Meet the Drapers

Norman Dodd’s report led to a brief but intense battle in Congress. After 16 days of testimony, the Committee agreed to hold no more public hearings. Most of the 12 foundations under scrutiny submitted statements denying the charges made against them. Gaither from the Ford Foundation wrote one of those letters. The year is 1954.

After stepping down from the Ford Foundation in 1956, Gaither was busy serving on the boards of the Rand Corporation and the MITRE Corporation.

It was during this time that he published the Gaither report, more formally known as Deterrence & Survival in the Nuclear Age.

The report was drafted by Gaither and the Science Advisory Committee and sent to President Eisenhower. It detailed a strategy to prepare for nuclear warfare with the Soviet Union. A heavy emphasis was placed on the Soviet Union’s nuclear capabilities - Gaither insisted that Soviet missile technology was light-years ahead of America’s. The solution, according to the report, was to cede to the Soviet demands and reach an agreement.

The Gaither report remains controversial for two key reasons. The “Science Advisory Committee” guessed - or perhaps fibbed - about Soviet military capabilities. When satellite photography emerged a few years later, it became known that the Soviets had four intercontinental ballistic missiles, rather than the 100 - 1,000 quoted in the report. The report feels especially odd when juxtaposed with the confession Gaither made during the Ford Foundation investigation.

GAITHER: The substance of the directives under which we operate is that we shall use our grant making power to alter life in the United States so that we can be comfortably merged with the Soviet Union.

In 1959, Gaither co-founded Draper, Gaither & Anderson, California’s first venture capital firm.

Timing is of the essence.

Going back to Henry, the Ford Foundation was formed less than a year after FDR’s 70% tax on large inheritance was instituted. Legislation was the force that produced a reaction.

Going back to The Real Robinhood, Charles Schwab took off after the Securities Acts Amendments of 1975 were passed. Legislation was the fuel that started a fire.

Draper, Gaither & Anderson was formed less than a year after the Small Business Act of 1958, which allowed the SBA to license small business investment companies (SBICs). The Act also provided tax breaks that incentivized the creation of more venture capital firms.

William Draper Jr. retired from Draper, Gaither & Anderson in 1967. He went on to do more work in the government, sitting on various committees and serving as a U.S. delegate to the United Nations.

Although his venture capital career lacked extraordinary achievement, William Draper Jr. planted a seed. From this seed, Silicon Valley blossomed.

William Draper Jr. had a son named William Draper III.

William Draper III, aka Bill Draper, founded Draper & Johnson in 1962. Sutter Hill Ventures acquired the firm in 1965, bringing on Bill as a founding partner.

Bill had a son named Tim.

Tim was the golden child.

Tim’s early adulthood was littered with blue chip schooling and white collar jobs.

From Phillips Academy Andover to Stanford to Harvard Business School to Alex. Brown & Sons (the first American investment bank). Alex. Brown & Sons was acquired by Banker’s Trust and then Deustche Bank in the ‘90s.

In 1985, Draper abandoned the path of perfect prestige to follow in the footsteps of his father.

The Draper Group was born. At first, it was a one man shop, a solo mission comprised of Tim alone. There were no home runs during those early years.

In 1991, John Fisher joined the firm as a partner. Fisher knew Draper through working at Alex. Brown & Sons. After banking, John got his start in VC through ABS Ventures, a fund tied to Alex. Brown & Sons.

In 1994, Steve Jurvetson joined, and Draper Fisher Jurvetson began to take form.

A venture capitalist by the name of Dev Purkayastha introduced John Fisher to Sabeer Bhatia and Jack Smith, two 26 year old entrepreneurs intoxicated with ambition. Draper was not a fan of their original startup idea, but after the trio asked Bhatia and Smith to come back with something better, they stumbled on the idea of web-based mail. Yes, email.

Free email had no clear monetization potential. The company launched on July 4th for good measure. Hotmail was alive, and Draper Fisher Jurvetson were the earliest investors.

As with all good things, the beginning was brutal.

Draper approached Jack with the idea of sending emails to everyone on the internet.

