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Tim Draper Is Not Worried About the Future of Venture Capital

January, 2002

STANFORD GRADUATE SCHOOL OF BUSINESS—The U.S. venture capital industry—with a looming cash crunch and wary investors—looks gloomy. But at a January 29 speech at the Stanford Graduate School of Business, venture capitalist Tim Draper urged entrepreneurs to think globally and said now is an exciting time to start a business.

He addressed the future of the venture capital business, a topic of considerable interest to Stanford MBA students, who are concerned about their job prospects. The student audience of about 300 sought advice on working through the downturn. The event was co-sponsored by the Business School and the World Affairs Council.

Draper, a Stanford alumnus, is a partner of Draper Fisher Jurvetson (DFJ), the venture capital firm behind the Web-based email startups Hotmail and Four11. It was Draper's idea to append "Get your free email at Hotmail" at the end of every message.

As for last year's 65 percent drop in venture capital investment in the United States, Draper didn't claim to have the answers. "What's great about the venture capital business is you think you've learned it, then you realize that, no, you're wrong again," he joked. However, Draper insisted semiconductor, microcomputer, hardware, and enterprise software companies will rebound.

"I have a ton of successful companies who have had real boom and bust times, and I think they will rebound even greater than before," he said, "which shows this is a real good time for any of you."

Draper advised future entrepreneurs to network well, to realize that economic revolutions are cyclical, and to pursue globalization. Many great things—like electricity, the United States, and Reese's Peanut Butter Cups—were all invented by mistake, he said. The trick is to be there to catch them.

"We need coverage all over the world so we know where those mistakes are happening," said Draper. "I urge all of you to go global at some point."

Asked about the climate of regulatory issues facing entrepreneurs around the world, Draper said most governments not only don't pose restrictions but are even encouraging entrepreneurship. He described Europe as having great technology. China—with its young, entrepreneurial class—is a hot spot. Israel is a great, virtually untapped market for security products, he said, but "no one's investing in Israel because they are afraid."

Draper said he didn't think the recent heightened focus on security products would last. His firm's portfolio investments include nanotechnology, semiconductor, enterprise software, and photonics companies.

When a student asked for caveats for U.S. entrepreneurs, Draper replied that U.S. firms expand too quickly. "We were all saying get big fast two years ago, when we should only be expanding where it makes sense," he said.

The audience wanted other practical tips, like how to minimize risks in global markets and tap into management talent abroad. Asked whether concessions should be made for less wealthy markets, Draper said if a business is going to be successful, it should get there with no special attention. "You may want to help them," he said. "But that's the best way."

—by Deborah Gardiner