The new pandemic reality has in every respect produced a global impact and triggered tectonic shifts in economies, and the humankind is yet to discover the new, post-pandemic world. Timothy Cook Draper is no doubt one of the most successful venture capitalists ever and a man who helps entrepreneurs change the world and drive their visions through funding, education, media, and government reform. In an interview to Invest Foresight Mr Draper shared his views of the present situation and its likely evolution in the future.
How has the COVID-19 pandemic affected the venture capital industry in general and the work of your venture capital firm in particular?
It has been a unique effect, and it is still playing out. Some of our companies were already operating remotely and they had an advantage. Many people who were stuck in place started experimenting with VR, bitcoin wallets, and remote health care, so those companies did remarkably well during the crisis. Any companies tied to the gig economy had some difficulty, but the gig workers adapted quickly to new services (Uber to GrubHub for example). For many VCs this has been a tough time where they are doing some triage on their portfolios, since many are not yet investing in anything new. We have been fortunate in that most of our companies raised money last year and have been careful not to waste it.
Has the pandemic changed the vision of the promising areas for investment?
The pandemic has accelerated the interest in remote work, in data (dry lab) health care, in bitcoin and other cryptocurrencies, in VR, in remote online (non-accredited) education, and in new forms of decentralized governance. People are not looking much at commercial real estate, travel, hotels, or conferences.
Some industries have shown faster growth during the pandemic, such as food delivery and online services. Do you think their high performance will continue for a long time, or will these projects lose their appeal for investors once the coronavirus lockdown is over – that is, possibly at the end of 2020?
I think they will continue to shine. I know that some of the stuck in place habits will die hard, and getting back to “normal” travel, etc will come very slowly.
Your venture capital firm invests in a large number of projects in a variety of industries. But no one can be equally competent in all areas. What is the secret of your quick and effective analysis of large arrays of diverse projects? What are the most important project evaluation criteria?
I think my advantage is a willingness to explore the possible. While many VCs are looking to invest in the past, I look at what might be possible in the future. While other VCs try to figure out what can go wrong in a company, I focus on what the world will look like if it goes RIGHT.
From your experience, what percentage of the projects financed eventually make a profit? Will the pandemic change this estimate?
About one third to one half. I don’t think the pandemic will change that.
What innovative areas are the most promising for investors today? Can you say industries go in and out of fashion for venture investment?
Yes, I think industries go in and out of fashion for VCs, but I tend to invest counter cyclical to them. The obvious areas are built around remote work today.
Do you agree that creating new online services and mobile apps will soon outlive its heyday, and startupers need to consider some more fundamental industries?
Of course. Every new technology eventually gets eclipsed by the one before.
Do you believe that financial technology can “kill” conventional banking?
I think banks have to reinvent themselves. DeFi and bitcoin look like they will be the future of finance and banking. I think the banks that start working with bitcoin and create new DeFi methods will outperform those that try to sweep these new technologies under the rug.
What was the best investment in your career?
It is still to come. But I think Hotmail got me on the map and allowed the world to communicate for free. Skype added fuel to that communications spark, as did Twitch. Baidu opened up China. Tesla opened the transportation industry wide for innovation. Robinhood, Carta, Coinbase, Forge are changing the banking industry.
It is generally believed that the most promising startups eventually get snapped up by giant corporations such as Google. Do you agree with this assessment?
Not necessarily, but the big companies, because they control the conversation on regulations, whether they know it or not, are predatory.
According to a recent IBM study, in the near future, technological breakthroughs will be driven by traditional corporations, not startups, among other things because corporations can provide ongoing retraining for their employees. How would you comment on this?
It is wrong. It is so hard for a large company to innovate. They are surrounded by fear and lawyers and more fear. The most innovative big companies create skunkworks for their innovative products.
Do you believe the pandemic will cause a global economic crisis, and what decisions do venture investors need to make in this context?
I think it already has, but we don’t know it yet. I don’t think our global economy jumps back with 40 million Americans (and 10x that number worldwide) unemployed.
By Professor Artem Genkin, founder of Invest Foresight online business magazine