Tim Draper: What Bitcoin and all my best investments have in common
What do Skype, Hotmail, Twitch, Tesla, SpaceX and Bitcoin have in common?
A lot of the early "investors" in Bitcoin found it through a well-timed Silk Road drug habit, or because they were looking for a way to stick it to the man, hide assets in a divorce, evade taxes or just putter around with an interesting type of Internet money to see how it worked.
But among them were some people actually investing.
Venture Capitalist Tim Draper was one of the investors.
Bitcoin may have been one of his most lucrative investments, but the reasons he first bought into it are actually quite similar to many of his other most successful investments, Draper said to Crypto Finder.
The "other" category
"A lot of venture capitalists talk about all the risks that can happen to a business," Draper says. "I don't really do that."
"I say if this succeeds, how big is it? How much do people care about this? Is it something that does a lot of good for society and builds a great business around it, or is it something that's sort of 'meh, no one really cares', so even if it's successful it's going to be another whatever, social network or whatever."
"I'm looking for those things that are really out there, a little maybe odd; things I've never thought of... those are the extraordinary entrepreneurs I'm looking for. If you go through all the data from the 30+ years I've been in the venture business, you find out that the category that has made the most money was the category we called 'other'."
Bitcoin definitely falls into the "other" category.
Another thing it had in common with all of Draper's best investments, he says, is that it came as something of a surprise.
"All the best ones were a surprise," Draper said.
"You know Hotmail? They came to us with an entirely different business, then they changed their business to free web-based email. It was the first thing anyone had really given away for free anywhere. They said 'well, it's so cheap why don't we give it away for free and make up on it on volume?' or something - we didn't even know," he said.
"And we invested in Hotmail, and I came up with the message at the bottom of the screen. It was supposed to say "PS. I love you, get your free email at Hotmail." But it said "get your free email at Hotmail" and it spread around the world. It was a huge marketing push. We called it viral marketing, and it was a huge success."
"But it was a total surprise. The whole thing was a surprise."
Skype was also a weird one, Draper recalled.
"The guys who started Skype were considered outlaws. They could not come into the US because they'd started Kazaa."
Where other VC firms would have seen only the risks, Draper's firm Draper Fisher Jurvetson (DFJ) picked up 10% of Skype in 2004-2005. Skype was sold to eBay for US$2.6 billion upfront in 2005, and in 2007, Draper appeared in the first Skype video call.
Tesla and SpaceX
Tesla and SpaceX were also outliers. While they seem easier in hindsight, they were definitely well and truly out there at the time, Draper recalled.
"Elon came to us, well actually the guy before Elon – Martin Eberhard – came to us and said he's going to start a car company, Tesla. And we were looking at it and saying 'God, there hasn't been a successful car company in the US for 50 years. What are you thinking?' But we did it anyway," Draper said.
"I took an electric car for a spin, and didn't realise how fast they were, or how fast they could stop. And I realised you wouldn't have to be a tree hugger or a golfer to use an electric car. It could be a high-performance vehicle. So I got excited about it."
"SpaceX? My god, it was taking on the rocketry industry," Draper said. "It was taking on NASA – a big government organisation. Yeah, NASA spent 200 times what they needed to spend to launch a rocket, because of all the government paperwork they have to do."
And then there was the stream of surprises that was Twitch, or Justin.TV as it was known at the time.
It started as someone videotaping himself 24/7, evolved into a lifecasting channel and then became Twitch when it turned out that people loved watching other people play video games.
"Twitch was a guy who was going around with a camera video-taping his whole life," Draper said. "They found that 40% of people were using Justin.TV to watch other people play video games, and that was the launching of Twitch."
Coinbase was "some new currency company no one had ever heard of, trying to get to the retail investor," Draper said. "That was a long, long shot, but my son invested in Coinbase before I did."
Coinbase was founded in 2010, and in 2015 DFJ would help lead a $75 million fundraising round in the platform.
The Bitcoin surprise came after the fall of Mt Gox, where Bitcoin surprised Draper simply by surviving.
"When Mt Gox fell, and took the money or did whatever they did, I thought that was the end of Bitcoin, and Bitcoin was gonna be just another 'also ran'. But Bitcoin only dropped about 10% or 15% on the news, and I thought 'woah, people really need this. It's going to be a very important part of our economy'."
"I didn't really understand why. I was looking at it and thinking 'why didn't Bitcoin go to zero?' It's because there are so many real use cases of Bitcoin you can't use dollars for," Draper says.
"Micropayments, remittances, paying employees overseas, buying things from somebody who doesn't have a bank account, banking the unbanked. So many interesting applications came to life when I really started looking into it."
"And I looked into it because of that weird situation where I thought 'wait, if the biggest exchange in bitcoin goes out of business, how can this continue to be successful?' Well, it's because people really needed it. I got so excited about it, I started to buy it. I bought all the way up."
"Be in the 'other' category," Draper said.
Disclosure: The author holds BNB, BTC at the time of writing.