Tim Draper: The Visionary Venture Capitalist

In many ways, Tim Draper personifies the stereotype of a Silicon Valley venture capitalist who became an overnight billionaire through some lucky bets in tech that made it big.  But beneath the surface he is anything but typical.  What sets Draper apart from some of his other Silicon Valley peers is his vision to anticipate the next big thing 15 years from now coupled with an ability to think outside of the box with a childlike optimism to identify untapped potential vs looking for potential failure while embracing mistakes made along the way.  Here Tim Draper speaks to Impact Wealth Magazine about his thoughts on the pandemic and current investment landscape, what he is investing in, and how he is helping to create the next generation of entrepreneurs.

IW: What are your thoughts on this “scam demic” lockdown?

TD: Here are my thoughts.  The pandemic will probably end up killing almost a million people around the world. And the UN has come out with this report saying that 135 million people will die from starvation because of a lockdown. So our policy decision to lockdown is 135 times as bad as the pandemic itself, which doesn’t even include the additional domestic violence that is going on, the depression that’s happening and the increase in murder rates. The lockdown has caused interruptions in the supply chain as people aren’t doing business across borders anymore.

Through the internet we have a great working free market ecosystem with 8 billion people who are all working to serve somebody to make all our lives better.  It’s very clear that capitalism makes sense and works for everybody to be part of this complex interconnected group of economic systems.  When you have government control, it limits capitalism. And when we have a trade war or a border wall, we’re hurting a lot of people. Before we were tribal and now we are global. The pandemic was a way for the old dying lions to give their last roar. The dying lions are still trying to get back to being tribal. So when you refer to a ‘scamdemic’, you could argue that it was a little odd that all of a sudden the CDC made this a big problem.

IW: With all of the free money being printed out of thin air, what are you doing to hedge against this massive inflation that’s about to hit?

TD: Now we have $13 trillion that has been printed and there was only $86 trillion in currency around the world which has led to a 20%+ immediate devaluation of the dollar, whether it’s recognized in the marketplace or not. As they keep printing money it will cause more inflation. Some monetary experts would say that it will improve business, but we’re in a major recession. So those dollars are going to be worth even less because of that.

So where do you park your money? In the olden days you would put it into gold, but I don’t think I’ve ever seen anybody pay for Starbucks coffee with gold. You can move it to Bitcoin where you know there will only be 21 million of them made.  Bitcoin is not subject to these whims of political forces, it’s global, open, transparent and frictionless. You can use it to buy your Starbucks coffee or buy houses and tangible goods. If you and your money were stuck in a bad country like Syria, you could arrive in Greece and use your Bitcoin to start your life again. There are many applications of Bitcoin that can’t be done with fiat currencies so it’s incredibly valuable. Not only do I think that Bitcoin itself will become more valuable over time, but I also think that with the dollar falling over time that Bitcoin is going to go much, much higher.

A lot of people will put cash into the stock market which just took off.  There was a lot of demand with very little supply in a short period of time which created incredible wealth for a lot of people. I would hope that it would all stay that way, but I don’t think it will if we go into a recession or a depression. And if you add inflation to that, it’s another bad sign. I think it may stay high flying with high valuations for another year or two. But after that, I think it’s going to have a pull back.

I don’t think I’d be putting more money into the stock market today, but I do like Coinbase, Carta or SpaceX.

IW:  Do you think there are risks with Bitcoin that you wouldn’t have with Fiat currencies?

TD: The regulatory issues are interesting because if countries clamped down on Bitcoin, the way China did, they’ll have a brain drain. So they do it at their own risk. The best entrepreneurs in the world will follow the best regulatory environments. A lot of people left China to go to Japan because Japan made Bitcoin a national currency. When Singapore became heavy handed with their regulatory laws they moved out of Singapore and went to Switzerland, Malta, Gibraltar, Wyoming, and Texas.  The US is doing their best to keep technology while still protecting the small investor by regulating with a light touch thus allowing for more entrepreneurship and innovation.

Because bitcoin is watched over by a hundred thousand miners and anytime anything happens, the blockchain is watched over and verified, it’s actually safer than your dollars in the bank that are easily subjected to hackers.

IW: As a venture capitalist, how do you choose which companies to invest in?

TD: I’ve made many huge investment mistakes. But, but when I lose on those, I only lose my money one time, whereas I have had some big winners like Robinhood, which went up a thousand times. I invested when it had an $11 million valuation and it’s now $11 billion.   I’ll invest my fund in 50 companies and I fully expect 20 of them to go out of business.

The question I ask is what if it works, how great will it be? And if the answer is not that great, then I don’t care. But if the answer is, this could be transformative and could really change things, then I’m interested. If it works, then that’s when I make my investment.  A lot of other venture capitalists just focus on all the things that could go wrong, but they never really predict the one that goes right. But I think the true venture capitalists are always looking at what could go right. And if it goes right, how great will that be for the world or Mars and the moon. And I think that that is probably my best criteria.

