expansion of venture capital and the transformative potential of technologies like Bitcoin and blockchain on the industry. Tim also discusses Draper University of Heroes, an unconventional school he founded to foster entrepreneurship and confidence in young people, and his involvement in the reality show "Startup U." Throughout the conversation, Tim emphasizes the power of quiet confidence in successful entrepreneurs and his preference for early-stage investments where he can guide companies from the outset.

Summary Notes

Introduction to Draper Father and Son Week

  • Harry Stebbings hosts the 20 minutes VC podcast.
  • Tim Draper, a venture capital legend, was featured.
  • Tim's son, Adam Draper, will be featured in a subsequent episode.
  • Tim Draper is the founding partner of Draper Associates and DFJ.
  • Tim's venture successes include Skype, Baidu, Tesla, Hotmail, Twitch TV, and more.
  • Tim suggested viral marketing for web-based email, which contributed to the success of Hotmail, Yahoo Mail, and Gmail.
  • Tim is recognized as one of the most influential Harvard alumni and ranks on the Forbes Midas list.
  • Harry Stebbings acknowledges Mattermark for their data and analysis and recommends their newsletter.

"Yesterday we have the legend Tim Draper joining us on the show. And on Wednesday, we will be featuring the fantastic Adam Draper, Tim's younger son, who is running the most fantastic accelerator at boost."

This quote introduces the special theme of Draper father and son week, highlighting the significance of both Tim and Adam Draper in the venture capital and startup world.

Tim Draper's Background

  • Tim Draper was an electrical engineering major at Stanford.
  • Worked as an assistant to the president at Apollo Computer.
  • Attended Harvard Business School.
  • Wanted to be an entrepreneur but decided to support entrepreneurs as a venture capitalist.
  • Both his grandfather and father were venture capitalists.

"I wanted to be an entrepreneur, but I had so many different ideas for entrepreneurship. I realized that I needed to be more of a supporter or a consultant or a cheerleader than to be the entrepreneur myself."

Tim Draper shares his transition from aspiring entrepreneur to venture capitalist, influenced by his realization that his strengths lay in supporting others' entrepreneurial ventures.

The Role of Entrepreneurial Experience for VCs

  • Tim Draper believes having entrepreneurial experience is beneficial for venture capitalists.
  • Understanding the challenges of starting a business is valuable.
  • However, it's not necessary for success in venture capital.
  • People should pursue their goals, whether it's entrepreneurship or venture capital.

"I think it helped me to know that everybody who's starting a business is going on a wing and a prayer."

Tim Draper emphasizes the advantage of understanding the risks and uncertainties entrepreneurs face, which can be an asset for venture capitalists in supporting their portfolio companies.

Evolution of the Investing Landscape

  • Tim Draper founded Draper Associates in 1985 with borrowed money from the government's SBIC program.
  • Early venture capital was a clubby business with VCs working together to fund companies.
  • The landscape has become more competitive, especially in Silicon Valley, with VCs managing more money.
  • Venture capital has expanded globally.
  • The role of venture capitalists has become more widely recognized over time.

"No one knew what a venture capitalist was when I was getting started. They sure do now."

This quote reflects the growth and increased visibility of the venture capital industry from its early days when it was less understood to its current global prominence.

Impact of AngelList Syndicate Model

  • Tim Draper acknowledges that the AngelList syndicate model has and will continue to disrupt the venture capital industry.
  • Venture capital is becoming more competitive, and new models like AngelList syndicates are part of that change.

"Well, I think it has, and it will."

Tim Draper briefly confirms his view that the AngelList syndicate model is shaking up the traditional venture capital model, indicating a shift in how investments are made and managed.## Venture Capital Evolution

  • Venture capital is undergoing significant changes due to new technologies.
  • Similar transformations have been seen in other industries, such as music and transportation.
  • Harry Stebbings anticipates that these changes will be beneficial and is proactive in adapting to them.

"There are going to be new technologies applied to venture capital. Just the way file sharing was applied to the music industry or Uber was applied to the taxi industry."

This quote emphasizes the comparison between the evolution of venture capital and the disruption seen in the music and taxi industries, suggesting a similar level of transformation is expected in venture capital.

Preferred Investment Stage

  • Tim Draper prefers to invest in early-stage companies.
  • Early involvement allows him to guide the company from the beginning.
  • He founded Draper University of Heroes to engage with entrepreneurs before they start their businesses.
  • Tim Draper's son's accelerator, Boost, further supports new businesses.
  • He focuses on helping companies set up efficiently using modern tools for shares, medical systems, and accounting.

"And then I like investing when there are two or three people in the company and they have a really good mission, and that can be before they've gotten any revenue or just after."

