Steve Jurvetson: Changing the World, One Start-Up at a Time.

Jul 1, 2000
Worth Magazine

For 33-year-old Steve Jurvetson of Draper Fisher Jurvetson, it's not about the money, it's about the relentless pursuit of disruption.

The Bushy Eyebrows are the microwave engineers," observes Steve Jurvetson, craning his neck above the tech tribes crowding into a lecture hall at Stanford University on a Saturday afternoon. "The Longhairs are all over the programming world, especially in cryptography and privacy protection." Moments later, he exclaims, "There's Bill Joy, eating a sandwich. He's the chief scientist at Sun Microsystems."

The 64,000-bit question of today's symposium, "Will Spiritual Robots Replace Humanity in 2100?" is techno-sophical in nature, not the usual fare for a time-is-money venture capitalist. But Jurvetson, 33 years old and a managing director of Draper Fisher Jurvetson (DFJ), is clearly in his element. He high-fives an old buddy from Calculus 42 (Stanford, class of '88) and then--more like a celebrity watcher than the pedigreed insider that he is-- exclaims, "Hey, there's one of the cofounders of Google right there!" The Bushy Eyebrows and the Longhairs, and in fact all the fauna of the high-technology planet, are his people.

Steve Jurvetson is far from anyone's notion of a conventional venture capitalist. In a discipline that breeds a healthy respect for risk, he appears to be gripped by a relentless optimism; beyond an enthusiast, he is an evangelist who doesn't find it a stretch to compare Silicon Valley today to Italy during the Renaissance. Glowing amid the grayness of powerful colleagues who choose a low profile, he seizes the limelight with zeal, even taking the time to pose for a fashion feature in GQ. In a field often dominated by the quest for greater wealth, he's a former microchip designer and software programmer who goes nuts over nanotechnology--a science that seeks to assemble molecule-size machines called nanobots. He's the sole VC member of a fringe science foundation called the Foresight Institute, which gathers regularly for "nanotech brainstorming retreats."

Yet this same Jurvetson--the gee-whiz VC with the business metabolism of a caffeinated teenager--stepped forward to calm investors following the Nasdaq's belly-flopping 9.7 percent plunge on Friday, April 14. The week after, at a Merrill Lynch teleconference, Jurvetson delivered his now widely scanned "State of the Internet" address. Some 400 jittery money managers and analysts tuned in to hear what he had to say, and there was little question that his infectious optimism had left a mark. (Merrill's replay of the speech attracted 350 more listeners.)

A particularly eye-opening part of Jurvetson's message focused on the "blurring" of public and private investing. The compression of the start-up-to-IPO phase for Internet companies, he said, means that "many of these companies that normally would [still] be venture stage are [already] in the public market." As a result, public investors in these enterprises must learn to think more like VCs--with a time horizon of at least five years and with the understanding that while many of these fledgling companies will inevitably fail, the winners in a broad portfolio should more than compensate.

Jurvetson also struck a chord when he compared recent concerns about Internet stocks with the cloud of ambivalence that surrounded America Online just a few years ago. The only agreement about AOL's stock price at the time, he noted, was that the price was off the mark: The company was either vastly overvalued or vastly undervalued. It was a story Jurvetson didn't have to finish; the ending is well-known.

"Bottom line," he concluded, "if you believe that the Internet has run its course and we are now in the sunset phase...then yes, it is time to manage for profits....On the other hand, if you agree with me that this is just the beginning of a profound business and information revolution, then you should invest for the future and, like us, look five years out, not five quarters out."

Jurvetson commands an audience partly because investors are increasingly interested in what VCs have to say and partly because of the legend of Hotmail--the story of an Indian immigrant named Sabeer Bhatia whose business pitch was rejected 21 times before Jurvetson, then 28 years old, staked Bhatia's company $300,000. Jurvetson had been on the job for only a few months, but he saw what others didn't: the grain of an idea for a successful new E-mail service. He also saw in Bhatia what he calls "a hallucinogenic optimism." Jurvetson's boss at the time, Tim Draper, added a critical ingredient: Hotmail would employ the strategy of viral marketing, whereby a product, in this case E-mail, spreads its own advertising. In late 1997, Hotmail was purchased by Microsoft for $400 million, earning DFJ more than $100 million.

