One of the world’s most successful venture capitalists, Tim Draper, says that Estonian top statesmen are changing the way governments operate. In the next 15 years we will see awesome changes in governance, he believes. And because of their visionary work, Estonian President Toomas Hendrik Ilves and Prime Minister Taavi Rõivas join his list of world-changing heroes. Draper spoke about his thoughts right after his speech at the Latitude59 startup conference in Tallinn at the beginning of June.
You mentioned during your speech that next to your three heroes Mikhail Gorbachev, George Washington and Deng Xiaoping you now have two new ones – the President and the Prime Minister of Estonia. That’s a huge compliment. Why them?
Because these other leaders all surrendered their own power for the sake of their people. Deng Xiaoping said ‘Hey, we need a free market here and some of you will get rich first’. That was his thinking. George Washington said: ‘I’m not going to be the king of America and I’m giving it up after eight years’. Gorbachev said, ‘this capitalism works better than communism. Take the wall down!’. They all effectively gave up their power seat in order to build a great country. What I’m seeing here in Estonia is these guys using technology to transform their government in a new way. It’s a new kind of governance. It has the chance to lead us into a new form of government that’s beyond what any of us has ever imagined. They’re pushing forward on it as opposed to most government officials who are afraid of the change.
How do you imagine this new kind of governance?
I think it needs to be as efficient and effective and provide as good services as the private sector does in building anything from this table cloth (he points to the table cloth in front of us during our interview) to that building. I believe the governments are now in competition with one another … but for us. We are now their customers; people, entrepreneurs, money, businesses – all of it. Once they realise they’re in competition, they will all get even more efficient, effective, with lower costs and higher value than what they have today. And your guys in Estonia know that and they know how to use it.
That leads me to ask if there is still a need for physical countries with borders at all? I mean, we already have bitcoin as an independent virtual currency, and different services that don’t comply with traditional governmental regulations.
I wonder! I am not convinced that all of these land-based wars make any sense at all. But there is something to real estate – it is of value. It is one of the many pieces that the government needs to provide. I think it’s here for a while but at some point we as individuals are going to guide these competitive governances toward being more virtual and even being an itemized list. I might take my social security program in Chile, education in Estonia and religious freedom in the US. I think free speech is letting the cat out of bag. We’re all gonna say what we want to say now! (Laughs).
Is it possible that there are going to be entirely new virtual countries that don’t exist now?
Yeah, there already are in fact. There is something called DAO, which is a new virtual country on the blockchain. They use ethereum (a decentralized platform for applications to run as designed without outside interference – ed.) for it and they’re creating their own set of rules and regulations. They are in fact much more efficient than most governments are.
How well aware are you of our e-governance systems such as the e-Residency program?
Well, I’m a member of it. I was the third ever e-resident!
Have you used your e-Residency card?
I haven’t done anything with it yet. I need to set up a bank account and then probably figure out how to fund an Estonian company with it and then maybe buy some real estate.
Do you think it’s going to be a success?
It is pretty exciting. It’s potentially getting to be a significant percentage of Estonia. Down the road people might say this is where I want my taxes to go, my world to be. I want to be a person of the world, not a person of an artificially delineated country. So I think we’re in for some major changes over the next 15 years. We’re going to see amazing things happen in governance.
Let’s talk a little about Draper University, which you established a few years ago. It doesn’t have any accreditation. It’s curriculum takes just 7 weeks to get through and one part of it is even a survival camp with the US Navy SEALs. You do everything 180 degrees opposite of what an accreditation would require. Is Draper University a business for you or a way of giving back to the community?
I’m still figuring that out! So far it has been a way of giving back to the community. I don’t actually believe any business should stay in business if it’s not sustainable. So I need to make sure that it is sustainable, grows and turns a profit. We’ve got to make sure it works that way. We’ve experimented with a lot of different models. Tuition, some sort of work for payment of tuition, a percentage of students’ income for a period of time, for instance two per cent for 10 years. We’ve also funded some of the companies that our students have started and we’ve explored the idea that we would take equity for the tuition. Maybe in 10 years this will kick in and be profitable.
How did you come up with the idea of the curriculum behind it. It sounds so… crazy?
It is a little crazy! I came up with it, because I thought about what it took to be an entrepreneur. An entrepreneur is up against all of the existing businesses that are doing whatever that entrepreneur is doing. You’re taking a new technology into a den of lions who don’t want you to succeed. This has happened over and over again. It happened in the car business with Tesla, it happened in telecoms with Skype. We were seeing it with Theranos, a solution which takes two drops of blood from your finger for really difficult diagnostics. When you break into an industry which is so controlled by an oligopoly of providers who are generally providing bad service at a high cost, you’re gonna threaten their existence. They’re not gonna be happy with you being there obviously, and you need to know how to stand up against that. It’s very difficult. So we give those entrepreneurs some help and support.
