The Startup Game: Inside the Partnership between Venture Capitalists and Entrepreneurs

241 Pages·2011·1.33 MB·English

by  William H. Draper

THE STARTUP GAME

INSIDE THE PARTNERSHIP
BETWEEN VENTURE CAPITALISTS AND
ENTREPRENEURS
W H. D III
ILLIAM RAPER
To the entrepreneurs of the world

THE STARTUP GAME
Copyright © William H. Draper III, 2011.
All rights reserved.
First published in 2011
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by PALGRAVE MACMILLAN
in the US—a division of St. Martin’s Press LLC,
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Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a
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p. 217: Harbor Lights
Words and music by Jimmy Kennedy and William Grosz
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ISBN: 978–0–230–10486–0
Library of Congress Cataloging-in-Publication Data
Draper, William H., 1928–
The start up game : inside the partnership between venture capitalists and entrepreneurs / William
H. Draper III.
p. cm.
Includes index.
ISBN 978–0–230–10486–0
1. Draper, William H., 1928– 2. Capitalists and financiers—United States—Biography. 3.
Venture capital. 4. Entrepreneurship. 5. New business enterprises—Finance. I. Title.
HG172.D73A3 2010
332.092—dc22 2010025518
A catalogue record of the book is available from the British Library.
Design by Newgen Imaging Systems (P) Ltd., Chennai, India.
First edition: January 2011
10 9 8 7 6 5 4 3 2 1
Printed in the United States of America.
Contents

Acknowledgments

Foreword by Eric Schmidt, CEO and Chairman of Google

Introduction: Breakfast at Buck’s

Chapter 1: Three Generations

Chapter 2: How It Works

Chapter 3: What It Takes

Chapter 4: My “Missing” Decade

Chapter 5: To India and Back

Chapter 6: From International to Global

Chapter 7: Finding the Exit

Chapter 8: The Business of Philanthropy

Chapter 9: Fitting It All Together
Afterword by Tim Draper

Appendix: Nonprofit Organizations Sponsored by the Draper Richards
Foundation

Notes

Index
Acknowledgments

WHEN I MENTIONED MY thought of writing a book about the three generations
of Draper venture capitalists and the entrepreneurs we met along the way,
Phyllis, my lovely wife of fifty-seven years, immediately exclaimed, “You have
to do it!” She has supported me enthusiastically at every step of the way. Her
encouragement and editorial advice have been more important to me than any
other factor in taking on this challenge and following it through to completion.
My three children, Becky, Polly, and Tim, have all helped to keep me
motivated by reading my drafts and urging me on. Tim, of course, supplied
significant content by his remarkable contribution to the industry and also
provided a thoughtful afterword. Eric Schmidt wrote an extraordinary foreword,
and through his leadership at Google, he reminds all of us every day of the
essential role entrepreneurship plays in making the world a better place.
Yasemin Denari, who is now pursuing her MBA at the Stanford Graduate
School of Business, has been involved in this project more than any other
individual. When she joined me at Draper Richards, she was eager to learn about
the venture capital business—and she certainly did. She interviewed some of the
best minds in the business, conducted superb research, and truly helped to shape,
write, and edit this book. She has done an exceptional job of managing this
endeavor from start to finish. I am deeply indebted to her.
Jeff Cruikshank was my editor in chief, and he supplied me with many words,
much-needed guidance, and some very creative structuring. His excellent grasp
of how business works was of real value to this project.
I would never have received the credentials to write as an authority about
venture capital without the support of my many partners along the way. When I
was a young associate at Draper Gaither & Anderson, I learned the basics by
trial and error with the other young associates and senior partners, including my
father. To all of them, I will be eternally grateful. My dear friend Pitch Johnson
and my wonderful partners at Sutter Hill—particularly Paul Wythes—taught me
a great deal and together we made a significant impact on an embryonic industry.
This book could never have been written without them. Robin Richards
Donohoe and I pioneered the venture capital thrust into India, and her
consistently sound judgment, solid encouragement, and insightful ideas continue
to be an inspiration for me. Her contribution to this book and to my life cannot
be overemphasized. Howard Hartenbaum and Cynthia Lam have helped me in
innumerable ways and have advised me at every stage of the development of this
book. Of course the administrative support, which Jenece Sales, Linda Rheem,
Rhonda Meier, and Jeannelle Luber have given me, has made my crazy life seem
easy breezy.
If Jim Levine, my stellar agent at the Levine Greenberg Agency, or Laurie
Harting, my executive editor at Palgrave Macmillan, had not seen a glimmer of
hope early on in my proposal, I would have been practicing my trade more and
writing about it less over this past year and a half. I am very appreciative of their
faith in me. Laurie’s direct involvement in balancing the complexities of my
story have been particularly helpful.
Hats off to the many venture capitalists and entrepreneurs who agreed to be
interviewed by Yasemin or me. They had a lot to say, and I am only sorry that
we could not put all of their ideas, experiences, and wisdom in the book. I would
also like to thank Anne Marie Burgoyne, Steve Jurvetson, Brook Byers, Mickey
Butts, Jenny Shilling Stein, Thomas Foley, and Breanna DiGiammarino for their
editorial contributions. And of course, thank you to Bill Bowes, Charles Ewald,
Stuart Davidson, John Fisher, Matt Scott, and all of my other friends who read
early drafts of the manuscript and provided helpful commentary.
Most of all, I am in awe of and thankful to the entrepreneurs who were with
me in the startup game. We’ve participated in a great game—not always
successful, not always fun, not ever easy, but a great game nonetheless. Most of
my career was spent with these extraordinary individuals, and I came to admire
every single one of them, regardless of the outcome of our venture. Together, we
took on the task of building great companies, but it was these gutsy and energetic
visionaries who did the real work.
The startup game is hazardous and exhausting, but often exhilarating. When
an entrepreneur crosses the finish line a winner and I am at his side, I know his
story has to be told. When an entrepreneur stumbles, and I, as his partner, am
unable to get him back on his feet, I know his story must also be told. That is
why I wrote this book and why I dedicated it to the entrepreneurs of the world.
Foreword