Jurvetson is also admired for his as yet unblemished record. Not one of his start-ups has failed. In a business whose historic ratio of failure to success is more like six to four, Jurvetson knows his record can't hold. For now, he says, "I scratch my head and ask myself if I'm taking enough risk."

Last year, his biggest hit was Kana Communications, a business-to-business company that innovates in customer-service E-mail and Web site support. Three years ago, the founder, Mark Gainey, had no customers or employees, just a light-brown mutt named Kana and a hunch. Today, DFJ's $700,000 initial investment is valued at more than $1 billion.

Jurvetson's rising profile serves an important purpose for DFJ. The firm is a full step down from top-tier Silicon Valley venture capital--the rarefied atmosphere occupied by Sequoia Capital, Benchmark Capital, and the granddaddy of them all, Kleiner, Perkins, Caufield & Byers. While a firm's performance can be measured by its internal rate of return, its reputation is fixed by its high-profile successes. For Kleiner Perkins, a defining Internet triumph was Amazon.com; for Sequoia, Yahoo; for Benchmark, eBay. Kleiner Perkins's John Doerr, the VC legend who also funded Sun Microsystems and Netscape, calls it the "Kleiner mystique." Doerr and other partners "leverage this aura to win the hottest start-ups, recruit the best CEOs, and take their portfolio of companies to the public market faster than any other venture firm in the business," according to The Internet Bubble, by Anthony Perkins and Michael Perkins (neither is related to the Tom with the same last name at Kleiner Perkins).

To move into this stratosphere--or, even more ambitiously, to surpass it--DFJ will need more than just money to attract the best ideas and brightest entrepreneurs: It will need the heightened profile that comes with the kind of star power that Jurvetson is cultivating. As Jurvetson puts it, "We want to be a magnet to pull needles out of the haystack."

DFJ is also expanding beyond the Valley. In the past year, it has formed partnerships with VC firms around the country, opening co-managed funds in 11 cities. DFJ also recently launched a venture under the name meVC, which was scheduled to begin trading a closed-end mutual fund in June. The meVC fund will invest, as a venture firm does, in start-up companies--thereby bringing the private venture world even closer to public investors.

While Draper, 42, spends much of his time directing the firm's lateral growth--and John Fisher, age 41, plays an important role raising capital--Jurvetson's primary mission is to find the next great deal. At least two partners at the firm must sign off on each major investment it makes. It was Draper who scored a 1,000-fold return on investment with Parametric Technology. He also spearheaded the funding of GoTo.com and Tumbleweed Communications. Fisher headed DFJ's role in financing Wit Capital.

The ideas that shape Jurvetson's current approach to investing can almost all be traced back to the Hotmail deal, which taught him to look for disruptive technologies, ideas that somehow subvert the prevailing business practice or model. Jurvetson also gives credit to Clayton Christensen, a professor at Harvard Business School and author of The Innovator's Dilemma. Says Jurvetson: "Christensen found a pattern: Almost never was it an existing company that pioneered a disruptive technology. In almost every case, it was a new company." He also observes that disruptive technologies aren't necessarily subtle ideas. In fact, they often seem a bit harebrained at first. "The PC is an interesting analogy. At first it wasn't good for anything."

A disruptive force that has caught Jurvetson's interest of late comes in the form of what he calls "desktop buddies," tools that add an exclusive, personalized layer to a Web user's experience--and that also have the potential to annihilate the status quo in the Internet world. An example of this is DFJ-backed Third Voice, which offers a software that enables users to read and react to messages, personal suggestions, or humorous comments on any Web site written by fellow Third Voice users. In a sense, it's an entire Internet communication subculture layered on top of the original, useful for all manner of educational, constructive, or subversive consumer commentary. A DFJ-backed start-up called Brodia is a payment processor that familiarizes itself with users' shipping addresses and credit card numbers so that the necessary information can be easily transmitted when making a purchase.

