Silicon Valley billionaire Tim Draper is the most recognised and globally known venture investor, coming from the Draper's dynasty, where the grandfather was the very FIRST venture investor in Silicon Valley. Tim is the founder of Draper VC & Draper University (InnMind friends and partners) and a bunch of other VC related organisations.
During quarantine, we talked with Tim about coronavirus pandemic and its effect on venture and startup business. In the interview, he shared his opinion and vision of how the ongoing crisis will change the technological world, venture capital market and entrepreneurial activities.
You can read the text version of the interview below:
Good day to everyone. This is venture investor economic forecast by InnMind and today we have a very special guest - one of the most well-known and honourable investors in the field, Tim Draper. Hi, Tim!
- Hey Nelly, how are you? Thanks for having me on your show.
Thank you for coming here, Tim. And of course my first question is about what is going on the market right now. I mean, the market crash, the stock market crash, the oil prices crash, everything crashes, despite the Coronavirus and everything else. So, did you expect it to happen?
- Well, interestingly, I did expect something to happen because we had heated up so much and people had unrealistic expectations for companies and they were valuing companies at super high prices and that kind of thing. But a time like this where I didn't expect the virus to come and change everything for us, but the times like these I've had three before this in my professional career, where we had big recessions or whatever. Each time, it has a slightly different outcome. But in all cases, when all of these things sort of fall away, people start thinking for themselves and instead of just listening to the news, and just assuming that's the way it is, they start thinking for themselves and some of the best entrepreneurial ideas come from this. But what's almost more appealing and interesting is that all these technologies that people have been reticent to bring into their fold, are all of a sudden on the table. And so, this tends to be a very good time for innovation. It's a good time for venture, it can be a good time for venture capital. Once the venture capitalist is shored up all of their difficult companies, because it's like a clean slate and the world is going through rethinking and this is the kind of time where all of these things that seemed possible, but maybe unlikely or at least unlikely for a number of years, are now on the table. Now the people are starting to say: “Oh, yeah, well, hey, wait, how do we use Bitcoin in this? How do we use the smart contract? How do we use artificial intelligence now?” I mean, Zoom has been around a long time, we've been using it for years. But all of a sudden, the rest of the world is now using Zoom. You know, all of these new things, they're all starting to innovate and say: “Well, now we got a new way of looking at the world.” Here is an opportunity and, and so the consumer has wide open eyes. And that is the benefit of a time like this. The drawback is that there is always a recession, always a tightness of cash, and a tightness of liquidity. And that can have a detrimental effect and a lot of people lose their jobs during times like this, and that's very tough. But it's a part of the refreshing that happens to an economy. They lose their jobs, and then they go out and say: “Well, I can do better than that guy did anyway. So, I'm going to start off my own.” And it usually takes some time. So it goes through a period where it sort of sliding down. And people are pulling their hair out for a while and then slowly but surely, it starts building back up in a new way that is better than the way we run it in the past. So, I suspect that healthcare people are going to really jump right now at opportunities to use data for healthcare, and they're starting to recognize that that's something we've been funding for a long time. You can use data for diagnostics and for therapeutics and that can really improve healthcare outcomes.
We suspect Bitcoin is going to really flourish in a time like this, because the governments are taking all of this money and then they're printing super amounts of money. They're saying: “We're here.” Trillion dollars, you know, huge amounts of money, where they're going to put it out? Well, the government can't put a trillion dollars out unless they just do a tax holiday. They can't put a trillion dollars out into the economy very easily. They have to do it, like through the SBA and through different organizations, and then the SBA creates, I mean, there's all sorts of friction to getting the money. So it'll be years before that money actually permeates the economy. So, this is going to be a really interesting time where people say: “Well, wait, why don't I just use Bitcoin? I know there are only 21 million. We don't have to worry about whether a government is diluting their currency by printing tons of it. We can instead just use a currency we all agree on and it's all a part of the economy. And it's already frictionless, open, transparent and global, but why bother with these other ones?” So that's an exciting thing. I think smart contracts are going to come in, in a big way now, because as we get more into this, we're going to see that efficiency and transparency are going to be much more important. People want to know what's going on out there. And, and using Bitcoin, Blockchain and smart contracts, is going to open up sort of new ways of doing insurance, new ways of doing banking, new ways of doing real estate, all of these industries are going to be transformed. So, this is kind of I mean, it's a horrible time, but then it's also a renaissance for the future. I think this could be, you know, a horrible thing that turns out to be a great thing in a long term.
