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Tim Draper's DFJ, riding high, breaks with ePlanet Ventures

Updated

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Photo by Rick Martin

Here is our story published today in the Merc about Tim Draper, of Draper Fisher Jurvetson, who other VCs had long dismissed as a bit of a hack. Until this year -- when he became the hottest VC around, with big hits Skype and Baidu.

As usual, our newspaper version was stuffed into a space of about 28 column-length inches, when we'd really wanted to run about 40 inches. There's so much to say about Draper. Not merely that he has a penchant for crazy antics -- like riding elephants into parties, dressing up as Batman, leading singalongs at investment conferences or skiing in boxer shorts. But that he has become one of the more vocal supporters of how...

venture capital can transform other regions for good: "I've got to say, it's my mission," he told us. "I know how venture capital can transform a region. It's really entrepreneurship that transforms a region, but venture capital encourages it. So it's a cycle."

Draper, 47 was born into a family of VCs who also had extensive international political experience. In recent years, you'd hear him joke that he represents a watering down of the gene pool.

But now he has made a comeback. He's found an international vision that is grand enough to match the accomplishments of his grandfather and father. His grandfather was one of the first VCs west of Mississippi, founding Draper, Gaither and Anderson in Palo Alto in 1959. His grandfather also served as undersecretary in the Army and helped manage the reconstruction of Japan and Germany after World War II. Draper's father, Bill Draper, founded early Silicon Valley firm Sutter Hill ventures, and was also active internationally, as chairman of the U.S. Export-Import Bank, and Administrator and CEO of the U.N. Development Program.

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[One newsy tidbit, for insiders: DFJ has decided to break from ePlanet Ventures, the partner-fund that helped make foreign investments in Baidu and Skype and several other decent companies like KongZhong. DFJ's most recent $400 million fund, raised earlier this year, has a mandate to invest globally, and so doesn't need ePlanet Ventures to make global investments anymore, Draper told us.

The nitty-gritty: Draper and his two U.S. partners, Fisher and Jurvetson, are on the investment committee of ePlanet, along with Asad Jamal. However, D, F & J have decided to split with London-based Jamal, after ePlanet finishes investing its $650 million fund raised in 1999. Jamal will then be free to take ePlanet forward as he sees fit. (Jamal, by the way, says the fund still has enough money to invest for four more years -- even though it has already invested in 65 companies.) There seemed to be slight difference in opinion about the cause of the recent defections in DFJ's China offices. Draper suggested it was a "management" issue, and diplomatically said the "model is evolving" -- suggesting there is truth to some of the whispers we've heard about a deteriorating relationship between Jamal and some others in DFJ's network. Jamal, though, says the two sides remain highly collaborative. To be fair, too, the defections in China may indeed have something to do with ePlanet's success, as Jamal suggested was the case. Skype and Baidu made ePlanet an instant magnet for headhunters, he told us. Or, the real tension may come from the profit structure created by ePlanet Ventures. D, F & J claim a decent portion of the profits -- leaving less to the work-horse guys underneath like Foo and Zhang.]

So, for now, Draper's push abroad will continue. He told us he will continue hiring DFJ staff for its international investments. And he'll look for more global partnerships. An affiliate fund in China - to be called the DFJ Dragon, is expected to close next month. DFJ's New York fund is working on an Israeli operation. Draper has someone working on forming a team in Brazil. A $200 million fund for India should be announced next year. There's the Ukraine fund we mentioned in the newspaper story. And, of course, there's Element, the environmental fund, still being raised.

Now, Draper's penchant for making snap judgments and taking quick action - even on risky ideas - is renown. Once, Draper agreed to back the online-advertising firm Amazing Media, instantly after hearing its 30-second pitch. His ballsy moves haven't always served him well. In 1999, Draper tried to take venture capital to the masses, via a publicly traded venture firm called MeVC that regular investors could buy shares in. The firm is still alive, but has struggled through numerous management changes, finally forcing Draper to dissociate DFJ from MeVC in 2002. There was the political initiative for school vouchers that failed despite Draper's spending millions on it. And more recently, the firm has pushed heavily into nanotechnology, viewed by many as not ripe for venture investments. Some have called Draper's gunshot style "Draper-Fishering." And yet, the nimbleness, the quick decision-making has characterized Draper's moves abroad -- and it has worked. He tries things out, and keeps the successes, and jettisons the failures. The moves don't reflect fickleness: He has kept steady at the expansion from Silicon Valley for eight years.

And you've got to give him credit for being contrarian. During the boom, Draper avoided the mistake by Silicon Valley firms, many of which raised $1 billion-sized funds, only to be forced to return much of the money to their investors after the Internet bubble burst. Draper's firm stayed smaller, scrappier in structure -- and went international at a time when others scoffed at the notion.

Some may take us to task for not pointing out other global VC players, such as Carlyle, which has as many offices as DFJ. The difference is, DFJ invests at the seed and early stage of a company's life, which has long been considered a local sport. Carlyle invests more money, and so can afford bigger overhead, and so on. And there's the VC firms like Walden Int'l and H&Q Asia Pacific, which are also pan-Asian funds -- and which beat Draper to Asia by a decade or so. The difference here is that DFJ was a Silicon Valley firm, unlike the others which had clear foreign ties from the beginning.

Finally, we asked Draper how the firm manages daily operations amid its global sprawl. DFJ has introduced various networking tools within its own "extranet," Draper told us. It has formed a "wiki" for each company it looks at, a single online document where DFJ's investors can collaborate by adding comments -- produced by Socialtext of Palo alto. It uses Tacit, a software that allows investors to know which colleagues have experience working on the company or related industry. (Note: Draper has invested in both these companies).

The collaboration tools seemed to have helped. At one point, DFJ was studying investments into two nanotech start-ups at Stanford. But through its network, it found about 48 other possibilities. They ended up not doing the two at Stanford, but picked four or five from other countries, Draper said.

(Note: We're still calling Baidu a success, even if this trend is a bit worrying)


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Comments

Matt, when I first read your article today I was going to fire off a cynical email asking basically: haven't you written this article before? Wacky Tim Draper, family business, elephants, Batman, Frisbee, Hotmail, viral marketing, Skype, Baidu, affiliate networks, blah, blah, blah.

This blog entry at least sheds more light on the subject, so I'll hold back what I was originally going to write. But still, I think it's useful to put Skype and Baidu in perspective.

In Q3 '05 Baidu had had net income of $1.1M on revenues of $11.0M. Roughly a $50M company. Nice, but it ain't no Google. I think the trend you point out will continue.

Rumors were that Skype had approximately $20M in annual revenue before they were bought.

I think most VC would consider companies of this size a clean single. Their fabulous liquidity events can't be considered a reasonably expected outcome. That doesn't make it any less a great investment, but I think it be a stretch to attribute skill where serendipity played the dominant role. Luck is a major element of start-up success. I think intellectually honest VCs would concur.

Also, in my opinion, the article (but not your blog entries) attributes to Draper much more credit than is probably justified. Your blog addresses these points, but they are nowhere to be found in the article. As you said, success has a thousand fathers.

Their affiliate model still isn't entirely clear, but it sounds like they're more active than a Limited Partner (they are on the investment committee), but not sure how much more active. If the affiliates are sourcing the deals and taking the board seats, how active can DJF really be??

As for ePlanet being a magnet for headhunters, you can bet they're a magnet for LPs as well. Maybe DFJ decided to split once they realized ePlanet had (as George Castanza says) Hand?

Chris Marino on December 28, 2005 3:47 PM
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