Can venture capital unlock exponential growth through decentralized innovation? What does it take to drive disruptive technologies across industries and fuel global entrepreneurship? With a bold approach and a family legacy in venture capital, Tim Draper brings a transformative vision to high-impact investments in emerging markets.
In this episode of Driving Alpha, Steve Brotman sits down with Tim Draper, the visionary behind Draper Associates, DFJ, and Draper University. Known for high-conviction investments in companies like SpaceX, Tesla, and Coinbase, Tim delves into his pioneering philosophy on diversification, viral marketing, and the future of AI-driven investing. He explores the role of venture capital in catalyzing decentralized systems, empowering entrepreneurs, and supporting breakthrough markets like cryptocurrency and personalized healthcare.
Guided by his mission to spread entrepreneurship worldwide, Tim Draper reflects on his bold predictions for Bitcoin, his advocacy for startup-driven governance, and his strategies for creating a high-impact portfolio. From healthcare’s individualization to revolutionary smart contracts, Tim provides insights on how transformative technologies can redefine finance, governance, and global growth.
Transcript
Steve Brotman: Hi, I’m Steve Brotman, the managing partner of Alpha Partners. Welcome to today’s episode of driving alpha, where we dive deep into the minds of VCs and investors shaping our future. Today, we’re thrilled to have with us a true Titan of the venture capital world, Tim Draper, known for his prescient investments in companies like SpaceX, Tesla, and Coinbase.
Tim has consistently been at the forefront of technological innovation as the founder of Draper Associates, DFJ and Draper University, He’s not just funding the future. He’s actively cultivating it. Tim’s bold predictions about Bitcoin and his advocacy for decentralization has made him a prominent voice in the cryptocurrency space.
Get ready for an enlightening conversation as we explore Tim’s insight on emerging technologies, the future of finance, what it takes to build world changing companies. Welcome, Tim.
Tim Draper: Hey, Steve.
Steve Brotman: so it would be awesome to hear, briefly about [00:01:00] how you got into the venture industry. and that would be great.
Tim Draper: So it’s pretty easy. I was, The son of a venture capitalist and the grandson of the first venture capitalists in the Silicon Valley. My grandfather created the Silicon Valley venture capital business, I guess, and my dad was a pioneer and it wasn’t a clear cut for me.
I was more of an entrepreneur, but about, you know, I sold apples, I guess. I sold oysters. I sold Stanford the game. I, created a bunch of different little businesses as I was growing up. And then, I took over an SBIC that my dad had created, that had some private companies in it that were worth about 2 million.
And I was able to borrow 6 million from the SBA. To get started in venture capital and I went through some trials and tribulations with that. S. B. I. C. but eventually I went from going being on their dirt list where I owed them their debt back and they were calling for their loan. and I went and I begged forgiveness and said, Hey, hold on just a little while, and then the IPO market, came and I had five big IPOs.
One was parametric technology, which paid the SBA back completely, made a great return for my dad and whoever else were investors in that SBIC. then I, Had a record and I was able to start raising money as a venture capitalist. I went out, And, brought in John Fisher, brought in Steve Jurvetson.
We built DFJ. it was the top of the heap in 1999. really number one venture capitalist in the world for about four years there. And then, and then we got kind of institutional and I felt like Gulliver with all the strings, the Lilliputians. Pulling him down one string at a time, and I realized I was being held back a little bit.
And so I spun back out, rebuilt Draper Associates as the venture fund, and since then have created a school, Draper University, a show called Meet the Draper, now Draper Nation. an opportunity for you to join and become, get a passport and be a part of something that could end up transforming the way we are governed.
and that’s where I am today. been a venture capitalist all my life. everything I do is really driven to bring more entrepreneurs to the four, and that has been my life’s mission.
Steve: When you and I met 25 years ago, you did mention that sort of this idea of the flame of lighting that flame and passing that torch to as many people as possible.
Can you share more about that vision?
Tim Draper: Yeah, I had a mission to spread venture capital and entrepreneurship around the world. In fact, I backed you and your first mission, as a venture capitalist. I’ve traveled all over the [00:04:00] world. I’ve tried to spread the pixie dust that I learned about while I was here growing up in the Silicon Valley and I think it’s had an impact.
