Venture capitalist Bill Draper adds ‘author’ to his résumé with ‘The Startup Game’

Some have called Bill Draper one of the fathers of modern venture capital, but that’s only a half-truth. He comes from a whole family of VCs: His dad, Gen. William H. Draper Jr., cofounded the first venture firm on the West Coast. His Menlo Park-based son, Tim, backed Hotmail and Chinese Internet giant Baidu, among others. Even Tim’s daughter, Jesse, is a budding tech star, thanks to her “Valley Girl” online talk show.

Now at 83, the elder Draper has added “author” to his résumé with “The Startup Game” (Palgrave Macmillan). Draper, who wrote the manuscript longhand on yellow legal pads without a ghostwriter, says he tackled the project because “I thought people would like to hear the story while I am still around. And,” he adds, turning serious, because “there is some controversy about the role of the VC and his future.”

The book looks back on his family’s three generations of funding successful companies and offers tips and case studies for aspiring entrepreneurs. Draper reads from “The Startup Game” Thursday at a Commonwealth Club event in Santa Clara.

In the book, the Atherton resident argues passionately that, although venture capital returns have plunged from the high-flying days of a decade ago — in part because of a dearth of initial public offerings, in part because competition among VC outfits has led to fewer multi-firm megadeals — the industry is far from dead.

To illuminate its future, Draper takes readers into the past: back to 1929, when his father, then a Wall Street investment banker, lost a bundle in the stock market crash. Three decades later, having worked furiously through the Great Depression while rising up the ranks of the Army reserves, Draper’s father made history by cofounding Stanford-based Draper, Gaither & Anderson — which was not only the West’s first venture firm but also, Draper writes, the first anywhere that used the limited partnership model so common in modern VC.

Back then, Draper explains, venture capital was chiefly the realm of a few wealthy families looking to gamble excess cash on high-risk, high-yield investments; some of Draper, Gaither & Anderson’s money came from the Rockefeller clan. Draper tells an amusing story of being dressed down by a Rockefeller partner for suggesting the firm invest in a newfangled real estate concept: the first luxury condominium in Hawaii. Draper notes with regret that the deal “would have been far and away the best investment DGA made.”

Draper’s father was in charge of the postwar restructuring of Japan and Germany under the Marshall Plan and helped conceive and execute the Berlin Airlift — and it’s clear Draper still has boundless admiration for his integrity and intellect. Still, after just a few years, a restless Bill Draper split off from his dad’s firm in 1962 alongside equally legendary venture capitalist Franklin “Pitch” Johnson, the Palo Alto native Draper met when both were young executives at Inland Steel near Chicago.

“We leased two Pontiacs,” Draper writes, “and headed out into the fruit orchards of Sunnyvale, Santa Clara and San Jose.”

Through incessant cold-calling, the duo got to know nearly every small technology firm in the valley and began attracting attention from San Francisco investment banks. Though Draper and Johnson never hit any real home runs together, both were hooked.

Draper went on in 1965 to cofound Palo Alto’s Sutter Hill Ventures, named in part to honor John Sutter and the gold rush. It financed several hundred tech companies over Draper’s 20 years leading the firm, including disk drive pioneer Quantum and chip-maker LSI Logic.

In one of his more colorful investments, Draper in 1979 backed a group of renegade Atari programmers who bolted from what was then the world’s hottest gaming company to form Activision; it was ultimately undone by the rise of the personal computer (and, Draper writes, by the CEO’s refusal to sell the company for less than $1 billion).

Even well into what others might consider retirement age, Draper has remained active. He was one of the first seed investors in Skype — and after his investment multiplied a thousandfold in the wake of Skype’s sale to eBay, he donated nearly all the proceeds to charity. 

Despite his blue-chip résumé (which also includes a stint as the United Nations’ No. 2 official from 1986 to ’93) and the fortunes he’s accrued, Draper comes across as eminently likable. He breezily writes of chatting with Walter Cronkite about media strategy while stepping out of the showers at Bohemian Grove. He tells a charmingly off-color story about the entrepreneur who showed up pitching a “luxury vibrator”; the old-school Draper thought he meant a vibrating chair.

If Draper’s book were merely a good window into Silicon Valley’s past, it would be well worth a read, but he leavens the anecdotes with practical tips for would-be investors and entrepreneurs alike. He weighs the pros and cons of various early-stage funding strategies and offers tips on the right way — and time — to exit an investment, including a detailed primer on IPOs.

Draper lays out the keys for assembling a startup team (including the personality traits he deems essential) and pointers on pitching investors. He also looks ahead to the next great waves in investment and innovation, including overseas opportunities and the rise of genomics: “If Bill Gates and Larry Ellison were undergrads today,” he opines, “they would likely study biology.”

In his foreword to the book, Google CEO Eric Schmidt — a man who knows something about growing a startup — says Draper “has done a huge favor for those of us who are passionate about technology and innovation” by chronicling his family’s experiences. That passion comes through frequently in the book. After all, Draper writes, “It was venture capital that helped make Silicon Valley possible.”

Peter Delevett covers venture capital and startups for the Mercury News; contact him at 408-271-3638