My name is Richard C. Wilson. I'm the founder of the Family Office Club and billionaires.com. And I am honored to have with me here today Tim Draper, who's a founder of Draper Associates, DFJ, and Draper Venture Network. He also has his own show, Meet the Drapers. Tim helped fund Tesla, SpaceX, Box, Carta, and over 15 other unicorns. Importantly, at the seed stage nowadays, anybody can invest in a secondary, and they could have invested yesterday in SpaceX and claim they funded. It doesn't mean as much as the seed stage, obviously. He's invested in over 50 crypto companies, including Coinbase. And for those people my age or older, his strategies were instrumental in helping Hotmail and Skype go viral. Worth magazine has called Tim one of the top 100 most powerful people in finance. He's a huge supporter of entrepreneurs globally, and we're honored now to have him here for a live exclusive interview for billionaires.com as part of our 100 billionaire interview series. So, thank you Tim for being here and I've got a few questions I want to go through, but first of all, is there anything I missed that you want to add to your bio?
Great. Thank you, Richard. Well, I started Draper University of Heroes for entrepreneurs and we've had 3,500 students through there and they've started about 900 companies and five are unicorns so far. They've come from 102 different countries. It's harder to get into than Harvard or Stanford. But Harvard and Stanford say 85% of their graduates get jobs when they get out. And what we say is our average graduate creates seven jobs. And our school is only five weeks long and theirs are four years. So we only take you for five weeks and you create seven jobs. They take you for four years and 85% of you will get jobs.
Wow. Well, I'm sure that Stanford is very proud to have you as an alum. I saw that in your bio as well. But that's great. Congratulations on that. So, I've got three quick questions I want to go through here just to respect your time here today. The first one is what was the major turning point or the point of increased momentum or maybe a strategic choke point you acquired that once you did that thing or that thing happened everything else kind of surged forward for you?
Well, I'd say there were two. Because I started by borrowing from the government through the SBIC program and that was the money I put to work to start with and I was on their watch list and their dirt list. And about five years later the IPO window opened up and I had five IPOs and one was Parametric Technology which is still now PTC, the largest software company in New England. And it paid for everything. I was able to pay back the government. I was able to build my business. So, that was inflection point number one. Inflection point number two was really when we funded Hotmail and I came up with that idea, the message at the bottom of the screen saying, 'PS, I love you. Get your free email at Hotmail.' They got rid of 'PS I love you', but it spread to 11 million users in 18 months. And so I realized that if you can do something to delight your customers and somehow get them to spread the word, then your customers can be your salesforce. And I think that has helped me along the way. Hotmail was a big inflection point in my wealth too. I was able to make quite a bit of money on that. And then maybe the third is when I decided to build out a network of venture capitalists. I went internationally and I was the first Silicon Valley venture capitalist to go to China and the first one to invest in something in Eastern Europe. We were able to fund by doing Skype and I think that's where suddenly I had extraordinary wealth. So those were probably the inflection points.
Great. Awesome. Appreciate you sharing that. What would you say is the most valuable strategy that is worth far more than a million dollars that you wish somebody had provided you with early on? Obviously, the Hotmail PS one is one that you already covered, but is there another strategy that comes to mind that you just wish you would have heard on an interview just like this?
I'm a believer in human endeavor. I think that strategy of always thinking of how to delight your customer and making your customer into a salesforce is probably the most powerful thing in business. For these family offices, I think the moment you start thinking of capital preservation you've already lost. Capital preservation makes no sense. The way you make money is you invest it in human endeavor and you invest it with people who are dedicated to what they do and this is all they want to do with themselves. The more complicated investment strategies you hear about, the things that make you go, 'Huh? Wait, what? How? How does that money go?' are the ones that will lose you the most money. My advice would probably be also maybe interesting for people who have children who want those children to be financially literate. Give them an allowance, not a very big one. Get them to earn money and get them to invest that money in the stock market really early so that they're at first they won't really know what's going on and they'll just see it going up and down, but eventually it'll be like, 'Hey, have you looked at the PE ratio here? Have you noticed that the cash flow of this business has dropped way off? Have you seen their receivables have gone up in an extraordinary way? Why are they building up all that inventory?' Those questions start hitting and then you start getting better and better at understanding business. Also, it's good to invest in companies that collect early and pay late. Amazon was brilliant in saying, 'You go ahead and pay for the book, we'll go find it for you and we'll get it to you.' So they got their cash first, then they bought the book. Elon was also brilliant in doing something similar where it's like you pay $80,000 for the car and then you pay the last $20,000 when you get it. Some of those cars were two and three years coming. So businesses with cash flows that come early. But entrepreneurs who are starting out, give something away. Think give first rather than take first. It's always a temptation to try to take first. Think give first. That ends up being really powerful. So I would say those would be my sort of primary strategies as an adviser both to an investor and to somebody who's running a business.
Sure. I love that you are going against capital preservation since the family office world beats that drum non-stop all the time at every event.
Makes no sense at all. I mean, you preserve your C. It's like, I don't know if you've noticed this, but anything you try to hide you lose. Anything you try to hold on to you lose. The things that help you win are things where you sort of go, 'Okay, this is risky but I'm going to try it and here's what I'm going to do.' Also, for family offices, invest in a future you want. You see something you like, invest in that future because even if it doesn't work out, you feel like, 'Okay, I did something cool.'