Tim Draper explains his preference for investing in companies at a very early stage, ideally when they are still small teams with a strong mission.

Entrepreneurial Guidance and Infrastructure

  • Guiding companies early is part of the evolutionary mission of Draper University of Heroes.
  • It's important for startups to use electronic shares and networked accounting for efficiency.
  • Many entrepreneurs lack operational knowledge, and Draper University aims to direct them properly.

"You want to make sure that they're using electronic shares like eShares or Cap share, or you want to make sure that they've set up their medical system for their employees through something like a Sherpa, where it's much less expensive to manage their medicine."

This quote highlights the importance of startups adopting modern, cost-effective systems for managing shares and employee benefits, which is part of the guidance provided by Tim Draper.

Memorable Pitches and Entrepreneur Traits

  • Tim Draper recalls the best pitches he has received from entrepreneurs.
  • Nicholas Zentstrom's pitch for Skyper (later Skype) was smooth and effectively adapted to a change in business model.
  • Successful entrepreneurs like Robin Lee (Baidu) and Sabir Bhatia (Hotmail) exhibited quiet confidence and enthusiasm.
  • Martin Eberhard's involvement with Tesla before Elon Musk is noted, along with Musk's brilliance.

"In all the cases of the greatest entrepreneurs, I think it's been enthusiastic but quiet confidence that I see in the ones that became enormously successful."

Tim Draper identifies a pattern of quiet confidence and enthusiasm as common traits among the most successful entrepreneurs he has encountered.

Draper University of Heroes

  • Draper University was founded to create heroes who can address significant world challenges.
  • The curriculum focuses on entrepreneurship, confidence-building, and openness to the world.
  • Students are taught futuristic skills like reading science fiction, predictive analytics, and modern marketing techniques.
  • The school also educates on new financial methods like bitcoin and blockchain.

"We've created this school to just create better people. A lot of it is about entrepreneurship."

Tim Draper explains the mission of Draper University of Heroes, emphasizing its focus on developing better people with entrepreneurial skills.

Draper U's Educational Approach

  • Draper U emphasizes practical skills over traditional academic history.
  • Students learn through unconventional methods, including survival training and real-world challenges.
  • The program aims to produce individuals capable of making significant societal contributions.

"We teach them future, which is taking the student, and instead of teaching history work, we take them and get them reading science fiction and using predictive analytics, forecasting their business."

This quote describes the innovative educational approach of Draper U, focusing on forward-thinking and practical application rather than traditional historical studies.## Draper University Program

  • Draper University offers a program for individuals aged 18 to 28.
  • The program includes working with Navy Seals and special forces.
  • Participants prepare a business plan and test their ideas over six weeks.
  • The program culminates in a two-minute presentation to venture capitalists.
  • Draper University hosts around 50 speakers to assist participants.

"And then at the end, they have a two minute presentation to a panel of venture capitalists, and that's after they've spent about six weeks preparing their business plan, testing their ideas and their businesses against all of the 50 or so speakers that they get."

This quote explains the structure and the final stage of the Draper University program, emphasizing the intensive preparation and the range of expert guidance available to participants.

Application Requirements for Draper University

  • No preexisting business idea is required to apply to Draper University.
  • Applicants should go to draperuniversity.com to apply.
  • Older applicants (around 28 years old) should have a clearer idea of their goals, while younger applicants (18 years old) are encouraged to be open to the world.

"No, they just need to go to draperuniversity.com and apply. If they're 28, probably should have a pretty good idea of what they want to do if they're 18. No, they should just be open to the world."

The quote clarifies the expectations for applicants of different ages when applying to Draper University and highlights that having a business idea is not a prerequisite for the younger demographic.

Draper University Reality Show

  • Draper University is featured in a reality show called "Startup U."
  • The show is considered good marketing for the school.
  • ABC Family's producers approached Draper University with the concept.
  • The show follows ten students and the challenges they face at the university.
  • It airs on Thursdays at 05:00 and is available on YouTube for international viewers.
  • The show required minimal additional time from Tim Draper, as filming occurred in the background.

"It's really great. It follows ten students through the trials and tribulations of being at Draper University, and it shows the audience some of the fun challenges that we apply to the students, and it's really fun."

This quote describes the content and the appeal of the reality show "Startup U," which documents the experiences of students at Draper University.

Tim Draper's Role in the Reality Show

  • Tim Draper's regular activities at the school were filmed without disruption.
  • A significant amount of footage (3600 hours) was recorded to create the series.
  • Tim Draper had a few sessions aside to help logically structure the show's narrative.
  • The presence of cameras may have enhanced student performance.

