In a town filled with risk-takers, Silicon Valley venture capital firm Draper Fisher Jurvetson is one of the biggest gamblers of all.

The wild bunch

Timothy Draper
Steve Jurvetson
John Fisher
Jennifer Fonstad
Andreas Stavropoulos

FIVE PARTNERS of Draper Fisher Jurvetson gathered in their small, glassed-in conference room to hear a new business pitch at 8:30 one morning last spring. The presenters were from a Boston startup, Direct Hit, which claimed to use proprietary customer feedback to rank Web searches based on popularity. The company was nothing more than a business plan, a couple of patent applications and two founders who'd met a month before.

For less than an hour the partners spoke over one another, questioning the pair about the market, the technology, their backgrounds. By midafternoon DFJ was ready to back what it viewed as a revolutionary way to improve searching on the Web. "We'd never seen anything quite like it," says partner Warren

Packard, who helps comb through 5,000 plans a year. They decided how much to offer while standing around their assistants' desks and typed up a term sheet, a venture capitalist's version of a contract.

At 4:30 p.m. Packard, who knew the pair would be climbing the foothills near Stanford University, changed into hiking boots and ran up the trail. He found them by some parked cars and handed over the term sheet. They agreed to give up an undisclosed stake for $1.4 million after a week of negotiations—less than one-tenth the amount of time deals usually take.
Even in today's Web-crazed world, Direct Hit would have been a stretch for most other Silicon Valley firms. Its Boston location alone, a six-hour plane ride away, would have been a turnoff.
But it was vintage DFJ. "We have a bias toward action, jumping on crazy things, betting on incomplete management teams and unproven technology," says partner Steven Jurvetson. "Because that's where we'll find the next Hotmail." DFJ was one of the first to bet on the Web (Internet Shopping Network), and has done the most Net deals of any independent venture firm—54 to date.

While DFJ has not bagged famous prizes like Ebay and Amazon.com, the Redwood City, Calif. firm still has bragging rights in venture circles. It scored with investments in free e-mail service providers, Four11 and Hotmail, after they were sold, respectively, to Yahoo ($93 million in stock) and Microsoft ($400 million in stock) last year. Together the two deals netted the firm $200 million in stock in less than two years on a $5 million outlay.

Timothy Draper
Much of the firm's personality comes from its founder, Timothy Draper, 40, a guy known for showing up at board meetings dressed as a clown and skiing in blizzards in nothing but boxer shorts. He is probably Silicon Valley's only third-generation venture capitalist. His grandfather, a former U.S. Army general, opened the first West Coast firm in 1958. His father was an early backer of Quantum, Apollo Computer and LSI Logic.

When Draper graduated from Harvard Business School at age 26 in 1984, he couldn't land a job with a VC firm. For two years he worked in corporate finance at Alex. Brown & Sons, then started investing with money borrowed against family assets. His biggest hit: Parametric Technology, a developer of computer-aided design software that returned 500 times his initial $270,000 investment. Since then he has looked for what he likes to call "a diamond in the rough."
DFJ often prospects for gems by investing less than $1 million at the seed stage. Most venture firms have left that risky enterprise to angel investors. Last year only 9% of venture deals were initial-stage. Draper likes getting in at this point because valuations are lower and competition is thinner; it also guarantees a seat at the table in later rounds.

The risk is that you often bet on a paper-thin idea. JavaSoft was turned down by 20 VCs before it called on DFJ. The partners nearly showed them the door too, unimpressed with their Web database tools when DFJ asked if they had any other ideas. That's when they mentioned free e-mail. Within a week DFJ invested $300,000 and Hotmail was born.

"I knew what I was getting into when Tim Draper showed up for my job interview in Arabian garb."

DFJ buys dreams, not résumés. Draper looks for "people who talk about changing the world, not building a business. When you ask them where it will be in ten years, they have an answer." Examples: Transactor Networks, which offers one-click shopping on the Web, and FastParts, a Net-based semiconductor trading exchange.

He searches for that same fire in his partners.

Steve Jurvetson
Steve Jurvetson joined in 1995 at age 28 with no investment experience. He helped land Four11 and Hotmail, and made partner in six months. His technical prowess—while at Hewlett-Packard he designed seven computer chips and programmed in nine languages—gives him an eye for startups with jaw-dropping innovations. A recent find: Lightwave Microsystems, which uses photons instead of electricity in networking and switching.

He is also a consummate schmoozer, who has been accumulating business cards since college. At Stanford Business School he ran the high-tech club, inviting Steven Jobs to speak at his home. His first week at Draper, he sent e-mails to every acquaintance he knew in technology. These days he's a regular on the conference-and-cocktail circuit, breakfasting with contacts at venture hangout Buck's and playing ultimate Frisbee with entrepreneurs.
 

John Fisher
DFJ's straight man is John Fisher, 40, who met Draper at Alex. Brown and joined him in 1991 to help him launch the second fund. Not a week goes by when he doesn't challenge the other partners to slow down. "I'm the yin to Tim's yang," he says.

Warren Packard, 31, is the entrepreneur on the team. While attending Stanford Business School, he founded Angara Database Systems, which is commercializing a new, faster database system. (The company was later funded by Kleiner Perkins.) He spent a summer working at Institutional Venture Partners, specializing in health care information technology, but decided to join DFJ because "I love being a generalist."

Jennifer Fonstad
Jennifer Fonstad, 33, taught in Kenya, then helped privatize companies in eastern Europe and Russia (where she escaped kidnappers by jumping out of a moving car). Arriving at DFJ, she landed her first deal with Troika Networks, a Los Angeles-based data communications company, six months after graduating from Harvard Business School. Among her accomplishments: closing a deal while in labor with her first child.
 

Andreas Stavropoulos
Rounding out the team is the new associate, Andreas Stavropoulos, who taught computer science at Harvard and did consulting at McKinsey & Co. "I knew what I was getting into," he says, "when Tim, fresh from a trip abroad, showed up for my interview in full Arabian garb."
DFJ has had a few flops. It passed on Etoys because it mistakenly assumed that Toys "R" Us would own the e-commerce market. One bad bet was WebFlow, groupware on the Internet, which folded last year after burning through $8 million—$1 million of it from Draper's firm. Power Agent, which promised to deliver targeted advertising on the Web, shut down after losing $17 million. Says Packard, "If we never fail, then we aren't taking enough risks."

Overall, those risks have been richly rewarding. The first two funds turned $6 million over 14 years into stock currently worth $200 million and $20 million over 7 years into $325 million. Its third fund, which raised $50 million in 1995, is now worth $760 million (including $680 million in stock payouts to date). The $90 million 1997 fund is now worth $235 million in stock.

To keep its edge, DFJ is franchising its venture model with affiliates in Virginia, Alaska, Utah, southern California, Colorado, Oregon and Texas—and two more are on the way. In return for advising affiliates, DFJ shares profits and gets access to new deals, like Utah-based EmWare, a Novell spinoff that provides Internet connection for products like vending machines and locks. In Los Angeles Draper is setting up an entrepreneurs' club, and a magazine devoted to venture capital.

In the industry, DFJ is known a bit disdainfully as "Bull Market Cowboys." Snipes one rival: "As long as the market is hot, they will be solid."

The same could be said of every venture capitalist.

Source: By Luisa Kroll, Edited by Tom Posty at Forbes