Bill Draper is one of the most knowledgeable people in the world about venture capital investments.
In 1959, he joined his father's firm Draper, Gaither & Anderson, one of the first venture capital funds in the West Coast. About six years later, he founded Sutter Hill Ventures, which to this day remains a top player in Silicon Valley.
In the 1980s, Draper entered public service and held posts in the Reagan administration and the United Nations.
In the 1990s, he returned to the private sector and founded Draper International, the first U.S. venture capital fund that focuses on companies in India.
Draper recently published a book called The Startup Game: Inside the Partnership between Venture Capitalists and Entrepreneurs, which talks about his experience in venture capital investments and dealings with companies like Skype, OpenTable, Yahoo, Zappos, Baidu, Tesla Motors, and Activision.
Draper spoke to IBTimes about his book and his views on venture capital investments.
IBT: How are conditions in the venture capital industry currently?
Draper: There is plenty of money for a good idea. The flow of venture capital into Silicon Valley and other places has been good for entrepreneurs and good for the country. It will help companies to break through with ideas like Facebook, Twitter, and LinkedIn.
These breakthroughs changed the way we do business and communicate with our friends.
It will also create jobs and help the U.S. economy.
[The availability of venture capital] hasn't been so good for venture capital profits. Also, weaker companies are allowed to stay alive longer than they should.
IBT: Any thoughts on what the next hot sector will be?
Draper: The treatment of disease in the human body.
Big changes are coming and there will be some exciting things in this field. I've said that if people like Steve Jobs and Jerry Yang studied biology, they will make exciting breakthroughs.
IBT: How do you spot a promising start-up? Is it the people? The technology?
Draper: I'm better at valuing people than technology. I look for vision. I look for how much homework they've done on their idea, how closely they monitor the competition, how far they think ahead, and how much they know how the world works.
They also need to have energy, drive, and be sensitive to other people.
They can have abrasiveness, as some great leaders do. But they also need to be sensitive enough to keep talented people working for them.
IBT: What are some examples from your experience, of people that had those qualities?
Draper: Jonathan Bush, nephew of George W. Bush, had great energy the day I met him and is still terrifically energetic today.
Niklas Zennström, founder of Skype, had great vision. Skype is a great example of a disruptive technology.
A good example of sticking to the vision is Thomas Layton of OpenTable. When he was charging $1 for reservations at restaurants, I told him to charge $2 because people like it so much.
He said to me, Bill, I want to own the market.
I then told him to charge cash for the equipment that restaurants use, instead of leasing it, which would make his business less cash-intensive.
He again said to me, Bill, I want to own the market.
Sure enough, he now owns the market. I'm glad he didn't listen to me on both accounts.
IBT: What are some new, promising companies that not a lot of people know about?
They have the analytic tools to know exactly what's going on with the users of the iPhone and Google's Android. They know how long people stay on, what games or apps they're using, etc.
PowerReviews is doing very well too.
We're backing both companies.
IBT: Any messages you want to get across from your book?
Draper: The best venture capitalists try to make great companies instead of making a quick buck.
Those are the classy venture capitalists. If entrepreneurs have a choice, go to those guys.
IBT: What are some examples of your firm staying with a company for a long time?
Draper: It took us 10 years to go public with OpenTable. It took us 7 years to do so with athenahealth, Jonathan Bush's company.
Venture capital is best when it's patient.
Also, I am very enthusiastic about Asians and other immigrants coming to the US and helping to build these great companies. Almost every single one of the companies started in the Bay Area has an Asian as one of the entrepreneurs.
I started the first U.S. venture capital fund for India (Draper International). The timing was good and we made 16 times the money we put in within six years.
I love the fact that we are more and more international in the Silicon Valley and in America.
One of the stupidest programs the US government has is to insist that immigrants go back home after they've received excellent educations at universities like MIT, Stanford, and Yale. It's incredible to me that they're not allowed to stay here.
I would definitely change that immigration rule.
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