By Chris Arsenault, Interview with Timothy C. Draper, Founder and Managing Director, Draper Fisher Jurvetson, for the CVCA Private Capital Privé magazine – Summer 2009 edition
The outspoken and energetic Silicon Valley investor icon Tim Draper storms the stage at the 2009 CVCA Annual Conference.
The theme of this year’s CVCA Annual Conference was “Embrace our Energy.” Well, keynote speaker Tim Draper did just that. He had more energy than any other venture capitalist in the room that evening – his eyes were sparkling and he saw opportunity everywhere.
When asked about the current state of the venture capital industry, Draper, who is Founder and Managing Director at Draper Fisher Jurvetson, focused on two core issues. First: we need to break down the borders and enable free trade, he said, and second, we need a new private stock market. While Draper offered no solutions on achieving free trade, he continues to actively advocate for borderless markets. He regularly takes time out of his busy schedule to speak with government officials, the private equity industry, politicians and industry leaders to convince them the world will be a better place if we dropped our commercial borders.
On the second issue, Draper expects to be able to launch a new private equity exchange market. Oh yeah, and Draper also sings! He not only sings, he wrote the lyrics to the “The Riskmaster” and gave CVCA attendees a taste of his singing skills right there and then. Good thing we had the lyrics on the screen to sing along!
“While some people are panicking, or even worse clinging to the past, I think that crisis creates opportunity. And that’s a VC’s job, to identify the opportunities” Tim Draper, DFJ
Chris Arsenault: What makes these times so exiting for you?
Tim Draper: Timing is now! The current crisis is creating huge liquidity problems. The venture backed IPO market is inexistent and it’s tough for entrepreneurs, venture capitalists, limited partners and future entrepreneurs. While some people are panicking, or even worse clinging to the past, I think that crisis creates opportunity. And that’s a VC’s job to identify the opportunities.
Arsenault: You said earlier that our time was now, why is that?
Draper: I’m talking about the cycle of high returns for venture capital funds versus private equity funds. It’s a cycle. One goes up while the other goes down. The last cycle was owned by the private equity guys, from 2000 to 2008, and they had an amazing run. Until last year that is. We just now embarked on the venture capital cycle and will be coming out of the recession. That means good business for us. It’s the best time ever to invest venture capital money: we are going through a recession/depression, there are low company valuations, liquidity solutions are near, there’s less competition for VCs and entrepreneurs, and new technologies will be game changers.
Arsenault: How does your experience guide you through these times?
Draper: My father and my grandfather pioneered venture capital in Silicon Valley and I’ve been in the business for over 25 years. Some of the greatest companies in the world have started in recessions or depressions, such as GE, IBM, HP, Adobe, Skype and Johnson & Johnson. And now is the best time to invest in start-ups because existing companies are reeling, smart people are out of a job, new technologies are going to change the way we work and play, and there are fewer start-up competitors.
Entrepreneurs are now more enabled by technology than ever before. Entrepreneurs don’t require as much cash either. So we need to support these entrepreneurs, but we now get a larger stake in the company because of the more reasonable valuations. I do fear that there will be less VCs out there though. I also think that the markets will come back. They are slowly creeping back, but we need a new platform for liquidity.
Arsenault: So tell us more about XChange.
Draper: Awesome. This is the greatest thing to happen in the liquidity markets in a long time. XChange is a new springboard to an IPO. Companies can post their profile, raise money, control access and communicate with shareholders. Investors can peruse, connect with companies, buy and sell shares. The technology behind the platform answers today’s communications needs.
My company Draper Fisher Jurvetson is a substantial investor behind XChange. We need more liquidity. Liquidity is what drives deals. The current markets don’t offer solutions for companies under $250 million. This platform will enable companies to remain private while providing liquidity to investors. It will allow entrepreneurs to raise cash for their ventures while enabling investors to get their money out short of an IPO. Investors will need to be qualified trading institutions. Big names will be backing this new platform. We expect to launch in September.
Arsenault: What do you see in Canada?
Draper: Well first, the XChange platform won’t be available in Canada, at least not at initially, but it would be great to find a partner to do so. The Canadian government should drop the borders and have real free trade with the U.S. Lower friction to do business is needed. Aren’t we are both socialist countries now?
We want to bring our DFJ network to Canada and do more deals here. Canada has a history of great technologies – RIM, Sierra Wireless, OpenText, Sharepoint – great universities, a strong entrepreneurial community and a better perspective from outside Silicon Valley, more creative.
This is our time now!
“There are no better times to be a VC. It’s our time now, PE is down and VC is up!” Tim Draper, DFJ
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