Tim, since you touched this point yourself, I have to ask. Recently, I've seen in a lot of media titles and also in your tweeter, it was mentioned: “Tim Draper predicts Bitcoin to save the world after the crisis, not government or banks.” So, can you please elaborate on how Bitcoin will save the world after the crisis?
By oh, I don't know if it's still to save the world, but maybe that's the headline. After the crisis, I think people will start to look and say, boy, these governments they will look at it one way or another. Either yes, the governments had to do the lockdown, that's why we're all healthy and we're all moving forward. Or they'll look and they'll say, boy, these governments they've really overreached, it’s draconian to force people to stay in one place, and we might have been better off with a group immunity or there may have been something. But anyway, the group, the governments are all acting the exact same way. And they're actually acting in concert. Well, I actually think that, you know, it's possible that they're all exactly right and that is exactly what we should be doing. But it's also possible that they're really overreaching, and then they're going to be printing all this money to try to get the economy back after they've basically tanked it. They've taken the world economy and tanked it. And now, trying to get it back there, they're just going to flood it with a bunch of money. Well, that money is going to be worth less and less and less. And so, people will kind of go: “Wait, do I want, you know, dollars or Bitcoins?” They're going to generally move toward Bitcoin because Bitcoin is frictionless. You know, right now when you use dollars to buy retail, you're paying the banks 2,5% to 4% every time you do it. Well, that 2,5%- 4% could stay with you, the consumer or go to the retailer. The idea of having these governments that are that are tied to geographic borders, people are going to start to recognize that it doesn't really make that much sense in this world. You know, why, wait, why? Just because I live here. Do I live under this set of rules when I can go 40 minutes this way, and I live under some other set of rules, and then I go somewhere else and live under some other set of rules? I actually think that the world is now opening up and those sets of rules, those governments are now going to compete for you and me. They're going to compete for the great minds, the capital, the entrepreneurs, the citizens, the businesses of the world. And they're going to have to compete across border. And so, they're going to have to provide better service than the people across the border, or people will leave. And that kind of thinking is going to bring us to a much better governance. Globally, we're going to have much better governance because they're going to have to compete with each other for us. Just the way if we only had one type of food, or one type of cell phone, or one type of computer, we'd be stuck with that type of computer, right? Currently, most of the world is stuck with one type of government, the one that's right there. Well, if there's competition amongst governments, particularly at the virtual level, not necessarily on the ground, but at the virtual level, you're going to have far better service and they're going to have to provide better service at lower costs. So taxes will inevitably have to go down and services will have to go up. And I actually think this sort of draconian, you know, dictatorship that we’re starting to go into around the world is a reaction to realizing that hey, this isn't the way, it is the roar of the dying lion. It's a great roar just before people recognize that, hey, we're global. It doesn't matter whether you're from us or China or Russia or India or Europe or whatever. We are an open world.
And then the geographic borders are going to mean less and less because, I mean, after all, most of what government does is insurance, it's health care insurance and workman's insurance and unemployment insurance, which is happening a lot right now. And all those insurances can be done with a smart contract and artificial intelligence in a much cheaper and better way.
Yeah, I just also wanted to mention an on-demand insurance, which is a new trend.
- Yeah, on-demand insurance as well. And so far, those little Bitcoin insurance companies have been very small and just doing specific little things. Well, over time, though, that wedge will start to open and, you know, all of our healthcare insurance, our homeowners insurance, all of that will be done on the blockchain and, I think, we will all be better off, we'll get a much better deal. And when we have a claim, artificial intelligence will do a much better job than the humans have in determining whether that claim is real. Because with the claim, you can have a satellite looking down and saying yes, that hurricane did level your house. We will get you the money right away and you can start, you know, moving to another place right away. Or we saw the car accident, or you know, yes, this person did die or whatever it is that you're insuring against. If that happened, the artificial intelligence is going to be able to do it instantly and capture your money quickly. You know, a lot of these insurance companies they make a habit, just like when you have a claim, the first thing they do is they put their lawyer on you and you end up having to fight it. That's the last thing you want to do after you've had a tragedy. So I do think that this new world is going to be a nicer and more loving, open, happy world.
