- Duration: 32 min
- Platform: zoom
- Source: Read.ai 01JY20SM0K27J2P8B57GC65ZEY (https://app.read.ai/analytics/meetings/01JY20SM0K27J2P8B57GC65ZEY)
Transcript
[Tim Draper]: You end up with decisions that are the safe ones. And it turns out that in early stage venture capital, at least, the safe ones don’t make any sense. For late stage investing, the safe ones make a lot of sense. [Conference Room (Draper Associates - Zoom) - Speaker 1]: But it’s hard to be contrarian when there’s a lot of people who have to agree on something. [Tim Draper]: Yeah. And I don’t use the word contrarian so much because there isn’t a voice on the other side when you’re starting something new. You’re not fighting against anything other than the current state of the art. And so that was when I decided, in fact, all of us kind of decided that there were too many cooks in the broth. And we spun out into about five different firms over the course of two years. And my focus was clearly on the early stage. It’s what I know best. I was a force for deal flow. I had really generated most of the deals for the partnership for years. And I had ways of marketing and and attracting entrepreneurs that were unique. So I spun out and I was wealthy enough so that I could just invest my own money. And I invested my own money and that’s when I seeded Robinhood and Cruise and Twitch And I bought all that Bitcoin. And I realized that, yeah, this works. But I kind of missed having LPs. So I decided I would allow LPs to participate with me. And so then we created what was strangely named Draper Associates 5, 6, 7, and now 8, which were just funds that were dedicated to early stage investing and mostly in technology, which is now called deep tech. And those companies are now starting to come to fruition. Oclo just became a big public company. Coinbase was a big win. Well, let’s see, several companies that I seeded, I was able to follow on with our funds that Carta, Webflow, and these are all very large companies that aren’t yet public. [Conference Room (Draper Associates - Zoom) - Speaker 1]: Tim, are there any that you saw either this period or earlier that you didn’t participate in and you sort of maybe regret or wish you had or anything like that? [Tim Draper]: Yeah. Actually, Michelle, will you just give him the book the oh yeah 40 at the end of that book um the last pages of that book were the ones we missed and uh and then in that book uh the other thing that’s just heartbreaking is uh the letter that elizabeth holmes wrote me from jail yeah can you can you also tell how about how we follow on in every round like some maybe some companies that you started the seed and you and love valuation and then what you followed on every round because you knew it was a winner and why it was a winner? Well, those are always different because we, in order to follow on, we had to have the capacity to follow on. So we don’t always have that. A lot of a lot of the follow-ons are determined by how liquid we are. But the goal is to double down on the winners. And that has been more so that you end up with even more of a concentrated portfolio. That has been happening more often now than it did before. Well, we were early investors in Coinbase and then Coinbase had another round and we brought the fund in and another round that we weren’t able to bring the fund in. So we went in at about a billion dollar valuation with a fund and we didn’t have the capacity to do the $7 billion round. Both would have been great successes. Yeah, I’m not sure what you’re getting at there. [Conference Room (Draper Associates - Zoom) - Speaker 1]: Yeah, no, that makes sense. [Conference Room (Draper Associates - Zoom) - Speaker 1]: With Coinbase in particular, I guess, where did you individually come in? Was that the first check, basically, in the company? [Tim Draper]: No, my son Adam saw me. Met him because he was in my office and Brian gave the pitch and we had already made an investment in CoinLab. And so we missed the first round, but my son invested in the first round of Coinbase at a very cheap price. Then I came in in a growth round And then our fund came in in a pre-public round. [Conference Room (Draper Associates - Zoom) - Speaker 1]: So your son’s got one over on you forever, basically. He’s good. He’s good. [Tim Draper]: From the word go, I love Brian Armstrong. And I wanted to do it, but we had already made an investment in something called CoinLab, which was pretty much gonna do the same thing. [Conference Room (Draper Associates - Zoom) - Speaker 1]: Let’s talk more about the sort of frontier tech emerging sectors perspectives that you have. So one idea there would be like, when you are looking at companies who are sort of, who have that notion of direction, they’re not even contrarian, they’re sort of doing their own new thing. How do you spot the difference between, you know, a genuine innovation versus or just a bubble or something that’s not gonna pan out? [Tim Draper]: Well, if it’s something I’ve never heard of before, I usually try to dig in pretty deep. And if it’s something that already has an industry around it, where it’s like, oh, there’s, you know, we’re clean tech too, or, you know, we’re something too. Or this is going to be a feature on Google, or this is going to be one of 300 ICOs. I know that it’s too easy to do, and it becomes a commodity, and usually those companies don’t become big winners. The ones that are harder to do, usually if you do a you might see only two or three competitors there. And now actually we do AI searches and we find maybe no more than 10 competitors with the companies that we really want to fund. But, you know, a lot of times you’ll do a Google search and there’ll be 500 companies doing the exact same thing. And you realize this is just too easy It’s going to be a race to the