Right. Right. Right. Okay. Got it. And then if we just rewind two minutes there, when you say give, instead of thinking about getting, are you saying add value to a potential customer, build a relationship, and then monetize that relationship later? Like Gary Vaynerchuk is a huge proponent of saying stuff like that. Is that what you're getting at?
Yeah, I found that by giving away more scholarships at Draper University, we got better talent. We got more great entrepreneurs through there. We had more opportunities to invest. I found that when I work with limited partners, investors, I found that doing things for them first would often bring them back whenever I was raising a fund. And I know that Hotmail just gave it away and it was the fastest growing consumer product in the history of the world and eventually they became incredibly valuable as a customer acquisition tool.
Right. So yeah, got it. Okay. I've studied Robert Cialdini a lot. He brings up reciprocation and we talk about that quite a bit at our investor club. So it makes sense. Third question here. What's the number one most costly mistake that either you have made or you see so many investors make and business owners could easily avoid this mistake if they just took it to heart and heard it from you?
It was a failure to act. My business is different from a lot of businesses but my biggest mistakes were failures to invest. That includes into the seed round at Google, Yahoo, Facebook, LinkedIn, Netflix, and all of them were very interesting and on the margin for me and a lot of the times I just got talked out of it by partners or whoever and some of the times it was just purely I didn't get it. Whereas I would not say that the times I invested in companies that didn't work out were really inflection points of any kind or issues that really seriously affected me. So the other downside is always if you get into some sort of a legal struggle that usually ruins your life for as long as it lasts and the lawyers are making money during that time that it's ruining your life. They're saying, 'Yeah, I need billable hours.' And they want to spread that as long as they possibly can. And what you want is for it to be over. So it's always better to incentivize your lawyer, change the model, incentivize your lawyer to settle, to figure it out, to win quickly, to end it quickly, to lose quick, whatever. Just get it done because otherwise you just sit there living in fear. It's a horrible feeling. Fear as Frank Herbert of Dune says is the mind killer. All the decisions I've made based on fear have been huge mistakes. And all the decisions that I've made based on risk or possible opportunity or 'what if it works' I haven't regretted any of those. They didn't all work out, but I haven't regretted it. And look, when we backed Tesla, there was one guy, his name was Martin Eberhard. Nobody else was there. Elon came later. We were going after a company that was starting a car company and there hadn't been a successful car company started for 50 years and they were capital intensive. It was a huge risk. When we invested in Skype, those were two guys who were in effect outlaws from the US because of the work they did for file sharing at Kazaa. Or Hotmail, that was the first product anybody had ever said, 'We're just going to give it away for free.' And we didn't really have a reason to go. And all of those great companies pivoted too. They weren't all. Skype started out as file sharing, I mean Wi-Fi sharing, not fashion. Hotmail came to us with a whole different idea for helping people with their websites. They changed the model right there on the spot. And then viral marketing when I came up with that idea pivoted them once again. So yeah, I think it's avoid fear. Don't make decisions based on fear. Go ahead, use your fear to figure out what could go wrong, but then always invest for 'what if it works'.
Okay, awesome. That's great. So, I know you've been interviewed 500 times, maybe a thousand plus times. I wonder, what's the smartest question I should be asking you? What do you wish people asked you and they never do that you'd love a chance to share more? Is there anything that comes to mind that you want to end with?
I don't know, but my son on our show, Meet the Drapers, my son asked one of the entrepreneurs, 'What is your spirit animal?' And it put the entrepreneur completely on their heels. It was like, 'Oh my god, this is hilarious.' So if you were to ask me, 'What is my spirit animal?' I said to my son, 'Mine is either the rhino or the hummingbird.' He said, 'Oh, you can have one on land and one in the air and one in the sea.' I thought about the sea and I kind of had to go with dolphin because I'm a big swimmer, ocean swimmer and I got surrounded by dolphins once. They were having a dolphin stampede. It was something like 300,000 dolphins all going through this one area at once. So that's a spirit animal for me. The rhino has been a big part of my life. I remember I was 20 years old, traveling around Europe and in the Berlin Zoo there was a rhino and the rhino was able to reach his head over the fence. I rubbed the rhino's horn for about 20 minutes thinking, 'This is so wild.' The rhino and I got along famously. Rhino is really important for a venture capitalist or an entrepreneur because what you're really doing is just charging in there and you can't see what's going to happen next. You just charge forward. You're not a bull, you're not a bear, but you're a rhino. That's a strong spirit animal. The hummingbird is my up in the air animal. I just seem to bond with them when they're around. They come and they look at me. I always think my mom died and when I see a hummingbird, I think she's down here checking me out. So my wife... So I think, yeah. What's your spirit animal? That'll wake up a lot of interesting stories.
Yeah. For sure. Well, my wife always thinks the same thing about her father when she sees a red cardinal bird or a bird in general. She equates it with her dad passing away. I get that. That's the question. I'll have to throw that curveball question at one of the other billionaires we interview in the series and just see if I stun them into silence or if they come up with an answer. I guess I'd have to choose octopus for myself. I think rhino and octopus would make for a good combination for a fireside chat at one of our family office club events one day on stage.