I’ve, seen entrepreneurs everywhere from, the remotest places in India to the, Thailand to, you know, wherever all parts of Africa, they all know what venture capital is. They know, how to become an entrepreneur. And I think that that mission has really, Paid off.
So I think it’s been good for the world.
Steve: Absolutely. Well, you’ve had some big wins like Baidu and Skype and not just in the U S like Tesla and SpaceX, but you know, it’s, it’s pretty remarkable when you look back. what is it like if you had to give something like a new, VC some advice, what would it be?
Tim Draper: it probably depends on the person because there are great VCs that come out of journalism, great VCs that come out of engineering, great VCs that come out of business school. and they all have slightly different ways of looking at the world. and there [00:05:00] are VCs that focus on the market size, VCs that focus on the technology, focus on the people.
tend to look at all 3. But, you can be successful as a venture capitalist in any way you go. I think there are early stage VCs and late stage VCs. The early stage VCs, I highly recommend, funding companies that make you a little bit uncomfortable, things that are controversial, things that if they work, create a world that’s way better than the world we’ve got.
Those are some of the things that I would look for early. As a later stage VC, I’d make sure that you really did your diligence, dug way in, figure out whether the customers are really buying or whether you’re being sold a bill of goods. and so those are very different ways to run VC shop and then, diversify because, It’s very important to make sure that you’re making money for your investors and for yourself and for your, hopefully for the entrepreneurs too. [00:06:00] and the best way to do that is to make sure that you’re not, Too highly correlated with the success of any one of them. because you’ll make bad decisions.
For them, as a venture capitalist, you’ve got to keep a clear head an even keel, going into the tempest that is entrepreneurship. And by being diversified, you’re not personally. Caught up as much in anyone and you can keep a steady hand when. When you go through the tempest, think, also for your investors, they have a more, stable return.
if you have a lot of different companies, because they’re going to come and either be successful or be failures at very different times. going to want to be give them. steadier supply of return. It turns out that’s almost impossible to do, but, you can you can smooth the curve by being more diversified.
Also, you’re going into a business that where you lose about half the time. [00:07:00] And if you’re going to lose half the time, you got to make a lot of money on the big winners. Transcribed And you’ve got to be diversified, because, you don’t want that to be one. Throwing one dart at a board where you’re going to hit it half the time.
Steve: what do you think when you say diversification, what do you mean? Is it 10 companies, 20 companies, sector, geography?
Tim Draper: 20 is usually a good rule of thumb for each. Burm every fund, we don’t go by that. Actually, we diversify even farther. we’ll invest, probably in 60 companies per fund, and it does a couple of things for us.
We learn more. because we see more and, and it smooths out that curve for our investors I mean, they’re probably 20 companies where we, really pour it on, but 60, where, where we’re creating an option value.
Steve: Meaning you, when you say pour it on, you’ll, double down and get to, uh.
Is there a percentage of the fun that you want to have your winners in, like, 5%, 10 percent later?
Tim Draper: Yeah, about 5 percent is where we’re comfortable. Usually.
Steve: Right? So, when you max out and then we
Tim Draper: max out at 5%, maybe a little bit more. But
Steve: remember years ago, 1 of 1 of your thesis. He is. was the viral nature of the Internet and leveraging that.
So one of your early wins was hotmail. how’s that, developed over the years? And what, are you focusing on? is there more of a thesis today? Or a multitude or,
Tim Draper: I came up with that viral marketing idea, in hotmails case. And it spread so fast, and I had no idea it was going to spread that way to have your customer become your sales force.
And it benefited Skype, too, for the same kind of reasons. It also has benefited Baidu and a number of our other companies because anybody who has any kind of communications tool uses viral marketing. But it’s also been kind of Critical to the success of social media for, you know, Facebook, Twitter, whatever, they would never have succeeded if they hadn’t created a viral effect.
and so I think that there is something we’ve done there that allows entrepreneurs to spread their. idea, their business, their product, their service to the world, in a very efficient, very quick way by getting the customer to be the sales force. and whether you’re selling semiconductor equipment for a million dollars, or you’re, selling some, Internet app, somehow getting your 1st customer to want to help sell to your 2nd customer.