The other criteria is to see the end. And this is one where you just have to be in a room with somebody and see how much this matters to them. What’s their passion and their enthusiasm level. How well have they researched it? How great will it be, how much have they thought about it? There are a bunch of companies where just one thing or another kind of change their business model and they became big successes. I never know quite when that’s going to happen and how it’s going to work. But that’s what is part of the fun of being a venture investor.

IW: How does Draper University foster new talent?

TD: At Draper Associates we look at deal flow and we get thousands of pitches a year. And whenever anybody says something can’t be done, I always think, well how would you do that? That’s why I put together Draper University to train ordinary people with some passion or another to become entrepreneurs. They start with a problem then they move to find their solution and discover how to productize it. How do you make money with that product?  How do you grow? And how do you spread the word without product?  How do you make your customers into your salesforce?

All of those things add up to where we can actually take them from the very beginning and grow with them.  Draper University is also unique in the way we train people. We have to get them to unlearn the things they’ve learned in school. In school they learn, you get an A if you don’t make any mistakes but you’re in a cocoon and protected but also trapped. And we do the opposite, we say I will fail and fail again until I succeed.  Our first line of the pledge is I will promote freedom at all costs.  We teach people to focus on building this business and take some chances to do it.

I also think risk taking is something that is not taught in school. If it is, it’s taught very poorly.  Entrepreneurs have to be as creative as they were when they were two years old. Otherwise they need Draper University to train them to be doing something extraordinary again.

At the end we take them through a big hackathon. We have some amazing speakers. We had Elon Musk at one point and also the founders of Airbnb.  We also take them through survival training with Navy seals and special forces. Then we do business planning and they put together a two minute pitch for a panel of venture capitalists. And that’s a six week program. And with COVID, we had to shut that part down, but we created a two week zoom based equivalent of Draper University for $500, which has been very successful and well received.

My daughter is also involved as a venture capitalist who backs only women teams, and she’s done very well at making people money.  She’s also proving that women can be great entrepreneurs. And she’s backing some extraordinary women.

IW: Who are some of your most successful alumni?

TD: We’re only eight years old about, but we trained the three guys who created Quantum, which is a top 25 token company worth $7 billion now. We also had a woman, Surbhi Sarna who created a fiber line that runs up the fallopian tube and can detect if there’s cancer in there without damaging the fallopian tube that just got FDA approval, and she was bought up for $275 million. Only about a third of the people who go through actually go and build their business. The other two thirds either go back to school where their grades either go way up because they are more interested in something, or they go way down because they’re starting a business at the same time.

If they join a company they get promoted faster than anybody else because they are willing to fail and fail again or willing to stick their neck out and try stuff.  When I worked at HP, it was a big corporation and nobody stuck their neck out. They were all afraid of losing their jobs. It’s very different from the entrepreneurial way, which is like, go, go, go… keep trying and keep failing and eventually get there. So I think it’s had a really positive effect on most, almost all of the people who’ve gone through it.

IW:  What are you most passionate about in your investment portfolio right now?

TD: Well if I were to pick a company right now I’m particularly intrigued right now with something called unstoppable domains as no one can take those down. Big tech social media companies are taking away our free speech for a multitude of arbitrary reasons such as not liking what you said, or deeming it accurate and pulling it off. With this company, you can put anything you want up there and no one can take it down. And I think that it will change free speech around the world and that’s going to be incredibly powerful.

They are also allowing people to create their own crypto wallets, it’s pretty amazing. I’ve been all over FinTech for a long time. I’ll continue to do that.  I’m also interested in how Bitcoin, the blockchain smart contracts, artificial intelligence and surveillance can change everything from banking, finance, commerce, to insurance and real estate and government, and all the big industries of the world.

I’m also interested in how data is transforming both diagnosis and therapeutics in the healthcare world, where the data compiled from the AI cloud medics outperform the average doctor in diagnosing people, and when combined the doctor did even better. This was only with medical records. You could add their genetic history, Fitbit results and the food they’ve eaten and if you put all that together you get a much better diagnosis. For therapeutics you’ve got computational biochemistry becoming the lab. So people don’t have to test every single chemical, they can compute and combine a drug with a particular disease and see which one catches and kills the disease. And one of our companies, Verge Genomics identified a drug that is 26 times as effective as Remdesivir which is going through FDA approval now.

The drugs you take will be based on different genetics, and all of that computation is going to be get better and better over time. I think that’s going to be a really valuable place to put some money. These new technologies around AI and Bitcoin and smart contracts and surveillance can change the biggest industries in the world. And you could set up an insurance company that’s just a smart contract for all the premiums. When there’s a claim, you use surveillance and you can easily verify the claims.  This can change the whole nature of insurance and 80% of what government does is insurance. I think gov tech will also be a really interesting field to go after.

This is where we invest. We put money into things that I think are going to happen sometime between now and 15 years from now.  If I’m thinking about something that’s going to happen tomorrow, I’m too late. So I pay less attention to the media and the news, and a lot more attention to entrepreneurs who are futurists.