He was the first investor in Skype and one of the venture capitalists who detonated the bomb that converted the quiet orchards and hillsides of Palo Alto and Mountain View into Silicon Valley. Today, three counties south of San Francisco, California, have become the locus of the exponential acceleration of tech businesses that have created more billionaires in twenty years than were created in the combined course of human history.
Bill Draper (or more accurately, William Henry Draper III) is an East-coast old-money guy. Born in New York, and a contemporary of George H. W. Bush, he went to Yale. His father was responsible for the implementation of the Marshall Plan under W. Averell Harriman — the man who decided that post-war (West) Germany ought to be a free-market Capitalist state, rather than adopt an agrarian economy.
Bill flew into Berlin on the first plane with a consignment of relief (coal, wool, canned food) along with his father during the Berlin Airlift. I joked with him that I hoped Angela Merkel sent a Christmas card every year.
Resource: Venture Capital Definition
Funder of high-tech business
Through his venture capital company, Draper, Gaither & Anderson, Draper and Johnson, and later Sutter Hill Ventures; Draper has funded several hundred high-technology companies. He has worked in public service as Ronald Reagan’s appointed President of the Export-Import Bank of the United States and at the United Nations Development Programme.
On his return to private business, he began the first US venture capital investment business in India (because, he says, ‘They spoke English!’). His best investments have made him a dollar billionaire and despite turning down an initial investment in Apple Computers, at 88 years old he says he has no regrets. I’m sure he means it.
The success of Silicon Valley is based on the fact that so many start-ups were the first to do something, they had partners who were as different from each other as possible (old/young, scientific/artistic etc) and they were fired up by the engineers and scientists at Stanford University, under the guidance of Fred Terman. This perfect recipe gave birth to Silicon Valley. As students under Terman, William Hewlett met David Packard.
Silicon valley is nearing a ceiling
In a Q&A session with twenty young South African entrepreneurs in Palo Alto, Draper explained his investment thesis, told a few anecdotal stories and answered questions about company valuations, empathy, women in Silicon Valley and the culture of failure.
He explained that sometimes being on the cutting edge also means you’ll be on the bloody edge — that it can be messy and there will be casualties, but in investing, he looks at the energy, brains, commitment and team-building an entrepreneur brings to the table. He emphasised empathy — explaining that even someone you wouldn’t think had any empathy — Steve Jobs — had empathy for his customers, if not his staff.
Asked about South Africa, he said that like India, it’s a plus that we speak English, and that diversity is a good ingredient for innovative outcomes. He asked if government would be welcoming to foreign investors — something which elicited a mixed response, and stipulated that basic infrastructure needed to be extant and as consistent as possible. Without those things, we could neither found our own Silicon Valley, nor expect his Silicon Valley to take an interest in us.
In terms of deal structure, he implored financial institutions to “loosen up” — explaining that you’ll never make as much money on debt instruments as you will on equity. He believes we’re “getting close to a bubble” with tech company valuations — because companies in Silicon Valley are nearing a ceiling and there are fewer new VC IPOs. “P/E ratios of over 100X there are a bit high.”
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Changing the game
Draper told the story of how a limo pulled up at his office a few years ago, as the President of Goldman Sachs came to visit Silicon Valley. While the stock market on the East Coast was delivering single-digit returns, Silicon Valley was regularly returning upwards of 20% on investments. That’s when he knew the game had changed. Venture Capital returns are now down by comparison and for entrepreneurs it’s “up, up, up.”
He’s an old man now, with tufts of hair coming out of his ears, but he’s sharp — you can see the sparkle in his eye when he talks about what’s next. The development of tech solutions in health sciences is an area he’s most interested in — his wife suffers from Parkinson’s disease.
“Find solutions to people’s problems and you have a business I’ll invest in.”
I pulled a SKYPE box out of my bag and asked him to sign it, he wrote: “My best investment — Bill Draper”. He made 1 000X his investment in that Swedish start-up.
As he walked off in his tweed jacket to meet his driver and go home, I wondered how many other things Bill Draper financed that we use every day. Sure he made money, but he’s prouder that he made a difference.