"What was great was they did it all in the background, so I really just didn't do anything I don't normally do for the school."

The quote emphasizes how the filming of the reality show was integrated into the regular operations of Draper University, minimizing the impact on Tim Draper's schedule.

Tim Draper's Support for Bitcoin

  • Tim Draper has been aware of Bitcoin for a while before investing.
  • The resilience of Bitcoin's value after the Mt. Gox incident convinced him of its potential.
  • Draper sees Bitcoin as useful for microtransactions in journalism and efficient payments in the entertainment industry.
  • Bitcoin facilitates cheaper and faster cross-border transactions.
  • Draper believes Bitcoin is secure and will increasingly be used as technology and user interfaces improve.

"And bitcoin didn't disappear. So I thought it went down like 20% or something in value. And I thought, wow, there are people out there who really need bitcoin."

The quote reflects Tim Draper's realization of the robustness and essential demand for Bitcoin following a major trading platform's failure, which did not lead to Bitcoin's collapse.

Future Adoption of Bitcoin

  • Tim Draper initially expected Bitcoin adoption to take three years, two years ago.
  • The adoption may take longer as new applications for Bitcoin are being developed and adopted.
  • The increasing number of bank hacks and the need for faster money movement will likely lead to more widespread Bitcoin usage.
  • Draper predicts that Bitcoin's security and utility will drive its adoption despite current user interface challenges.

"I thought it would be three years, and that was two years ago. It might be another two years, because all of these entrepreneurs who have worked very hard to create uses for bitcoin, those uses are starting to be adopted."

This quote indicates Tim Draper's revised timeline for Bitcoin's adoption based on the current pace of technological development and market acceptance.## Bitcoin and User Adoption

  • Bitcoin's user adoption is increasing as it becomes more user-friendly.
  • Tim Draper shared a personal anecdote where he used Bitcoin to pay an author in Africa who lacked bank access.
  • The ease of the transaction exemplifies Bitcoin's potential for rapid usage growth.

"And once they become more user friendly and the companies who are building these bitcoin applications make them so that they're available and really easy to use for people's grandmothers, then I think we've got rapid usage..."

This quote highlights the importance of user-friendliness in technology adoption, suggesting that once Bitcoin applications are made accessible to the average person, usage will skyrocket.

Influence and Investment in Bitcoin

  • Tim Draper was influenced by his son Adam, a pioneer in Bitcoin, to get involved in the cryptocurrency.
  • Tim had already invested in Coin Lab, showing his early interest in Bitcoin.
  • Adam Draper's vision for the future includes widespread Bitcoin use.

"Oh, I think Adam was really one of the real pioneers in bitcoin. And so I guess he convinced me."

Tim credits his son Adam with convincing him of Bitcoin's potential, indicating the importance of family influence in investment decisions.

Career Highlights and Viral Marketing

  • Tim Draper considers creating Hotmail's viral marketing strategy as a career highlight.
  • He recognizes the significance of free global communication enabled by his marketing innovation.

"I created the idea to put a message at the bottom of everybody's email at Hotmail."

This quote points to Tim's pride in his contribution to the spread of Hotmail, which revolutionized how people communicate.

Venture Capital Thought Leaders

  • Tim Draper admires several thought leaders in the VC industry.
  • He mentions Mark Andreessen, Mike Maritz, Dave McClure, Sayida Meaty, and Ron Conway as influential figures.
  • Draper values their contributions to the VC space and suggests them for potential interviews.

"I like Mark Andreessen. Every time he talks, I am fascinated and I really love hearing him."

The quote reflects Tim's respect for Mark Andreessen as a captivating and insightful thought leader in the venture capital industry.

Favorite Books

  • "The Startup Game" by William Draper is Tim's favorite book, capturing the VC-entrepreneur relationship.
  • He also praises "Bionomics" by Michael Rothschild for its innovative combination of biology and economics.
  • These books inspire optimism and offer a fresh perspective on economics.

"My favorite book is the startup game. My dad wrote it, and it by William Draper."

Tim values the insights and optimistic spirit conveyed in his father's book, which also serves as a source of motivation during challenging times.

Recent Investments and Crowdsourcing

  • Tim Draper's recent investment in Laurel and Wolf leverages crowdsourcing for interior decorating.
  • He believes crowdsourcing technology has significant potential beyond traditional applications like transportation.
  • Draper compares his enthusiasm for crowdsourcing to his earlier support for peer-to-peer technology with Skype.

"Laurel and Wolf is an amazing company that allows people to do all their interior decorating with crowdsourced interior decorators."

This quote explains Tim's investment rationale for Laurel and Wolf, emphasizing the transformative potential of crowdsourcing in various industries.

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