William H. Draper - The Startup Game: Inside the Partnership between Venture Capitalists and Entrepreneurs

INSIDE THE PARTNERSHIP
BETWEEN VENTURE CAPITALISTS AND
ENTREPRENEURS

WILLIAM H. DRAPER III

To the entrepreneurs of the world

THE STARTUP GAME
Copyright William H. Draper III, 2011.

All rights reserved.

First published in 2011
by PALGRAVE MACMILLAN
in the USa division of St. Martins Press LLC,
175 Fifth Avenue, New York, NY 10010.

Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS.

Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world.

Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries.

p. 217: Harbor Lights
Words and music by Jimmy Kennedy and William Grosz
1937 (renewed) Peter Maurice Music Co., Ltd.
All rights in the U.S. and Canada administered by Chappell & Co.
All Rights Reserved
Used by permission of Alfred Music Publishing Co., Inc.

ISBN: 9780230104860

Library of Congress Cataloging-in-Publication Data

Draper, William H., 1928

The start up game : inside the partnership between venture capitalists and entrepreneurs / William H. Draper III.

p. cm.

Includes index.

ISBN 9780230104860

1. Draper, William H., 1928 2. Capitalists and financiersUnited StatesBiography. 3. Venture capital. 4. Entrepreneurship. 5. New business enterprisesFinance. I. Title.

HG172.D73A3 2010
332.092dc22 2010025518

A catalogue record of the book is available from the British Library.

Design by Newgen Imaging Systems (P) Ltd., Chennai, India.

First edition: January 2011

10 9 8 7 6 5 4 3 2 1

Printed in the United States of America.

W HEN I MENTIONED MY thought of writing a book about the three generations of Draper venture capitalists and the entrepreneurs we met along the way, Phyllis, my lovely wife of fifty-seven years, immediately exclaimed, You have to do it! She has supported me enthusiastically at every step of the way. Her encouragement and editorial advice have been more important to me than any other factor in taking on this challenge and following it through to completion.

My three children, Becky, Polly, and Tim, have all helped to keep me motivated by reading my drafts and urging me on. Tim, of course, supplied significant content by his remarkable contribution to the industry and also provided a thoughtful afterword. Eric Schmidt wrote an extraordinary foreword, and through his leadership at Google, he reminds all of us every day of the essential role entrepreneurship plays in making the world a better place.

Yasemin Denari, who is now pursuing her MBA at the Stanford Graduate School of Business, has been involved in this project more than any other individual. When she joined me at Draper Richards, she was eager to learn about the venture capital businessand she certainly did. She interviewed some of the best minds in the business, conducted superb research, and truly helped to shape, write, and edit this book. She has done an exceptional job of managing this endeavor from start to finish. I am deeply indebted to her.

Jeff Cruikshank was my editor in chief, and he supplied me with many words, much-needed guidance, and some very creative structuring. His excellent grasp of how business works was of real value to this project.

I would never have received the credentials to write as an authority about venture capital without the support of my many partners along the way. When I was a young associate at Draper Gaither & Anderson, I learned the basics by trial and error with the other young associates and senior partners, including my father. To all of them, I will be eternally grateful. My dear friend Pitch Johnson and my wonderful partners at Sutter Hillparticularly Paul Wythestaught me a great deal and together we made a significant impact on an embryonic industry. This book could never have been written without them. Robin Richards Donohoe and I pioneered the venture capital thrust into India, and her consistently sound judgment, solid encouragement, and insightful ideas continue to be an inspiration for me. Her contribution to this book and to my life cannot be overemphasized. Howard Hartenbaum and Cynthia Lam have helped me in innumerable ways and have advised me at every stage of the development of this book. Of course the administrative support, which Jenece Sales, Linda Rheem, Rhonda Meier, and Jeannelle Luber have given me, has made my crazy life seem easy breezy.

If Jim Levine, my stellar agent at the Levine Greenberg Agency, or Laurie Harting, my executive editor at Palgrave Macmillan, had not seen a glimmer of hope early on in my proposal, I would have been practicing my trade more and writing about it less over this past year and a half. I am very appreciative of their faith in me. Lauries direct involvement in balancing the complexities of my story have been particularly helpful.

Hats off to the many venture capitalists and entrepreneurs who agreed to be interviewed by Yasemin or me. They had a lot to say, and I am only sorry that we could not put all of their ideas, experiences, and wisdom in the book. I would also like to thank Anne Marie Burgoyne, Steve Jurvetson, Brook Byers, Mickey Butts, Jenny Shilling Stein, Thomas Foley, and Breanna DiGiammarino for their editorial contributions. And of course, thank you to Bill Bowes, Charles Ewald, Stuart Davidson, John Fisher, Matt Scott, and all of my other friends who read early drafts of the manuscript and provided helpful commentary.

Most of all, I am in awe of and thankful to the entrepreneurs who were with me in the startup game. Weve participated in a great gamenot always successful, not always fun, not ever easy, but a great game nonetheless. Most of my career was spent with these extraordinary individuals, and I came to admire every single one of them, regardless of the outcome of our venture. Together, we took on the task of building great companies, but it was these gutsy and energetic visionaries who did the real work.

The startup game is hazardous and exhausting, but often exhilarating. When an entrepreneur crosses the finish line a winner and I am at his side, I know his story has to be told. When an entrepreneur stumbles, and I, as his partner, am unable to get him back on his feet, I know his story must also be told. That is why I wrote this book and why I dedicated it to the entrepreneurs of the world.

F UTURIST ALVIN TOFFLER ONCE SAID, Change is not merely necessary to lifeit is life. He believed that the great engine of change is technology, which builds on itself and thus makes the next advanced technologies possible.

Gutenbergs printing press, Edisons lightbulb, and Bells telephone are all examples of early technological innovations that dramatically transformed the ways in which people lived, learned, and communicated. Truly disruptive technologies such as these actually change the social norms as richer and more pervasive models emerge. As Henry Ford said, If I had asked people what they wanted, they would have said faster horses. Fords ability to upend the status quo and create a new category is a good example of what fuels the continuous engine of change.