Did you go through the curriculum yourself with all the survival challenges and test with the Navy SEALs?
I would never force my students to do something that I wouldn’t do.
One part of the curriculum is called urban survival and includes getting a job offer on paper in 24 hours. How many job offers would you get in 24 hours?
Oh I haven’t done that! Good point – I have to do that myself now! I thought that it would be a piece of cake for me and so unfair, because I could probably get a job with one e-mail.
In a way you are teaching people how to make mistakes. Right?
Yes, and do things that are not socially acceptable. It’s tough to break in and say I’m gonna transform a government or finance industry or medicine. People will attack you. They will sue you, they’ll call on government lobbies, line up with competitors. They’ll do anything to get you out of the way.
So what’s your favourite mistake?
It’s a good question. I’m trying to figure out which company I backed by mistake. I’m sure there are a few… (Laughs). Well, you know, I like the ‘mistake’ of deciding that VC could be done outside of Silicon Valley. Most of my compatriots would say that VC should stay in a 20-mile radius of wherever you are. But I’ve now got a network of venture capitalists around the world.
VCs from Silicon Valley don’t pay much attention outside of US usually.
I know and I think it’s at their own peril. They’re missing something.
How much do you look at what’s happening in Europe, Scandinavia, Baltics?
I look a lot. I’ve backed a few European startups, but disproportionally I’ve backed lots of Asian startups. My fund is 70 per cent US, 30 per cent outside. I believe that this latter category is gonna be 20 per cent Asia, six per cent Europe and four per cent other regions.
There is a lot of innovation and activity going on in Asia. The excitement there is extraordinary, the work ethic is extraordinary. They are working incredibly hard. I’m hoping that the governments in Asia see the light and use a light touch in order to allow people to be free. If they don’t, it will clamp down pretty quickly. In Europe I’m seeing sort of an awakening. It’s like a mole coming out of the ground and all of the sudden they’re saying that, hey we can start a business!
What are the three words that Europeans should forget?
Impossible, realistic – people say ‘let’s be realistic’ and that basically puts a damper on any brainstorming – and humble. They need to be bold.
Are these three words typical for Europeans?
Yeah, that’s what I’ve noticed and they all use these three words a lot. In the US you almost never hear these words and certainly never in China. How would China require the word ‘realistic’ as part of their lexicon when over the last 10 years they’ve transformed into this amazing country, from a completely impoverished one.
It might be similar to Estonia in the 1990s when we got free again.
Yeah, it might be a similar case for Estonia but not all of Europe.
You raised a new US$ 190 million fund recently that pays much attention to fintech, medicine and government startups. Why these industries?
We are looking for investments into industries that have lagged behind in being transformed by technology.
But why have they lagged? Because of opposition from the old industries?
Usually it’s a question of government controls. Heavily-regulated industries have lagged in technology, because technology comes along and it doesn’t comply with all sorts of regulations.
What makes you think it’s going to get moving now?
One industry after another is being transformed. Once there was just the post office and then hotmail came along. There were the regular telecoms companies then, Skype came along. There was the traditional music industry; guess what, Kazaa and Napster came along. Car companies in their turn saw Tesla appearing. These industries have thus all been transformed. Now there are others that haven’t – yet. These include fintech, government, education, medicine, healthcare and logistics.
You’re also a huge bitcoin enthusiast. What kind of effect do you think it will have in financial industries?
Bitcoin is going to transform finance industry including my industry – venture capital.
When is it going to make a universal breakthrough?
It’s already being used as a currency throughout Africa, and as means for remittance throughout the world. Whenever you can’t get your money out of the country, bitcoin is a great way to do so. China is using it. When you have to make a payment to lots of people on regular basis, you push a button and everybody has a bitcoin wallet and voila, they just get the money.
Actually a special course was just started in 10 Estonian high schools; Balaji Srinivasan is teaching Estonian pupils bitcoin app programming. If the pilot succeeds it might be universal in all of Estonian high schools very soon.
Oh my god! This country is so far ahead! That’s amazing!!
• Born 11 June, 1958 in San Francisco
• Tim Draper is an American venture capital investor, and 1985 founder of the firm that would become Draper Fisher Jurvetson (DFJ). The cofounder of DFJ Steve Jurvetson has Estonian roots.
• Draper is also the founder of Draper Associates and Draper University.
• DFJ and Draper’s personal funds have invested in dozens of startups that have gone on to become ‘unicorns’ – ie. worth at least US$1 billion. Among other startups, Draper was an early investor in such notables as Skype, Hotmail, Tesla, controversial medical company Theranos, Twitter, Tumblr and Baidu.
• In 2013 Draper established the Draper University of Heroes.
• Tim Draper’s net worth is estimated to be around US$1 billion.