Inside the Mind of an Investor

Below is an interview with famed venture capital pioneer Bill Draper. This is an opportunity to get into the mindset of one of the most successful west coast investors. Draper talks about what it means to invest in a company as well as what to look for, and finally what mistakes you can avoid by following his advice. Keep reading to get inside the head of a successful venture capitalist and learn a thing or two that can help your own investment strategies.

By Leigh Buchanan

Bill Draper of venture capital firm Draper Richards offers advice to entrepreneurs on raising capital.

The Draper family is to Silicon Valley venture capital what the Gallos are to California wine. The three-generation dynasty began in 1959, when William H. Draper Jr., a retired U.S. Army general, created Draper, Gaither & Anderson—the first VC firm west of theMississippi. The family’s youngest investor is the general’s grandson, Tim Draper, co-founder of the prominent early-stage investment firm Draper Fisher Jurvetson. Connecting those two formidable players is William H. (Bill) Draper III, the general’s son and Tim’s father. Bill Draper helped shape the modern VC industry, most notably at Sutter Hill Ventures and at Draper Richards, where he is a general partner. He has invested in companies such as Skype, Hotmail, and OpenTable. In January, Palgrave Macmillan will publish his memoir,The Startup Game: Inside the Partnership Between Venture Capitalists and Entrepreneurs. Editor-at-large Leigh Buchanan talked with Draper, 82, about the VC industry and what it takes to succeed as an entrepreneur—no matter where your money comes from.

What was it like launching a VC firm at a time when most people didn’t even know what venture capital was?

Actually, people in the East did know about venture capital through the Whitney family in New York andAmerican Research and Development in Boston. But no one out here had heard the term. In 1962, when my partner, [Franklin] “Pitch” Johnson, and I started our first company, Draper & Johnson, we got no action. We would sit around waiting for the phone to ring. It didn’t, so we drove out into the fruit orchards—remember, it wasn’t Silicon Valley back then. We’d look for companies with names that sounded like they might have something to do with technology or at least like they weren’t warehouses for prunes. When we saw a promising sign, we’d knock on the door and ask the receptionist, “Is the president in?” A man would come out—usually our age, early 30s. And he’d ask, “What do you do?” We’d say, “We’re in the venture capital business. We buy a minority interest in a private company and help it grow.” Then we’d ask, “What do you do?” And he’d talk about his business—they loved to talk about their businesses. We had a lot of fun and wasted a lot of hours that way. But once in a while, we got someone interested in expansion who hit our hot button. Then, as the banking community in San Francisco learned about us, we became the go-to guys for small, growing companies that might one day have a public offering.

With which entrepreneurs have you had the best working relationships?

One of the most passionate and energetic entrepreneurs I know is Jonathan Bush, whom I met in New Hampshire when he was 18 years old and out campaigning for his uncle, George H.W. Bush. Jonathan was everywhere—knocking on doors, working phone banks, driving around on a truck with a megaphone. He really inspired people.

Later, he connected with me when he wanted to start Athenahealth, which offers billing, electronic records, and other services for medical providers. We supported him, and I also got the Rockefellers to invest, as well as my son’s firm. Athenahealth became a fine, rapidly growing company and had a very successful IPO a few years ago, in which we got back 10 times our investment.

I also became close to Dave Bossen, founder of Measurex, which made computer controls for the paper industry. Dave is that rare entrepreneur who is equally competent starting a company from dead scratch as he is running it all the way up to the New York Stock Exchange and beyond. [Honeywell acquired Measurex in 1997.]

Draper & Johnson was the first firm you started. What did that experience teach you about entrepreneurship?

First, that you need other people. Starting with the money. I had $25,000 and a $20,000 mortgage on a $40,000 house. I needed $75,000 and a partner with another $75,000, because the SBIC [Small Business Investment Company—a private-public partnership] would leverage that money three to one. So I teamed up with Pitch. And luckily, I had a father and Pitch had a father-in-law who loaned us what we needed.

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