Each of these companies happily jeopardizes existing business models--such as the Internet portal. Portals like Yahoo have made themselves enormously valuable by offering visitors as many attractive user-oriented services as possible, with the centerpiece being a search engine. Desktop buddies intercept computer users before they even get to a portal by providing an earlier interface, one step closer to the consumer "eyeballs" that Internet commerce values so highly. "In a way, it's an asymmetric power relationship," says Jurvetson. "These companies are upstream in the information flow, where they have visibility downward onto what Yahoo is serving up. But Yahoo and Amazon don't have any visibility in the opposite direction."

Or consider NetZero, another start-up Jurvetson helped finance. In just two years, it has become the second-largest Internet service provider in the world, behind AOL, capturing 4 million users. NetZero has done so by offering free dial-up access in exchange for subjecting its members to a single advertising banner at the top of the NetZero browser. The ad revenue from the banner is certainly a plus. But NetZero may gain an even greater benefit from its ability to influence where its users travel on the Internet. By making itself a part of the connection process, Net Zero intervenes with Internet users before they even get to a portal like Yahoo or a Web site like eBay, and in so doing, disrupts the status quo.

the key ring in Steve Jurvetson's pocket tells his story: Alongside the keys to a four-door Lexus and a home not far from those of Yahoo's Jerry Yang and Cisco's John Chambers, a Pentium processor and a megabyte of RAM serve as dangling talismans--a reminder, perhaps, that without the latter the former would not be possible. Microchips have been a part of Jurvetson's life since his father went to work for Motorola 35 years ago. In a sense, the values of the Information Age have been programmed into him from day one.

When it comes to his personal wealth, however, Jurvetson -the great-grandson of Konstantin Paets, Estonia's last president before the Soviet occupation in 1940 - is ultra-conservative. He's a self-avowed tightwad who wears $400 suits and owns no real estate other than his house. "I just can't see wasting money on things that aren't of permanent and lasting value," he says. "If there's extra money that I have, I can see investing it, but to waste it on consumables--clothing, heating the house..."

It is this "lasting value" ethic that goes over well among the New Economy elite, for whom valuation is a subject of rich debate. At a recent dinner party of industry thought leaders, Jurvetson was the final speaker in a group that included musician-turned-entrepreneur Thomas Dolby. Jurvetson's subject: "Values, Value, or Valuation?" Seeking to draw distinctions among the three, he told his audience that "valuation is just some fluctuating appreciation by the public world for the value that you've created." Values, on the other hand, are rooted in culture and are thus far more enduring, he said. Example: "If you hire people with a short-term opportunism and valuation focus, you lose them. If you hire on a values and culture basis, they stick with you."

Jurvetson arrived in Silicon Valley in 1985 when he enrolled at Stanford University's School of Engineering. His high school experience in Dallas, Texas, had not been an entirely pleasant one. He'd been lousy at sports and socially awkward, his only outlets an Apple II computer and fantasy role-playing games. The chip-making company his father worked for at the time, Mostek, had failed, providing Jurvetson with an early lesson in economic disruption. "I remember the Japanese were selling chips for 25 cents that it cost Mostek a dollar to produce," he recalls.

At Stanford, Jurvetson became a campus legend for having discovered a way to disrupt the registration process--by exploiting a flaw in the way the school's computers read the penciled-in bubbles on the form. The loophole allowed him to take extra classes each semester and complete the coursework required for a B.S. in two and a half years. Despite the compressed time frame, he still graduated first in his class. A few years later, while attending Stanford Business School, he successfully invited legendary entrepreneurs Steve Jobs and Jim Clark to come and speak to the High Tech Club (as well as to meet its leader, the bright kid who sent the invites).