bottom. Nobody is going to, you know, maybe there’ll be a big winner later, but it’s not a good place to place a seed. [Conference Room (Draper Associates - Zoom) - Speaker 1]: Another thought there would be, you know, you mentioned what’s now emerged as new tech. There’s a lot of regulatory stuff that comes up with those types of companies. How do you help founders sort of get ahead of that and navigate that from the early stage where they might not have experience in those roles? [Tim Draper]: Yeah, we try not to invest in companies that have to face regulatory approvals. Occasionally, we’ll do a health care company where they’re going to have to face FDA. But in general, we try to avoid too much regulatory because The regulators, if they are involved when a company is a seed, the company can’t afford to deal with them. They all tend to go out of business. Regulators should really let entrepreneurs play in the sandbox for a long time before they’re regulating. But if, I mean, God, we saw the SEC, the old SEC, not the new one. Go slap down a company that was a raw startup just because they felt like someday the company might end up looking like an exchange. I mean, it was like you’re stopping progress before it starts. You’re stopping innovation before it starts. And a lot of regulators do. They just get in the way. I mean, regulation should really happen. Now they’re trying to anticipate problems, which really destroys innovation. And what they should be doing is waiting until there is a problem and then regulating. And the problem should affect, I mean, if it affects three people, you got to kind of let it go. But if it affects, you know, a million people, then you should start to talk about what needs to be done. [Conference Room (Draper Associates - Zoom) - Speaker 1]: Yeah, that’s that great talk where he did at the Olin Summit, I think two years ago, about, he like, showed that the regulators, when regulators get involved, the incumbents are the ones who, you know, take larger ownership of markets and things like that, so. Tim, I know we’re out of time, so, time or do you want to should we hop off or oh yeah um we can go another 10 okay that’d be good because I think we missed a bit of your first story part okay so um let’s see another thing um okay so let’s say over the last five years you’ve seen some of these companies like Robocode and Twitch and all that sort of, you know, they’ve gone through that cycle. You’ve seen them at that point that you invested in yourself. How has your investing philosophy maybe changed in the last five years sort of since then or since COVID or just, yeah, how has your philosophy changed? [Tim Draper]: Well, COVID was a mess. I think the politicians and the media, they, they really destroyed humanity for three or four years. I think that was a huge mistake that they would force people six feet apart, wear masks, do all that. I mean, that paranoia, I think decisions made based on fear generally fail. And I wrote a tweet saying, you know, their cure may be worse than the disease. And I got beaten up in the press for saying that, but I think I was right. And now like, I mean, I don’t know if Michelle’s been around long enough, but I think we’ve seen 500 mental health startups after COVID and zero before it. So nothing ever before it and 500 after it. So it’s pretty clear it messed with people’s emotions, their minds, their humanity, everything. [Conference Room (Draper Associates - Zoom) - Speaker 1]: You see that meme of like people posting like, oh, COVID was five years ago. Where does the time go, right? [Tim Draper]: Like they’re still in shock from it even now. Yeah. And I still have, I mean, I did everything. I knew this was messed up. And so I did everything pretending things were normal. And I was used to using Zoom and Skype before that. So that was just a normal part of my day. But what I would do is I’d kiss my wife goodbye and go to my home office and have a bunch of Skype calls as though it was a normal day. Right. And so I tried to feel that humanity all the way through, but boy, what a horrible time. And now you’re seeing the I guess it’s like, what do you call it, a reaction to COVID, the overreaction, where people are a little bit manic. I mean, they went from depressive to manic about all getting together. So, when you see, you go to a conference, some of those early conferences, people were just like, so happy. And oh my god it’s a human and I can hug them and whatever and now it’s settling down. My general investment philosophy hasn’t changed too much except that during COVID I was forced to invest in companies where there were people that I had never met. I was only on Zoom calls with them and when When I met them, I realized I had made a mistake. When I met some of them, some of them I went, Oh my God, I’m so lucky that I got into this. And I didn’t even, you know, it was just, I, I wasn’t even that enthusiastic when I did the zoom call. And now it’s like, Whoa, I did that one. Whereas, and also we were, we were extremely active investors during the early part of because the rest of the investment community had checked out. They were gone. And so we just said, hey, I’m going for it. I’m going to invest based on Zoom calls. I didn’t even think twice. And we made a bunch of mistakes, but I think we ended up, I mean, we did. We outperformed the market by a lot. So I guess that’s what What has changed the most in that period is we’ve made decisions without having personally met the entrepreneur. We’ve just met him on Zoom. Now we’re going back to personal a little bit more. But still, I mean, there’s some Zoom calls that we’re making decisions based on that. That’s happened is we are very comfortable. I mean, for the first, say, seven years after I spun out, I was swinging for the fences and I felt