Tim, I fully agree with you and I also believe that Bitcoin will be for a long time, if not forever, with us. But investing in Bitcoin is more or less easy if you have money, you just open a wallet and invest. Investing in a startup is a much more challenging thing. So, you're not just an experienced investor, you have the dynasty of investors in your family and your grandfather, if I'm not mistaken, was the very first investor in Silicon Valley, correct?
- Yeah, my grandfather was the first venture capitalist in the Silicon Valley, and he and my father both innovated the limited partner, general partner relationship that has driven venture capital for the last 60 years, 70 years.
This is so crazily impressive! Then you are the number one person to be asked how will the current bubble explosion on the markets and the current situation influence the venture capital market? What do you think?
- So, I think venture capitalists, there were many of them, they proliferated everywhere, and everyone was, and you were a venture capitalist, everyone is a venture capitalist. And now when the markets are down, only the great companies will survive this. The other companies will not and so many of those venture capitalists are going to be desperately shoring up, like whatever companies they've invested in and trying to figure out which ones are going to be the winners. And I think that there's going to be a consolidation in venture capital. And I think that's going to be a play in our hands. And I don't know if it's healthy. I do like the idea of a lot of competition out there for venture capital, because it gives entrepreneurs and a lot of opportunities for venture to get their money, and it forces venture capitalist to compete in a market system. So, you know, I hope that this new world will continue to allow entrepreneurs to think freely, open up, innovate, and drive new worlds and new ways of thinking. But usually this is a time for when the existing entrepreneurs are struggling and then the winning concepts are adopted by all the consumers. That's sort of what happens now. We've had all this innovation, and it's proliferated. And now the consumer is going to go: “Whoa, this is so great! I should use artificial intelligence for this. I should use Bitcoin for this, I should use smart contracts for this. I should use new forms of computational biology!” You know, all of those things are starting to kind of happen, and I think those companies are just going to do extraordinarily well.
And how about yourself, as an investor, I mean, you have a lot of entities, funds and conglomerates which invest in startups. So, will you increase your investment activities due to the current situation as you have said that a lot of new entrepreneurs will be flourishing? Or you will slow down and see what happens, be more careful?
- Well, the first thing I had to do, and what I have been doing, is touch base with all of my existing entrepreneurs, and see what positions they're in, if they know how to get through this, make sure they're in strong positions moving forward. At the same time, we don't want to miss some entrepreneur that comes through that might be the next unicorn, decacorn, santacorn, whatever. So, we are looking for, we're still actively looking. And we haven't really changed our tune, although valuations have to come down because the expectations of the entrepreneurs were very high because the public markets were so high. And it seemed to make sense. Well, now it seems to me that public markets are flattened, and people aren't traveling and there's no one there. There are lots of things that are, you know, really slowing down the economy. If people aren't moving through the system, the system all sort of falls on top of itself. Once this virus has been lifted, the lockdown has been lifted. We've got to get back to work super-fast and get back to traveling super-fast because we need that economic system to flourish. You know, if I'm a farmer and you have a house and we aren't able to communicate with each other, there's no deal there, then you die of starvation and I die of exposure. You know, that takes economics to a very simple level. But we have that in a very complex, you know, a billion people system, that are all supporting each other and getting food, clothing, shelter, transportation, communications, spaceflight, whatever. We have that system all put together, if we've closed down part of that system, we're going to have a real trouble for a while, I mean, that is going to really bring things down. So, you know, I encourage these, you know, healthcare workers, to figure out where that bell curve is just about right? Because where there is the possibility of a much more tragedy later down the road, than just the people who might have died from the virus, as horrible as it all sounds.
Yeah, same for a lot of small companies and small businesses that will also die, and we can’t forecast these fatality rates at the moment.
