The Startup Game
Inside the Partnership Between Venture Capitalists and Entrepreneurs
By William H. Draper III
Palgrave Macmillan, $28/£18.99
It seems to have become the fashion among the grand old men of American venture capital to write their autobiographies. First there was Valley Boy, by Tom Perkins of Kleiner Perkins. Then came A Vision for Venture Capital, by Peter Brooke of Advent and TA Associates. And now we have The Startup Game, by William Draper, the founder of Sutter Hill Ventures.
For anyone working in the industry, all three books should be required reading. Indeed, I would say they are more useful and accessible than any of the academic texts on the subject. Each work is both a memoir and an explanation of how the venture capital business functions. You do not need to be an expert to get value out of them. For those entrepreneurs who seek funding for their operation, I recommend buying all three.
The Startup Game is probably the most practical of the books: shorter, and more focused on the detail of how to make investments in early stage technology companies.
Draper’s story is an unusual one. His father was a pioneer in venture capital, and his son Tim has become a hugely successful venture capitalist too, at Draper Fisher Jurvetson. They must be the only family where three generations have worked as VCs. And it seems one of Tim’s sons might carry on the tradition.
William H. Draper III, to give him his correct title, has lived an adventurous life, which makes his book more exciting than simply a list of high-tech firms he has backed. He also ran for Congress, headed the Export-Import Bank under Ronald Reagan, and served as undersecretary-general at the United Nations Development Programme. He is an example of how seamlessly executives and financiers can move between the worlds of business and politics in the US.
Overall, this interchange of talent is a good thing: business leaders can show the politicians how to manage and what makes capitalists tick, while the exposure to the realities of politics shows just how much compromise is required in a democracy.
The author is also a serious philanthropist, creating the Draper Richards Foundation to give grants to non-profit organisations.
The book has flaws. The writer is not a natural stylist, so the book can feel heavy going at times. And it suffers from making it all seem a bit easy. Most of us prefer a story where the protagonist struggles against the odds, and succeeds after overcoming many setbacks. Draper appears to have led something of a charmed life, moving effortlessly from Harvard Business School to his father’s firm to government and then back to the world of venture capital. And he can occasionally come across as smug – “I’ve often been told that I have good instincts about people.” A little more self-deprecation might have been helpful.
But if the subject interests you then this volume offers advice from a wise figure. Possibly the best two pages are a list entitled the Top Ten Avoidable Mistakes of Entrepreneurs. I encourage anyone raising capital for a serious start-up to study this section, even if they ignore the rest of the book.
The book also reveals an interesting fact: ex-generals helped establish the industry – both General Georges Doriot, the true inventor of the model, and General Anderson, co-founder of Draper Gaither and Anderson, the first Palo Alto VC firm, set up with the author and his father in 1960.
I hope this spate of life stories by the industry’s elder statesman is not a signal that its glory days are behind it. Venture investing has always been about spotting the future and making bets on the next great entrepreneur. Venture capital was an American invention and has stimulated much of US economic progress in recent decades. I profoundly hope venture capital’s role as a catalyst continues.
Unfortunately, the VC industry is not doing well. For the past 10 years most funds have shown negative returns, especially compared with the spectacular profits reaped in the 1990s and before. Partly as a consequence, since 2008 the amount of money raised to invest in the asset class has fallen by half from the levels of five years ago, according to the National Venture Capital Association. This is bad news for venture capitalists, technology entrepreneurs and the US economy.
Venture capital has fuelled the Silicon Valley revolution from Hewlett-Packard to Apple to Twitter; if there is much less risk finance, there will be less innovation and probably fewer jobs created. Wall Street needs to revive its initial public offering market, and institutions need to keep allocating money to venture funds. For without their support, how will the US’s entrepreneurs fund the cutting-edge companies that are the only solution to its great unemployment crisis?
Obviously, Draper is an optimist and believes the industry will recover. I hope he is right.
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