Secrets of Silicon Valley: What Everyone Else Can Learn From the Innovation Capital of the World by Deborah Perry Piscione

Author:Deborah Perry Piscione [Piscione, Deborah Perry]
Language: eng
Format: epub
ISBN: 9780230342118
Amazon: 0230342116
Goodreads: 16080182
Publisher: Palgrave Macmillan
Published: 2013-04-02T07:00:00+00:00

8THE INVESTORS OF SAND HILL ROAD

Highway 280, Exit 24, Menlo Park, California

Draper Fisher Jurvetson, otherwise known as DFJ, a venerable venture capital firm in Silicon Valley whose offices lie at the foothills of the Santa Cruz Mountains on Sand Hill Road, was founded in 1985. Known as an “early-stage investor,”1 the firm has capitalized on a handful of simple visions and products before they were household names, Hotmail and Skype among them, as well as complex technologies like Synthetic Genomics, a company developing “new scientific processes to enable industry to design and test desired genetic modifications.”2 DFJ now manages $7 billion in investments in a global network of partner funds, with a focus on “extraordinary entrepreneurs who set out to change the world.”3

Tim Draper, the founder of DFJ, is a third-generation venture capitalist.4 His grandfather, Gen. William H. Draper Jr., was the first West Coast venture capitalist. He cofounded Draper, Gaither & Anderson in Palo Alto in 1957, and started funding companies like Raytheon. General Draper served as the Undersecretary of the Army, and was most notable for his leadership role of the Marshall Plan after World War II, focusing on the economic reconstruction of Germany and Japan. The general partners of the firm were Rowan Gaither, founder of the Rand Corporation, and Frederick L. Anderson, a retired Air Force general, and included limited partners such as the Rockefellers, and the then-private financial services firm of Lazard Frères.

Draper, Gaither, and Anderson set much of the standards of the venture capital industry that exists today. Venture capital became a partnership where general partners managed the funds and invested anywhere from 1–10 percent of the fund, and limited partners put up the predominant investment in the fund, but collectively everyone shared in the economics once a start-up was sold or became a publicly traded company. The three men also laid the groundwork for how venture capitalists received compensation through management fees and a share of the profits after liquidity. The management fee, which was set between 1 and 2.5 percent of the total fund, was meant to cover the costs of doing business, of managing a fund, rather than creating meaningful wealth for the general partners. The carried interest or “carry” fee, a benchmark that set between 20 and 30 percent, was paid when companies became liquid, and limited partners had been paid back all of their investment

The general’s son, William H. Draper III, graduated from Yale University in 1950, where he attended school with George H.W. Bush and became a member of the secret and powerful Skull and Bones society. After serving as a second Lieutenant in the Korean War, he attended Harvard Business School, and studied under professor Georges Doriot. Draper III started the venture capital firm Draper & Johnson Investment Company in 1962, and then founded Sutter Hill Ventures in 1965. He managed Sutter Hill until President Ronald Reagan appointed him Chairman of the U.S. Export-Import Bank in 1981, and then Undersecretary General of the United Nations in 1985.

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