draper associates: Fall in Indian startup valuations have created an interesting opportunity: Tim Draper

Tim Draper, founder of VC firm Draper Associates and a Silicon Valley investor, believes India has the potential to dominate the fintech, cryptocurrency, blockchain and smart contract markets if it fosters supportive policies, invests in world-class infrastructure and promotes entrepreneurship. During a recent visit to India for his show, ‘Meet The Drapers’, the third-generation venture capitalist who has invested in companies like Tesla, Baidu, Skype, Robinhood, SpaceX and Coinbase discussed with ET’s Vinod Mahanta on topics including the evolution of the Indian startup ecosystem, misgovernance in startups and why Indian regulators should change their views on crypto. Edited excerpts:

The Indian government is all for banning cryptocurrency and is taxing it heavily. Should it change the mind on crypto?

I believe that China, under President Xi, has decided to shut itself off from the world economy, and this presents a huge opportunity for India to position itself as a free and open country. However, if India were to eliminate or regulate cryptocurrencies with a heavy hand, I fear that they would lose a lot of engineers, as they would likely leave to go to the US or Dubai. This would be unfortunate as India is currently a hotspot for engineers. In my opinion, when politicians speak out against cryptocurrency, it is because they recognise that the blockchain technology keeps perfect records, and they may fear potential exposure of their own corruption. India could absolutely completely grab this entire fintech, cryptocurrency, blockchain and smart contract market. It just has to put supportive policies, world-class infrastructure in place and encourage entrepreneurial activity. Dubai would be nothing compared to India.

Are there any new investments you’re looking at in India, and how is your Indian portfolio doing?

I have some existing investments. My Indian portfolio is doing okay. StayQrious, an education platform for good tech education with a very charismatic personality who does all the training, is making good progress. I have an investment in Unocoin, a crypto exchange, and I’m sure they’ll come out of the turmoil a lot better and stronger. I also have some good tech businesses in which I’m co-investing with Bloom Ventures. I am also an investor in Iron Pillar, which invests in tech startups in India. My grandfather, William Henry Draper Jr., was the first venture capitalist in Silicon Valley, and my father, William Henry Draper III, was the first Silicon Valley venture capitalist to invest in India in the late 1990s.

How have you seen the Indian startup ecosystem evolve?

The entrepreneurial environment in India now seems extraordinary to me. In 2019, I was impressed by the exciting startups I met. But valuations were very high. Now, I believe valuations have come down, creating an interesting investment opportunity. I think investors for this cycle will probably do well, as the valuations have come down and the opportunities in India are vast and creative, even compared to Silicon Valley. They have gone beyond the “me too” concept and offer unique opportunities. PM Narendra Modi is trying to break the cycle of mistrust and corruption, and the great leaders are the ones who trust their people, set them free, and let them create the lives they want to create. And the weak leaders are the ones who try to control things. President Xi of China and President Putin of Russia are weak leaders. It sounds like Modi is and was a great choice for this time.We have seen some cases of corruption and misgovernance in a few high-profile Indian startups. Is it due to the abundance of funding or a lack of oversight by venture capitalists?

Yeah, everybody in a bull market loses their mind. During a bull market, people tend to lose focus on building a customer base, generating revenue, and creating a competitive advantage. Instead, they only focus on hyping it up and raising more money. However, in a bear market, funding dries up quickly and entrepreneurs have to turn to their customers for revenue. This is where the true test of the product and its customer base comes into play.

Do you see venture funding picking up in 2023 after a 35% dip in 2022, given the economic uncertainty?

I remember the dotcom crash that happened in Silicon Valley. Funding came back slowly, and it was not a V-shaped recovery; it was an L-shaped one with a long upward movement. Based on that experience, I believe that’s probably what we are going to go through again.

Where do you stand on the growth versus profitability debate?

I believe that in a bear market, it is crucial to be profitable. Raising money is difficult, and it was almost impossible for a startup to raise money in the 2002-2007 period. However, some startups that were able to prove themselves were able to secure funding. As an entrepreneur, I would advise to prove yourself, ensure that your customers are happy and willing to pay for your service, and create a pathway to profitability. I don’t think that growth should be prioritised before figuring out what the customer needs. When a company is suffering losses, investors want to know how long the cash will last, and now they want the number to be infinity.

You have invested in Elon Musk’s Tesla and SpaceX. Was acquiring Twitter the right move for him?

We had invested in Tesla before Elon Musk even became the CEO. I believe we are lucky to have Elon on the planet; he is so clear-headed and focused. He takes on any challenge and goes after it, he makes amazing things happen for the world. I think maybe he didn’t anticipate that the bear market was going to hit and that it would be tough when he bought Twitter, but I think he had very good intentions. He didn’t like that Twitter was muzzling other people or not allowing certain ideas to form. He knows how powerful free speech is, so I think he bought Twitter to build free speech for the world. I believe in that way, he will be successful.

Has excessive speculation by wealthy investors caused the failure of Bitcoin’s original purpose as a payment method?

I find it interesting that the poorest of the poor, who were unbanked, were the ones who first grabbed onto Bitcoin. They were the most active users of it. This is a great way to bring people up, especially because traditional banks often require a certain amount of money to open an account and many people can’t afford the administrative costs. With Bitcoin, there’s no friction. You have your own bank account and all you need is a ledger. You can move your money wherever you want.

In 2014, you purchased 29,656 bitcoins confiscated by US Marshals from the Silk Road dark web marketplace for $18.7 million. How much bitcoin do you still hold? Are you still buying?

I have done lots of things with it. I have bought more and then invested more. It’s complicated, but generally, I still have it. I think that the current price of bitcoin at $20,000 is a good deal, and I am still buying. I had predicted that by the end of 2022, it would hit $250,000. However, there were a few things that I didn’t anticipate. I thought that more retailers would be accepting Bitcoin by now. That hasn’t happened yet. But I believe that six months before the next halving, it will probably have another run-up. By that time, I think most retailers will be ready for it, and they will save 2% on every purchase.

When do you think Bitcoin will reach its all-time high of $69,000?

If you give me another year, $2,50,000 is still my number.

You funded Hotmail and Zoom, which disrupted communications. ChatGPT is now threatening to disrupt a wide range of industries. Is the coming decade all about AI and ML, or are there other technologies that excite you?

I believe that Hotmail allowed the entire world to communicate for free, which led to an increase in the global economy and the expansion of the middle class. Tools like Skype and Zoom have also allowed people to communicate, conduct business, and build relationships without having to travel. I also believe that Bitcoin and its associated technologies, such as blockchain, smart contracts, and DAOs, have the potential to bring about another major leap forward for humanity, where we are all connected as one world and governments become more competitive. With the potential of Bitcoin as a global currency, we have the opportunity to create a world without borders, which can bring peace and prosperity to all. My son Adam has pointed out to me that AI will likely take all our jobs in the future. So that’s one to watch out for.