Exclusive Audio Interview with Tim Draper

“I’m a believer in human endeavor, and the strategy of always thinking of how to delight your customer”

Tim Draper is the founder of Draper Associates, DFJ and Draper Venture Network. He also has his own show, Meet the Drapers. Tim helped fund Tesla, SpaceX, Box, Carta and over 15 other unicorns, importantly, at the seed stage. Nowadays, anybody can invest in a secondary and they could have invested yesterday in SpaceX and claim they funded it, doesn’t mean as much as the seed stage, obviously.

He’s invested in over 50 crypto companies, including Coinbase. For those people my age or older, his strategies were instrumental in helping Hotmail and Skype go viral. Worth Magazine has called Tim one of the top 100 Most Powerful People in Finance. He’s a huge supporter of entrepreneurs globally, and we’re honored now to have him here for a live exclusive interview for Billionaires.com as part of our 100 Billionaire Interview Series.

Richard Wilson: What was the major turning point or the point of increased momentum or maybe a strategic choke point you acquired that once you did that thing or that thing happened, everything else searched forward for you?

Tim Draper: Well, I’d say there were two because I started by borrowing from the government through the SBIC program, and that was the money I put to work to start with. I was on their watch list and their dirt list and about five years later, the IPO window opened up, and I had five IPOs. One was Parametric Technology, which is still now PTC, the largest software company in New England, and it paid for everything.

I was able to pay back the government. I was able to build my business. That was inflection point number one. Inflection point number two was really when we founded Hotmail, and I came up with that idea, the message at the bottom of the screen saying, “PS: I Love You. Get Your Free Email at Hotmail.”

They got rid of PS: I Love You, but it spread to 11 million users in 18 months. I realized that if you can do something to delight your customers and somehow get them to spread the word, then your customers can be your Salesforce. That has helped me along the way. Hotmail was a big inflection point in my wealth too, and I was able to make quite a bit of money on that.

Then maybe the third is when I decided to go build out a network of venture capitalists, and so I went internationally. I was the first Silicon Valley venture capitalists to go to China and the first one to invest in something in Eastern Europe. We were able to fund Baidu and Skype, and that’s where suddenly I had extraordinary wealth. Those were probably the inflection points.

Richard Wilson: I appreciate you sharing that. What would you say is the most valuable strategy that is worth far more than a million dollars that you wish somebody had provided you with early on?

Tim Draper: I’m a believer in human endeavor, and the strategy of always thinking of how to delight your customer and making your customer into a sales force is probably the most powerful thing in business. For these family offices, the moment you start thinking of capital preservation, you have already lost. I think capital preservation makes no sense. The way you make money is you invest it in human endeavor, and you invest it with people who are dedicated to what they do, and this is all they want to do with themselves. The more complicated investment strategies you hear about the things that make you go, “Huh? Wait, what? Where does that go? How does that money go? “Are the ones that will lose you the most money.

My advice would probably be also maybe interesting for people who have children who want those children to be financially literate, give them an allowance, not a very big one. Get them to earn money and get them to invest that money in the stock market really early so that they’re… At first, they won’t really know what’s going on and they’ll just say, “Oh, it’s going up, it’s going down.” But eventually, it’ll be like, “Hey, have you looked at the PE ratio here? Have you noticed that the cashflow of this business has dropped way off? Have you seen their receivables have gone up in an extraordinary way? Why are they building up all that inventory?”

Those questions start hitting and then you start getting better and better at understanding business. Also, it’s good to invest in companies that collect early and pay late. Amazon was brilliant in saying, “You go ahead and pay for the book. We’ll go find it for you, and we’ll get it to you.” They got their cash first, then they bought the book. Elon was also brilliant at doing something similar where it’s like you pay $80,000 for the car and then you pay the last 20,000 when you get it, and some of those cars were two and three years coming. Businesses with cash flows come early, but entrepreneurs who are starting out to give something away think give first rather than take first. It’s always a temptation to try to take first.

Think to give first, and that ends up being really powerful. I would say those would be my primary strategies as an advisor both to an investor and to somebody who’s running a business. You preserve your cabinet. It’s like, I don’t know if you notice this, but anything you try to hide, you lose. The things that help you win are things where you go, “Okay, this is risky, but I’m going to try it, and here’s what I’m going to do.”

Richard Wilson: Third question here, what’s the number one most costly mistake that either you have made or you see so many investors make and business owners could easily avoid this mistake if they just took it to heart and heard it from you?

Tim Draper: It was a failure to act. My business is different from a lot of businesses, but my biggest mistakes were failures to invest. That includes into the seed round at Google and Yahoo and Facebook and LinkedIn and Netflix, and all of them were very interesting and on the margin for me. A lot of the times I just got talked out of it by partners or whoever, and some of the times it was just purely I didn’t get it.

