BOOK NAME: The Startup Game: Inside The Partnership Between Venture Capitalist and Entrepreneurs
AUTHOR NAME: WILLIAM H DRAPER III
PUBLISHER: PALGRAVE MACMILLAN
YEAR OF PUBLISHING: 2011
WHERE TO BUY: AMAZON
ABOUT THE AUTHOR
William Henry Draper III is one of the greatest American venture capitalists. He was one of the earliest pioneers of the venture capital industry of America. He laid the foundation of this industry along with his father. He was born in New York. He completed his graduation from Yale University with majors in history. He then served in the Korean War. After the war, he completed his Masters in Business Administration from Harvard University in the early 1950s.
He worked in Chicago for a few years before finally moving to California. Initially, he worked in his fathers’ Venture Capital (V.C) firm “Draper, Gaither & Anderson”. It was one of the first VC firms on the west coast. It focussed on the tech company of Palo Alto, Mountain View, and other parts of Silicon Valley (before it became Silicon Valley).
He then co-founded another venture capital firm with his good friend Pitch Johnson known as Draper and Johnson Investment Company. In 1965 he founded Sutter Hill Venture, which to date is one of the top venture capital firms in the country. It mainly focuses on financing technology related companies. He has successfully invested in Athenahealth, Measurex, Plista, Imagni, and Dialcom Networks.
Later he gravitated toward public service and served in the United States Government under Ronald Reagen’s administration. He also had served as president of the United Nation Development Programme.
After this, he again returned to Silicon Valley. This time he founded Draper International, the first U.S. venture capital fund to exclusively focus on investing in private companies with operations in India.
In 2002, he established the Draper Richard Kaplan Foundation. It is a global venture philanthropy firm that supports early-stage, high impact social enterprises. In his Lifetime he has helped to organize and finance hundreds of technology startups.
For his immense contribution to the world of entrepreneurship and venture capitalism, he has been the recipient of many awards. Some of them are Lifetime Achievement Award from the National Venture Capital Association, a medal from the Foreign Policy Association, Silicon Valley Fast 50 Lifetime Achievement Award to name a few.
ABOUT THE BOOK
The author has been a pioneer of the venture-capital industry of America. He has seen the birth and growth of this industry. If I have to describe this book in one line I would say that it is the autobiography of both William H Draper III as well as Venture Capital Industry.
This book was published in 2011 and is a must for both entrepreneurs as well as VC’s. This book is divided into nine chapters. It starts with the introduction of three generations of the Draper family. Authors’ father William H Draper was a banker, general, and an accomplished diplomat. He co-founded the earliest VC firm on the American West Coast. His son Timothy Cook Draper is a founder of Draper Fisher Jurvetson, one of the largest VC firms in America. They had successfully invested in Baidu, Hotmail, Tesla, Skype, Solar-City, and other emerging startups. He also tells the story of his early professional life and his decisions to move to California.
In Chapters Two and three he talks about his profession, entrepreneurship, and startups which I will talk in detail in the latter part of this review.
Fourth Chapter deals with his “Missing Decade” or his time in public service. As mentioned above he served as a President of a public bank (Export-Import Bank of America). He was also a part of the United Nations Development Mission and traveled to many developing and underdeveloped countries. During his travels, he realized how the private sector can be the engine of economic development. In the backdrop of this, he always advocated for restricting the powers especially in the field of economy.
Chapter Five which also I will talk in detail shows his days as a global investor. He shares his experience of investing in Indian Startups and how he brought them to the global stage.
In the Next Chapter, he explains the importance of immigration and how immigrants have helped America to become a global superpower in technology and startups.
Chapter seven deals with the exit strategy for the VC’s explaining when they should sell their shares and how it is not always possible to get maximum value for their investments. He then also presents an alternative and intriguing point of view that only profit should not be the goal of the investor.
In the second last chapter he shares his experience regarding the importance of philanthropy and in the last chapter he explains through his time in the Korean war that how socialism has ruined the North but due to entrepreneurs and businesses, South Korea is a thriving economy. He also hailed Deng Xiaoping and Dr. Manmohan Singh as the Economic Hero of the 20th Century. At last, he predicted that free enterprise and technology will be the growth engine for this century.
KEY TAKEAWAYS FROM THIS BOOK
From the whole book, I found two chapters (Chap Two and Chap Three) very intriguing. These two chapters are a must for any startups, VC’s, students as well as anyone who is interested in entrepreneurship. Chapter Two- “How It Works” gives you practical insights into how this industry works. There are five key elements of the venture capital trade, namely:-
1). The funders
2). The team
3). The pitch, the product, the market
4). The deal
5). The relationship
He explained each element in detail and how the synergy between them can be achieved to get maximum output from this combination. He draws this lesson from his own practical experience of more than 50 years.
Talking about funders he traces the history of venture capital in America. He explained the venture capital partnership format. To give you a brief detail there are two types of partners in this partnership- limited partners, who put their money and general partners, who do the work. He also explains other forms of investments such as Angel Investors, Venture Debt, and Investment from corporations.
According to the author, when it comes to investing in new business the most important element is the team. Need of a right leader who has brains, judgment, charisma, commitment, empathy, integrity, and optimism. He adopts a more personal approach. He tries to know about the personal life of the leader. The author sincerely believes that if a leader is good and his product is bad he can still make improvements. Suppose the market of his product shrinks unexpectedly he can steer the whole team in a different direction. Hence the author is less concerned about the plan but more interested in the leader.
He then talks abt ‘pitch’, ‘product’, and ‘market’. Pitch involves not only selling their product but also their team and leader to the VC’s. What usually makes a startup stand out is their product line. They have to show how they are different and better from the existing players in the market. A market for a startup should not always be big. It could be a niche market but you should be prepared to own it all.