like I was really taking giant risks by not doing the easy singles and doubles. Now I’m very comfortable in that world because it is working. There wasn’t as much proof back then. How much do you think it’s overperforming the market by taking those types of swings? Well, our proof is in the pudding. I mean, early stage venture outperforms all other asset classes if you go 30 years back. But we’re outperforming early stage venture capital. [Conference Room (Draper Associates - Zoom) - Speaker 2]: And so- If you think about people, a lot of venture capitalists now are hesitant to spend because they’re worried about the market. What would you say to them? What would you say? [Tim Draper]: Why VC? Why now? Oh, well, I would never I never deign to give my competition advice. We’ll keep that one in the journal. [Conference Room (Draper Associates - Zoom) - Speaker 1]: Generally, why VC, why now? [Conference Room (Draper Associates - Zoom) - Speaker 2]: Why is it a good time, even when you’re talking to people who are hesitant to invest in VC? [Tim Draper]: Well, I think it’s why VC always. I think you invest through every cycle. And also at the early stage, I think we’re damped from the macro environment a lot. I mean, we are affected by it in that when we have our exits, a lot of that is tied to the macro environment. But when we make our investments, I think that should be all the time. [Conference Room (Draper Associates - Zoom) - Speaker 1]: Last question. Wait, I have a question after that. [Conference Room (Draper Associates - Zoom) - Speaker 2]: I want to do a post where it’s like, these are my heck yeses and heck no something when you’re looking at a founder. So what would be if you had to be like, heck yes, founder, and this is like red flag founder. [Tim Draper]: Heck yes, founder is one that is their background aligns with their future. Their background Heck no is if they’re not aligned. Heck yes is if they’re willing to go out on a limb and try something experimental. Heck no is if they’re driven by fear. Heck yes is if a family is very good at letting the other members of the team speak and the mutual respect around the team. Heck no, is when two founders are talking over each other. Heck yes, is when the founder is open to suggestion, but sticking to some sort of a north star. Heck no, if a founder is just agreeing with everything every new idea that I throw out there. Just, I mean, just saying yes, in order to get the money, because they’ll flow with the river and they’ll never really build anything of value. Let’s see, heck yes. If they’re going after it, that is a big industry that’s run by an oligopoly or monopoly that’s heavily regulated to that oligopoly, but they’re going after something that is using new technology, so would not be regulated. Heck, no. It’s just they’re going to spend all their time in Washington negotiating with, and actually educating the bureaucracy, which is what often happens. You end up educating the bureaucracy and you never make progress. Or even educating one party, one political party, because the other political party will be against it. If one is for it, the other one’s going to be against it. So generally, it’s better not to have to navigate Washington if you are doing a startup. OK, then last one. [Conference Room (Draper Associates - Zoom) - Speaker 1]: I know we’re a couple minutes over, so I appreciate it. You mentioned cycles and wanting to invest through every cycle. Where do you think we’re at right now in the AI cycle? [Tim Draper]: Oh, yeah. Generally, I think the bloom is off the rose. New AI, new forms of AI, I think are just beginning, or they will be beginning over the next couple of years. Generally, at some point, people are going to have to look at revenues and earnings and compare them to valuations. And I think there will be one or two big winners there, but there are 16 participants in specific areas. Or robot AI, or specific to industries, I think that’s just beginning. So a lot of great things soon to be happening in AI, but evaluations clearly have come at I mean, we’re not looking at the internet bubble yet, but we’re seeing stalled valuations. And I’m getting a lot more offers to buy into the general AI secondaries than I did before. Can I ask one more thing? [Conference Room (Draper Associates - Zoom) - Speaker 2]: From the heck yes, heck no, could you Can you even name like maybe three founders that you were like, they completely embodied, heck yeses and why? [Tim Draper]: Well, it’s easy to do in retrospect, but I would just say Elon, visionary, open-minded, thoughtful, hardworking, dedicated, knew where he wanted to go. His background was in space. He loved space. He put his own money in there before we did. Nicholas Zennstrom at Skype and Yanis Fris, they were both very open to new ideas. They had started Kazaa. They knew they hung on to some really interesting technology that could be used for a lot of other things. They found really good programmers in Estonia that they had worked with before they were, and it had a viral effect. I didn’t talk about virality, but it had a viral effect. So Nicholas Zennstrom, Robin Lee, quiet confidence, really, you know, has great leadership, people skills and really did a great job at taking technology from the U.S. In search and applying it to the Chinese and Japanese markets. That was brilliant strategically. And he was you know, he was a programmer. And so it was a natural for him to build that out. Yeah, I mean. [Tim Draper]: Is there anything we didn’t ask that you would love to talk about online right now? [Conference Room (Draper Associates - Zoom) - Speaker 2]: No, that’s fine. [Tim Draper]: I better get off now. Yeah, I think you have 11. Thank you, Tim. Thanks so much, Tim. [UNKNOWN_SPEAKER]: OK. See you. [UNKNOWN_SPEAKER]: Thank you.