Whereas, I would not say that the times I invested in companies that didn’t work out were we’re really inflection points of any kind or issues that really seriously affected me. The other downside is always if you get into some sort of a legal struggle that usually ruins your life for as long as it lasts, and the lawyers are making money during that time that it’s ruining your life. They’re saying, “Yeah, I need billable hours,” and they want to spread that as long as they possibly can. What you want is for it to be over. It’s always better to change the model, incentivize your lawyer to settle, to figure it out, to win quickly, to end it quickly, to lose quickly, whatever. Just get it done because otherwise, you just sit there living in fear. It’s a horrible, horrible feeling. “Fear, as Frank Herbert of Dune says, “is the mind-killer.” All the decisions I’ve made based on fear have been huge mistakes, and all the decisions that I’ve made based on risk or possible opportunity or, “What if it works?” I haven’t regretted any of those. They didn’t all work out, but I haven’t regretted it.

Look, when we backed Tesla. There was one guy, his name was Martin Eberhard, nobody else was there. Elon came later. We were going after a company that was starting a car company, and there hadn’t been a successful car company started for 50 years. They were capital intensive, and it was a huge, huge risk. When we invested in Skype, those were two guys who were in effect outlaws from the U.S. because of the work they did for file sharing at Kaza. For Hotmail, that was the first product anybody had ever said, “We’re just going to give it away for free.” We didn’t really have a reason to go, and all of those great companies pivoted too. Skype started out as file sharing, I mean Wi-Fi sharing, not file sharing. Hotmail came to us with a whole different idea for helping people with their websites.

They changed the model right there on the spot. Then viral marketing, when I came up with that idea, that pivoted them once again. It’s to avoid fear, don’t make decisions based on fear. Go ahead, use your fear to figure out what could go wrong, but then always invest for what if it works?

Richard Wilson: I know you’ve been interviewed 500 times, maybe 1000+ times. What do you wish people asked you and they never did that you’d love a chance to share more? Is there anything that comes to mind that you want to end with?

Tim Draper: My son, on our show Meet the Drapers, asked one of the entrepreneurs, “What is your spirit animal?” It put the entrepreneur completely on their heels, and it was like, “Oh, my God, this is hilarious. If you were to ask me what my spirit animal is,” then I said to my son, “well, mine is either the rhino or the hummingbird.” He said, “Oh, you can have one on land and one in the air and one in the sea.” I thought about the sea, and I had to go with dolphin because I’m a big ocean swimmer, and I got surrounded by dolphins once. They were having a dolphin stampede. It was something like 300,000 dolphins all going through this one area once, and that’s a spirit animal for me. The rhino has been a big part of my life.

I remember when I spent, I don’t know, I was 20 years old or something, I was traveling around Europe. In the Berlin Zoo there was a rhino, and the rhino was able to reach his head over the fence. I rubbed the rhino’s horn for about 20 minutes thinking, “This is so wild,” and the rhino and I got along famously. I thought, “Okay,” and rhino is really important for a venture capitalist or an entrepreneur, because what you’re really doing is you’re just charging in there and you can’t see what’s going to happen next. You just charge forward, and you’re not a bull, you’re not a bear, but you’re a rhino. That’s a strong spirit animal. Then the hummingbird is my “up in the air” animal, and I just seem to bond with them when they’re around.

Richard Wilson: I appreciate you being here for the interview. I know your time is super valuable, so we can bring this to an end, but definitely appreciate it.

Tim Draper: Can I add one more thing? There’s this long history argument of freedom versus government control, and it’s been going on forever. I like to pitch for freedom, because I noticed I funded all these companies while China had freedom, and the Chinese people were so excited and so dynamic. Their economy grew at 9% and there was no unemployment, and everybody was working, and everybody was happy, and everybody was fantastic. Then President Xi came in and he decided to be a dictator, and he put everybody into his controls.

Now everybody’s watching over their shoulders. They’re afraid to try anything. They’re not doing anything interesting. They’re struggling now financially. They’re worrying about what the rules are. Every time they try something new, they worry about what the government will think. In fact, in the U.S. is starting to happen too, and the economy’s gone flat line. There’s more unemployment and there are more problems, and there are more… and you think that the government is doing things, “Oh, they’re helping out the poor.” It turns out freedom helps the poor the most.

It’s very hard for people to grok that. But as I go around the world and I get a chance to meet with people from wherever, I found that the leaders who are self-confident enough to set their people free are the greatest leaders in the world. They’re the ones who actually grow economies, get people off the streets. Everybody’s working, everybody’s got a job, and they have a reason to live. They’re having fun and they’re happy and all of that. The ones that try to control everybody, I recently was in Cuba, they are afraid to do anything.