And for those 2 to then sell to the next 6 customers and have it spread, I think is absolutely fundamental. And I think It can help, entrepreneurs in their thinking about how marketing is very much an art form. You make a lot of mistakes. You try a lot of different things. but one of the things you really need to try is something to create that virality or that, ability for your, or that getting your [00:10:00] customer to sell for you.
Steve: So is that different from say product led marketing? All right. I don’t know if you’re familiar with that concept. I’m not
you know, product that sort of sells itself, like Expensify or,
Tim Draper: I actually. It’s, in some ways it’s related because. Hotmail built it into the product and.
If you build marketing into the product that can really help your business. but if you’re just building a product and saying it’s the best one out there, why isn’t anybody coming? You have not quite done your job. You’ve got a lot more to do as an entrepreneur. You got to get that first customer, second customer, third customer.
You got to get them all to be delighted with your product or service. And then. See how they can, spread it. And sometimes you do that by building it into the product. And sometimes you do it with a viral marketing approach.
Steve: so today you must see tons and tons of companies. do you have like a process or heuristic?
You have a team that’s looking for things like virality or, can you share more about how you look at things in that respect? And
Tim Draper: we see a lot of companies in a year. and we do a small fraction of those, And the way we look at them is we look until we see something very unique.
Then we use AI to figure out, what else is out there in that field. And then we use AI to evaluate the team. we use AI for everything. and then we, bring them in, meet with them, and then they, there’s some things that AI just can’t do. And those are the things I do with my team.
read the tea leaves. We understand what people are thinking when, we see them.
Steve: Is there any particular advice you’d give an entrepreneur who’s approaching you?
Tim Draper: just know your service. Know your product. Really cold. Know your business. I guess the best thing to do is practice. So you know, it’s usually entrepreneurs get funded with the 20 or their 20th pitch and that there’s a reason for that. It’s not That your idea wasn’t good the [00:12:00] first time, it’s that you’ve been able to practice relaying your idea and been able to grow and evaluate your idea through other people’s eyes 20 times, and suddenly it’s a better idea.
And it’s a better business. And during that time that you’re trying to pitch venture capitalists, you’re also trying to run the business and by trying to run the business, you’re running into customers who are telling you what might be a better idea than what you’ve got. And so. I think it’s important to have perseverance, and if there’s any indication that you’re on to something, stick to it and, and keep trying and just the approach to talking to venture capitalists should be, I’m doing this.
This is my life. you want to be on board, great. If you don’t, that’s great too.
Steve: so you want entrepreneurs to come to you and when they’re pitching their 20th time,
Tim Draper: actually, we try to be forgiving. If we know it’s their We try to be forgiving and try to send them back out there to meet other venture capitalists so [00:13:00] they can get better and then come back to us.
Steve: Excellent just going to your website. The best way to reach out and. Yeah, you
Tim Draper: can learn a lot about us. If you go to Draper dot TV. But if you go to draper. vc, that’s the website or, if you got a business plan and you build it out and you have a pitch deck and you maybe have talked to 19 venture capitalists already, you can reach out to me, Tim at draper.
Steve: let’s switch gears a little bit more. you’re mentioning a I earlier in terms of your own process. what’s your market perspective over the next, several years with this neck this last wave and. are there any other other things that are attracting your attention?
Tim Draper: Yeah, I think health care there are a lot of interesting things happening health care where people are growing new body parts they’re using CRISPR technology for genetic they’re using data for diagnostics and data plus computation for therapeutics.
healthcare is going to go through a major shift. and it’s about time because the oligopoly, the big pharma have for the first decade, continued to take more money, but, at least Americans are living shorter lives. they’re failing in their mission and it’s definitely time for people to move to the next state.
