The secret of Draper Fisher Jurvetson's success is a strategy other VC firms have been shy to pursue, CNET News.com's Michael Kanellos says.
Draper, who heads up venture capital firm Draper Fisher Jurvetson, sang a song about himself (that he also co-wrote) at the AlwaysOn conference this summer. He'll make comparisons between turn-of-the-century immigrants at Ellis Island and start-up executives. Plus, he has sort of a cocky, Noxzema-guy persona that seems to either attract people or make them gnash their teeth.
Nonetheless, he and his firm are riding an unusually strong wave of success that can be attributed to a deliberate strategy other venture capitalists have been shy to pursue: investing overseas.
DFJ was one of the original outside investors in Chinese search company Baidu, which saw its stock rise 354 percent, from $27 to $122.54, on the first day of trading after its initial public offering in August. The firm's 28 percent share in Baidu, which varies depending on stock market gyrations, is worth approximately $1 billion.
The firm also owns more than 10 percent of Skype, which eBay bought this week in a deal that could be worth $4 billion. Granted, Draper postulated in July that Skype, an Internet telephony provider based in Luxembourg that also has operations in Estonia, could become a $100 billion company. But analysts said Skype did pretty well for an unprofitable company with only $60 million in revenue.
Put another way: In the past six weeks, two of the firm's investments have ballooned in worth to nearly $1.5 billion. Not bad for a place that probably has only about 30 employees.
"I'm glad somebody's keeping track," Draper said in a phone interview.
Although tech executives have touted the virtues of globalization for years, direct investment in overseas start-ups paradoxically still remains fairly low. Many assert that accounting and legal standards aren't stable yet in many markets. Intelligence on who's who remains spotty. Until recently, PC maker Lenovo and other developing market brands have faced an uphill battle in going global.
DFJ's success with Hotmail opened its eyes to the possibilities of going global. Technically, Hotmail was a U.S. company, but it was founded by Sabeer Bhatia, a transplant from Bangalore who credited the bargaining skills he learned in vegetable markets at home for getting Microsoft to push its acquisition price from $160 million to $400 million.
"We started to recognize that entrepreneurship was going to be everywhere, because everyone could have perfect information," Draper said.
To that end, DFJ began to build up an affiliate program with other venture firms to give it greater geographic reach. DFJ ePlanet, for instance, scours Europe, Israel and Asia for start-ups, while DFJ Southern Cross focuses on Australia. Some of the affiliates operate fairly independently, while others operate almost like a listening post for the main Menlo Park, Calif., office.
The next frontier for the firm is Ukraine, where DFJ is setting up a venture fund.
"A lot of the former technologists from the former Soviet Union are there," he said. On a recent trip, Draper met with Ukrainian President Viktor Yushchenko (the guy who got poisoned during the election), one of the chief scientists behind an anti-Star Wars program and the Chernobyl clean-up.
"All of the governments in the world are realizing that they are in competition with one another, and they see the high-tech world as the ticket to wealth," Draper said.
There's also a lot of activity going on with affiliates in the parts of America that some in the 408, 650 and 415 phone code area would consider a foreign country. The firm invested in San Diego-based Internet video company DivX through its affiliate in Southern California Zone Ventures, for example.
Another rising company in the portfolio is Chantilly, Va.'s Mobile365, which came in through DFJ Atlantic. The company has created a network for delivering content and SMS messages for mobile phones on different networks. Draper's also hot on Mimeo, a company that says it will simplify overnight delivery and that came in through the New York affiliate.
Currently, if you want to send overnight packages to 25 different people, you have to print the thing 25 different times and prep a flotilla of mailing boxes. With Mimeo, you hit print, and all of the grunt work takes place at Mimeo's facility. Mimeo then forwards the packages to the air carrier of your choice.
"Think of it like Kinko's and FedEx combined. They've got a plant right next to FedEx's in Tennessee," Draper said.
Granted, you probably won't see Draper padding about in a saffron robe, expounding on the virtues of humility any time soon. But he's showing how expanding one's horizons can pay off.