Yesterday & Today is a new feature to help readers put things into perspective. Each month, we’ll dig into our archives and dust off the issue of Venture Capital Journal that ran 10 years ago.and answer the question: “Whatever happened to … ?”
VCJ, May, 1992
Draper Associates Holds First Close
Draper Associates last month held a first closing on just over $12 million for Draper Associates II.
The new fund, which has a targeted capitalization of $20 million, is the first independent partnership raised by Timothy Draper, the third generation of the draper family to make a career of venture investing. Mr. Draper’s father, William H. Draper III, was a founder of Draper & Johnson Investment Co. and Sutter Hill Ventures and his grandfather, William H. Draper Jr., was a founder of Draper, Gaither & Anderson.
Prior to forming Draper Associates II, Mr. Draper had invested for six years via the family-owned small business investment company, Draper Associates. In that time, he placed $14 million in seed deals for companies such as Parametric Technology Corp., Parenting Magazine, Aviva Sport and Digidesign, garnering an estimated 40% internal rate of return.
On the strength of those numbers, Mr. Draper closed on just over $12 million at the end of April, with all of that money coming from high net worth individuals, including local venture capitalists and entrepreneurs. Moving forward, Mr. Draper and his partners, Lawrence Kubal and John Fisher, hope to hold a final closing by the end of June.
“We have evolved,” says Draper. And how. From its modest beginnings (don’t worry, the firm did close on the full $20 million for Fund II), Draper & Associates has grown into Draper Fisher Jurvetson, an early-stage information technology behemoth. The firm rose to prominence on the back of the Internet revolution – big hits have included Hotmail, which Microsoft Corp. picked up for a cool $400 million in stock in 1998. “10 years ago we had a plan: We really wanted to be the early-stage venture capital company in the whole world,” Draper adds.
In order to reach its goal of world domination, the firm’s most recent vehicle, 2000’s DFJ Fund VII, closed on $640 million. At the same time, it created an international IT fund with offices in London, Singapore, Hong Kong and Redwood City, Calif. That $690 million fund, Draper Fisher Jurvetson ePlanet Partners, is a partnership between DFJ and European firm ePlanet Partners. As if that weren’t enough, DFJ launched a network of nine affiliate funds. The funds range across the country and their locations include Los Angles, Chicago, New York, Boston and Pittsburgh.
None of those, however, have reached the legendary status of their namesake. Investors in ePlanet Partners, for example, have not seen a single liquidity event and are struggling with duds like ReleaseNow.com. Since New York affiliate DFJ Gotham closed its debut fund in January of 2001, it has made only nine investments. And DFJ portfolio company MeVC which opened venture investing to the masses has been bedeviled by arbitrageurs trying to wrest control of the publicly traded fund. (Some of the main players in MeVC also have key roles in other areas of DFJ.)
Meanwhile, while DFJ bulked up and its partners, like Hotmail-backer Steve Jurvetson, became the VC equivalent of rock stars, former partner Kubal left the firm in 1995 to focus full time on Labrador Ventures, a small seed- to early-stage information technology fund he founded in 1989. “I didn’t want to get caught up in the bureaucracy of a larger fund,” he says, adding: “I think the soul of venture investing, probably, is really in the small and boutique funds.” Labrador has stayed small, raising a $27 million third fund in 1998 and a $90 million vehicle in 2000. The firm is currently raising a $150 million fifth fund, Kubal adds.
Labrador has made a successful go of it Kubal says, noting that all of its funds are top quartile performers for their vintage years. He declined to provide specific numbers. The firm’s homeruns include MyPoints.com Inc., which generated a 15x return for the fund when it went public. Labrador is still actively investing in tech, looking for deals that pass the Willie Sutton test, Kubal says. “That means we want to back companies addressing problems that have money associated with solving them,” he explains.
Like most firms that scored mind-boggling returns on the Internet, DFJ is dealing with life post-bubble. Its portfolio still has three consumer Internet deals and six business-related Internet deals. Draper doesn’t sound overly concerned about the future, having already identified new investment areas, like nanotech, optical integrated circuits and peer-to-peer computing. “We are trying to work through the problems as quick as we can and get back to our mission, which is to spread entrepreneurship around the world,” he says.
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