(McLean, VA --
May 6, 1999) Venture capitalist Tim
Draper, whose firm has backed such Internet success stories as Hotmail.com and about 40 other trail blazers, spread
unconventional wisdom Wednesday about what it takes to make it big on the Net.
Draper appeared at the Coffee & DoughNets session of the Morino Institute
Netpreneur Program, where a packed room of over 350 eagerly hung on his words and peppered
him with questions during the session.
Draper Fisher Jurvetson, which Draper founded and
where he serves as a managing director, is an early stage venture capital firm with $400
million under management.
"Our job is to act as the head hunter, the investment banker, therapist, business
model producer or developer and partner to a very small group of people who are just
getting going," Draper explained.
Unlike conventional venture
capitalists who usually back start-ups once they are up and running, Draper is content to
invest in an idea scribbled on a napkin and batted around in an hour-long meeting.
It was in one such meeting that Draper came up with the idea of "viral
marketing" for hotmail.com, where the company marketed itself discretely in email
messages and which recipients then passed on like a virus.
In one dramatic example, he said, hotmail sent one email message to India and within
three weeks had gotten 100,000 registered users for the email service. Eventually the
start-up was sold to Microsoft Corp.
Although the session started just after 8 a.m., the room was filled with electricity.
Nearly every hand shot up when Draper asked how many considered themselves entrepreneurs.
Talking about what he looks for in a start-up, he listed entrepreneurial drive, strong
management, a motivated team, a frugal culture and what he called "one brass
"And that one brass ring might be what Microsoft did with IBM (supplying the
PC-DOS operating system) or it might be something where you have a special knowledge that
turns out to be really important to a lot of people... For Hotmail, it was viral
In short, Draper said, his firm is looking for "heroes -- people who are going to
change the world." And that takes visionaries, those whose ideas will create
companies with billion-dollar valuations and make an investor like Draper perhaps
100-times return on his initial investment.
To get that home run, he's willing to take risks on a flier. "We don't care about
what the (profit) margins are now," he said. "In fact, with Internet companies,
we don't even care what the margins are in 10 years, but long term, we want those margins
to be big and growing."
And that growth is occurring at a faster and faster pace. He pointed out that it took Hewlett-Packard 40 years to reach $1 billion in valuation, Microsoft 15 years, Netscape
two years and Yahoo nine months.
Venture capital backing is an important component to those kinds of success stories,
and Draper pointed out that the money is available for those who have what a VC wants.
"The amount of money that's going into venture capital continues to go way up and
the returns continue to go way up," he said.
So what does Draper look for in a start-up? Here are his Top 10 tips for starting and
running a company.
1. "You start with big market." Go after a market in which you can experience
2. Seek big margins. To get those margins you have to figure out what you're really
good at -- what sets you apart from others and makes you unique.
3. People. "You are constantly on the lookout for super heroes," he advised.
"Your sole reason to exist is to find people who are smarter than you are."
4. Build market share fast. "Use a virus, use a magnet, use whatever you can to
get to be the biggest one, fastest."
5. Form partnerships. "Partner and create a network and then use that network and
build that network."
6. Be a winner. "You don't want to be number two. You just don't. And it's really
not that much harder to be number one than number two."
7. Get a customer. "A customer is absolutely critical to your success because you
need the feedback."
8. Expand. "Then go get another customer so that the first one doesn't own
9. Build strategic relationships with these customers. "And strategic relations
just means money has to go one way or the other, and it's better to have it go towards you
10. Go public.