Then there is the deal, for which he gives very valuable advice. He says that entrepreneurs should not take the first offer on the table until you have compared it with a few more than term sheets from comparing ventures. He also gives very counterintuitive advice that it is not necessary that the offer that you give the highest money is the best for you. It is also the intellectual capital and the reputation of venture capital that should matter while accepting any deal for funding.
He beautifully ended this chapter with the importance of the relationship between V-C and entrepreneurs which should not be only limited money. V-C should play a very strong role in the board. There should be openness, honesty, and clarity in the relationship between them.
At the end of this chapter, he talks about “Ten Avoidable Mistake For Entrepreneurs”, which is a must-read for every entrepreneur.
In Chapter Three, he talks about what it takes to be a great entrepreneur. I consider this chapter as the most interesting part of this book. He gives real-life examples of entrepreneurs with these qualities and how they succeeded in their entrepreneurial journey.
The Following things should indicate a successful entrepreneur.
1. Brains and Education
2. Energy and Passion.
4. Vision coupled with good execution
6. Last but Not Least: A Sense of Humor.
Brain and Education mean the academic background of the entrepreneur. It talks about how your college does matter in the long-run. A good college is really necessary for entrepreneurs as it helps you to make contacts and friends that last lifetime. Also, he gives his own example of how his professor at Harvard Business School inspired him to join the VC industry.
He talks about the correlation between energy and passion. “Energy helps you discover and pursue your passion. Passion gives you more energy, which leads to more discoveries and pursuits”. He beautifully explains this concept with the example of Jonathan Bush (Nephew of George Bush). How as a teenager he helped in his uncle’s presidential elections. He maintained his youthful energy during his 20’s and 30’s and co-founded a successful company athenahealth. In tough times for any company whether big or small, passion and energy of the leadership can keep the company going.
Despite the above mentioned factors, you can not succeed unless you have the required expertise. It is not necessary that you develop expertise in every aspect of what you do. But then you should try to get the best talent and persuade them to join your company. Once you have expertise and self-confidence you will be decisive. It will prevent you from hedging while making tough calls.
He gives an example of vision using his own father’s story during the Berlin airlift and that of Freddie Laker's, low-cost airline. He beautifully summarised the lesson in the following words: “Vision without execution is just hallucination”. He draws contrast with Richard Branson’s Virgin Atlantic and Freddie Laker’s airline and how the former succeeded because with vision he knew how to execute it.
Finally, he talks about integrity. He gives his own childhood example. Integrity helps you to build your own reputation. Even if your startup fails your reputation is going to be intact. In the long term, it is your character which is based on your integrity that matters the most whether in business or real field.
TO INDIA AND BACK.
This chapter was really special for me and every Indian. Here the author explains his experience with India, Indian entrepreneurs, and startups.
After serving as president of UNDP, the author turned his focus to global investment. With his Partner Robin Richard after examining various growing Asian countries of that time including China, Hong Kong, and Indonesia decided to invest in India through his new venture Draper International.
He attributed his decision to India’s democratic polity, rule of law, and an English speaking business community. Also, we had a dynamic entrepreneurial community some of whom had already made their way to Silicon Valley. Hence Indians have a great track record of demonstrating their energy, creativity, and business acumen. We were the country of natural entrepreneurship.
India at that time was opening after the economic reforms of 1991. Dr. Manhoman Singh who was a finance minister at that time and in charge of affairs was already an acquaintance of the author. This made his decision easier as he had no doubt about Dr. Singh’s capabilities.
And finally, the author and his partner both loved Indian Food.
The author also explained the problem he faced during this time (most of them are still present today). He had to face legal roadblocks as foreign investment into business was pretty new in India. There were myriads of rules and regulations, bureaucracy, and red-tapism. However, he soon succeeded in set-up his firm here.
He recalls his experience of meeting Nandan Neelkaini who later became his partner in the Bangalore office. His other partner was Abhay Havaldar of HCL-HP, a sales and marketing wizard.
They made their first investment in Rediff.com which today is the largest Indian portal for news, entertainment, and shopping.
He also explained how many of the startups later relocated their headquarters to the USA because of its corporation friendly environment. But still, most of their clients and employees were in India and they benefited in the Indian economy hugely. According to the author, the immigrants especially from India as well as from all over Asia have played a great role in the American success stories. Immigration is the fuel that drives the American economy and for it to remain a superpower it should keep supporting immigrants.
There are many books written on the topic of entrepreneurship, business, startups, venture capitalists, and related topics. However, this book stands apart. First of all this book is not like an academic textbook that gives you conventional wisdom and formulas to succeed. It is a handbook of practical life experiences. The book starts with a story of Yahoo. In this case, the author failed to strike a deal with Yahoo and lost a very good opportunity. However, he started with this story as “ it captures a lot of the pain, joy, suspense, frustration, and elation that we venture capitalists feel as we’re closing—or failing to close—a deal” (Pg- 254).
This initial story gives a good overview to readers about what is coming for them. The coming chapters are filled with the author's personal life stories. Even the various lessons that authors give are substantiated by various practical life examples. In this book, different business concepts and terms are explained lucidly.
Contrary to popular media perception which shows only glamorous aspects of entrepreneurs and entrepreneurship this book gives a realistic glimpse of their world. Most of them are normal human beings. But what differentiates them from rest is their drive and passion to change the world. Venture Capitalists are also not some blood-sucking vultures as depicted by the media. They are businessmen who are prudent and without them, a startup can not achieve its full potential.
This is a must-read for every person who is related to world entrepreneurship and those who want to succeed in it.