The next state is probably Medicine that is specific to the individual where you would get something different from what I get. And that’s the antithesis of what big pharma is. They’re one size fits all. So that’s going to change. Space and transportation. Musk has broken through 2 major barriers there and, allowed us some amazing opportunities to think creatively about how we transport ourselves and other people and vehicles and value and items around the world and out into outer space.
And how we use outer space in different ways, whether we’re mining [00:15:00] asteroids or sending information quicker or whatever, or people quicker through space, those fields are wide open. Very exciting. Can’t wait to see what the next entrepreneur has. To say about, the other is there’s been sort of a consolidation around Bitcoin in cryptocurrency.
I think smart contracts are going to be huge. They’re going to completely transform the legal system. The accounting system. I think we’re going the taxing system, how people are taxed, I think smart governments are going to realize that they, they should start accepting Bitcoin because it, keeps perfect records.
And, then they don’t need to hire 85, 000 IRS agents. They can just use Bitcoin and then, I think, There are going to be, some, major breakthroughs in where AI is being applied to different industries, just the way the Internet was, and it changed all these different industries. AI is.
going through, and it’s starting to change all these different industries. And so we’ve seen them in, scientific academic [00:16:00] community with something called consensus. we’ve seen it in the, in the legal industry. Quite a few companies in that field, anything where you need a lot of information and you need it.
consolidated around one place. those are the places I think. are going to be great for innovating, but of course the best innovations are always the ones that don’t even fit in the boxes.
Steve: I remember years ago, you said you want to invest in Star Trek technologies.
Tim Draper: Yeah, that was good. It
Steve: was trendy.
Tim Draper: My son said, Ironman technologies.
Steve: That’s crazy, man. so on the biotech side, I mean, you have like a team of biotech folks? I mean, do you, to look at this stuff or is it more tech? I. T. Applied to, pharmaceuticals and similar devices and the like, or do you
Tim Draper: we’re always looking for breakthroughs wherever they come from.
We do have people that are experts in all those fields, but we don’t have, we don’t label them as such. We’re generalists. We operate as generalists.
Steve: You know, not to get too [00:17:00] political, but, we do have an election coming up you know, you’ve, expressed some worldviews in the past.
how has that changed, like, in the current environment? Like, how are you thinking about the world? Are you optimistic, pessimistic, agnostic?
Tim Draper: Well, I’m always optimistic about the world. I think people are good and doing good things and, and they’re trying their best. in this, election, I was a big supporter of Nikki Haley because she believes in free markets and she is very good internationally.
And I thought she would be very good. Fantastic. I started with her. after that I was, I was stumped, between Trump and, Kamala Harris. I ended up, backing both of them and getting to know them both in some, cursory way, and I found them both to be amazing. Thank you. to have a good heart.
They’re in the right place. They’re trying their best. They’re going after, big challenges and I appreciate them both for what they’re doing. I think both understand that, Our government can be run much more efficiently. Both are looking for ways to [00:18:00] make it so that. Government and industry Are more, in touch with each other, And I think we’ll, we’ll do well with either 1 of those My, beliefs generally are, I believe in the startup having a big impact on society. And whenever a, company or an industry gets to be a monopoly or an oligopoly, in the case of governments, they’re monopolies.
In the case of state governments, they’re really not because they have to compete with each other. In the case of the, Federal U. S. government feels a little bit like a monopoly. and they don’t, monopolies don’t change very actively or often. And they don’t become efficient. Well, I love startups that can transform those monopolies.
And there are oligopolies in pharma. So go after pharma. They’re oligop, you know, with new data driven health care. Banks are an oligopoly and they need to be transformed. Go after them with [00:19:00] Bitcoin. the car companies needed to be transformed. We went after them with Tesla.
The space was completely controlled by NASA and not making any progress. And we challenged that with SpaceX. We see monopolies and oligopolies as slowing down progress. So we right now look at the federal government. We say that as a monopoly or maybe oligopoly with China and Russia and Europe. And, and it needs transforming.
And so startups are probably the way to do it, unless you get somebody who totally. goes in there and transforms it. Very great talking with you. Thanks for putting me on your show. You’re great. You
Steve: bet. Thanks, Tim.