- It's a different fatality. You know, right now people are kind of going well, it's a nice two week vacation, three week vacation. But if it lasts too long, we will start thinking, oh well, you know, with people are pouring oil into the ground now because it's worth less than zero. People are, you know, out sinking cruise ships. It's going to be difficult to kind of get all that, you know, incredible economy we had to back up and running, and that really will require a lot of work. We have made it our practice in our group to try not to miss a beat. In fact, I get dressed up every morning, kiss my wife goodbye. And then I move into my home office. You know, my commute is like one room. And then I'm in my office for the day and then at the end of the day, I come back, I open the door: “Honey, I'm home”. And I have a routine that I've worked out to make it feel like I'm still working. And I realized I actually have to do double time, because there's so much stuff about the virus. And then there's so many issues with my entrepreneurs because of the market coming down. And then we have to continue to evaluate the entrepreneurs. So it's about as many times as busy and very exciting. This is a very exciting time and I feel like we can accomplish a lot here. We can potentially save many lives, we can potentially save many businesses. So, I look and say, well, that's my responsibility. I got to get out there. I got to do all this work.
Tim, you said that you continue evaluating entrepreneurs and I know that previously, well, before the lockdown, you did a lot of meetings with startups. You also launched your acceleration program in Silicon Valley and a lot of similar things in other countries, where you spend many weeks together, face-to-face, because you need this feeling of cooperativeness or team spirit or whatever to evaluate that. So, let's imagine the lockdown will last longer, how will you be evaluating startups without touching them, without meeting with them?
- Well, Zoom, Skype and whatever, they help. But honestly, it's a lot tougher to fund a company if you haven't had the full energy of that entrepreneur around you, and that requires a face-to-face, one-on-one meeting. I think we'll just have to do our best based on video teleconferencing until that happens. And it's true that we've set up Draper's startup houses all over the world. And, you know, think about this, no travel, no hotels and entrepreneurs are scrambling. That's the perfect storm. It couldn't go worse for a group that's just set up. I mean, we have, I don't know, something like 10 of these startup houses around the world. We set them all up and they're, they're ready to go for entrepreneurs to go stay there, wherever they are. We got a couple in Bangalore. We got one in Myanmar. We've got one in Austin, Texas. They're all over the place for entrepreneurs to go and gather. It doesn't cost much rent, it's a nice place to meet other entrepreneurs, to pitch venture capitalists, it has this whole great vibe about it. Well, we can't even be open for that and that is a scramble for us, so if it lasts a long time, we're going to have to figure out different business models for those buildings, you know, that is the problem. Commercial real estate right now is really in a tough spot everywhere, because if everybody's at home, they're not out and they're not doing the face-to-face work in their offices. So, I imagine all commercial real estate is experiencing that.
We were about to launch some co-working spaces just before what has happened, and we are so happy that we were too slow to go live with that.
- Well, we were just three time to just draw. We got all those things out there. But, you know, it's funny, the world is different. That might have been perfect timing. I don't know. It may have been perfect timing where people are saying, okay, as soon as this thing's lifted, I'm going to get to Draper's startup houses, you know, I'm going to build my business and I'm going to jump from one to the next and be a part of that sort of entrepreneurs club that we're going to create and all of that. Or it might be like, we're just doing what we can, struggle a lot and figure out new business models or new ways to use those buildings or whatever. I don't have a solution yet. So I'm hoping that this thing is lifted soon enough to get people out there and being entrepreneurs again.
I hope so too, but I'm sure that even if not, there will be a solution and a lot of peers and partners worldwide will be happy to help you with making it all in the digital environment. Tim, coming back to the question about the startups, you mentioned that you talk a lot with your entrepreneurs, in which you're already invested, and you try to support them, to make them not give up and etc. So what advice do you usually give them during these days?
- I tell them different things. Some of them I’m saying, shore up your cash, live three years, and hope that you come out of this thing. Some of them I'm saying, double down because you're going to be able to take a market share and grow. So I do a little bit of each. Anyway, great talking with you, Nelly, I hope this worked out and send me a link.
Definitely. Thank you very much, Tim. Thank you for your time!
- Okay, bye bye!