No way

Draper hit Sabeer with the idea of including a message at the bottom of everyone’s email saying ‘P.S., I love you. Get your free email at Hotmail.’

No way 

Draper dropped the first half and insisted that a sign-up link with the CTA, ‘get your free email at Hotmail’ would go “viral”.

Okay.

The company grew to 300,000 users in a few months and Draper coined the phrase “viral marketing”. Hotmail was now growing at an unsustainable rate. User base growth was consistently 10,000 new users a week, and money was flying out of company accounts to support their technical infrastructure. A new round of venture funding from Menlo Ventures helped temporarily - but it was like patching a bullet wound with some band-aids. Hotmail was bleeding cash.

Menlo’s investment was exhausted in a matter of months.

Tim Draper went door to door in Palo Alto looking to raise a bridge round that could keep the company alive. GE Ventures ended up putting together a term sheet that valued Hotmail at $120M. When GE did their diligence and saw how quickly Hotmail was burning cash, the fund backed out of the deal.

Out of left field, Yahoo offered to buy Hotmail for $40M. Microsoft immediately entered the chat with a $90M bid. It seemed like all of their troubles were solved

No way

Perhaps it was the GE deal valued at $120M. Perhaps it was stubborn confidence. Jack Smith and Sabeer Bhatia insisted that Microsoft come with a higher price, unmoved by the $90M offer. After some back and forth negotiations, Microsoft offered $350M in all cash.

No way

Menlo Ventures started to get nervous. The Hotmail founders were making them uncomfortable. Microsoft was starting to get irritated. A team of Microsoft executives set up a meeting with Smith, Smith’s dad, Bhatia, Draper, Fisher, and Jurvetson. Microsoft CFO Greg Maffei said $350M is the final offer. Draper said “It (Hotmail) is worth $2B, but we will take $400M in Microsoft stock.” Greg denied the request and said the deal was off. The Hotmail - Draper team left the room… But before they could exit, a Microsoft lawyer escorted them into a smaller conference room to rethink the decision. John Fisher stayed behind talking to Greg, calming the angered CFO down and trying to save the deal. Greg cussed the rest of the team out and then agreed to pay $400M in Microsoft stock. Both sides decided to not disclose transaction terms to the media.

With the Hotmail acquisition, Draper Fisher Jurvetson finally had their home run, the first of many for the firm.

In 2006, DFJ invested in Tesla’s $40M Series C round. Elon Musk led the round with co-investors Valor Equity Partners, Sergey Brin, Larry Page, Nick Pritzker, and more.

In 2007, the firm participated once more in Tesla’s $45M Series D.

As luck would have it, Draper sold early when Tesla went public and netted a 30x return on investment. If he had held, the return would’ve been 4,000x+.

Not to say other investments didn’t hit stratospheric multiples.

Draper was one of the earliest investors in Robinhood, generating a 1,000x return after exiting.

Skype, Docusign, Coinbase, Twitter, SpaceX, and AngelList round out the resume.

In 2014, Draper paid $19M for 30,000 Bitcoins which were seized by the U.S. government for the Silk Road. Months later, Draper told Fox News that one bitcoin would reach a price of $10,000 in three years.

The price of bitcoin crossed $10,000 three years later, and Tim’s legend grew accordingly.

Venture capital remains a family affair in the Draper household. Tim’s children have all founded or joined their own funds. Adam Draper is a managing partner of Boost VC. Jesse Draper is the managing partner of Halogen VC. Billy Draper is the managing partner of Path Ventures.

From 2017 to 2024, Tim and various family members starred in reality TV show, Meet the Drapers.

Headlines

• Fintech Ramp lands Eagle superstar Saquon Barkley for Super Bowl commercial. TechCrunch article 

• Tesla Dojo: Elon Musk’s plan to build an AI supercomputer. TechCrunch article 

• Softbank set to invest $40B in OpenAI at $260B valuation. CNBC article 

• Hamilton Lane raises $615M debut VC fund. Axios article

• CiCi Bellis’ Cartan Capital began raising $40M sports and health fund. SBJ article

• Stephen A. Smith presidential prospects. FOS article