FUTURIST ALVIN TOFFLER ONCE SAID, “Change is not merely necessary to life
—it is life.” He believed that the great engine of change is technology, which
builds on itself and thus makes the next advanced technologies possible.
Gutenberg’s printing press, Edison’s lightbulb, and Bell’s telephone are all
examples of early technological innovations that dramatically transformed the
ways in which people lived, learned, and communicated. Truly disruptive
technologies such as these actually change the social norms as richer and more
pervasive models emerge. As Henry Ford said, “If I had asked people what they
wanted, they would have said faster horses.” Ford’s ability to upend the status
quo and create a new category is a good example of what fuels the continuous
engine of change.
Technological change is certainly not new. What is new is the exponential
increase in the rate of technological advancements, and the result is our growing
interconnectedness as a global society.
History has demonstrated the direct correlation between the amount of
information available to an average citizen and the economic progress in that
citizen’s country. Each day, more and more people around the world gain access
to new information and additional tools to help them collaborate, communicate,
formulate ideas, and dive instantaneously into the live stream of knowledge.
There are roughly 3 billion Google searches conducted each day; Facebook’s
500 million users post about 700 status updates per second; Twitter’s 190 million
users tweet 65 million times a day; and since it was introduced in 2003, 250
billion minutes of free Skype-to-Skype calls have been made. These are today’s
figures; by the time you read this, all of them will have grown.
So Google, Facebook, Twitter, and Skype are similar in that they are rapidly
transforming our world. But they also share another common element: all four of
these companies are venture backed. If the venture capital industry did not exist,
it’s possible, even likely, that none of these businesses would be around today.
Of course, venture capital is much more than money. It’s the passion and
intelligence that links an enthusiastic entrepreneur’s groundbreaking vision with
the successful execution of that vision. It is what can transform a dorm-room
startup into a global powerhouse.
Venture capital runs deep in the Draper blood. General William Draper was a
pioneering American venture capitalist who started the world’s first limited
partnership. His son Bill (the author of this book), who now has several hundred
investments to his name, got started in 1959, before the phrase “venture capital”
was even understood. Bill’s son Tim, founder of Draper Fisher Jurvetson and the
DFJ Global Network, is among the most prominent venture capitalists working
today. And all three Drapers have played an integral role in the unfolding of this
fascinating venture capital–entrepreneurial ecosystem.
Whether you’ve experienced the joys and pains of Silicon Valley directly or
just want to learn from those who have, you can’t do better than this firsthand
account of the storied three generations of Drapers. Bill has done a huge favor
for those of us who are passionate about technology and innovation by
chronicling their experiences. Theirs is a tale worth telling.
—Eric Schmidt
CEO and Chairman of Google