Draper Fisher appealed to Jurvetson as a prospective employer because it offered him what he figured was his best chance to make partner in the shortest amount of time. He was right; it took just six months before his success with Hotmail fused the J onto DFJ. The Hotmail deal also became the catalyst for the firm's immersion in Internet investing. DF had $28 million under management and was invested in just two Internet-related companies when Jurvetson signed on. DFJ now has $2 billion to play with, and 90 percent of its portfolio is invested in Internet-related businesses.

Since March of last year, 11 companies in DFJ's portfolio have gone public, and seven others have been bought out by larger corporations. At the moment, four DFJ-financed companies await regulatory clearance to sell shares to the public: Garage.com, a trading exchange that matches start-ups to angel investors; ReleaseNow, which enables companies to sell software on the Web; Valicert, a security company that validates online identities; and Homestead, which hosts Web communities for small businesses.

The fate of these and other DFJ-seeded companies, of course, will depend to a large degree on the stock market. If the jagged corrections of this past spring did signal the beginning of a more somber attitude toward Internet stocks, as many analysts believe, DFJ could ultimately feel a pinch. Like all VC firms, it relies on IPOs and acquisitions to realize the gains it needs to offset the inevitable failures in its portfolio. It is possible, too, that Jurvetson's five-year window could close on him, thwarting his efforts to keep the spotlight where he wants it: on himself, his firm, and the fledgling companies that DFJ has backed.


It's a Friday afternoon at dfj's headquarters on San Francisco Bay in Redwood City, and the scene is almost circus-like: DFJ employees are shepherding hopeful entrepreneurs in and out; a film crew wanders the halls conducting interviews for Japanese TV; a DFJ partner strikes poses for a magazine photographer; Jurvetson and two other employees chase each other around the office with Nerf machine guns, spraying fusillades of suction cup-tipped darts at each other. For now, on this particular spring day at least, the possibility that the Nasdaq may ultimately ruin the fun is nowhere in evidence.

To the north of the DFJ offices, across a stretch of the bay partitioned by salt evaporators (a process, by the way, that turns the water an ominous blood red) is a bridge arching into Fremont, a quiet suburb of prefab office parks and the home to a company called Everdream. Everdream, with its simultaneously ironic and appealing name, is Jurvetson's latest project. It is a company, he declares, that could some day have a market capitalization bordering on the trillions. As usual, there's no trace of hyperbole in Jurvetson's voice when he says this. It is just the way he thinks--the way, in fact, that he is paid to think.

Jurvetson's proposition that Everdream could become one of the biggest companies on the Nasdaq--as big or bigger than Microsoft--isn't entirely unreasonable either. The market Everdream hopes to serve--small businesses with fewer than 20 employees--is certainly big enough. (Split off as an imaginary nation, U.S. companies with fewer than 100 employees would have the third-largest gross domestic product on earth.) There is also considerable potential demand, especially given the current shortage of IT professionals, for the type of subscription computer services that Everdream provides: Customers get Pentium-based PCs, software, automated daily backup, Internet access, free online training, and round-the-clock technical support--all conflated into a single package for a monthly fee of about $150 per computer.

Everdream is the creation of Lyndon and Russell Rive--brothers who until recently worked out of a standard-issue garage in Santa Cruz, California, where they went door-to-door on skateboards hawking their service. Their original idea was to provide a solution to what they saw as a growing problem for small businesses: the increasing difficulty of keeping computer systems functional, let alone up-to-date.

After 12 months of testing their business model, splitting most of the 24-7 support duties between themselves, the Rives became convinced they had the proof they needed to attract seed capital to their venture. A cousin, Kimble Musk, who had already founded two thriving Internet companies named Zip2 and Funkytalk.com, introduced the Rives to no fewer than eight VC firms. By the time they met with Jurvetson, in fact, the brothers already had one promise of $10 million in hand.

Jurvetson listened to the Rives' well-burnished pitch and liked what he heard. But the offer he made came as a disappointment: DFJ wanted the same ownership percentage as the investor who offered $10 million--but for $8 million less. The DFJ proposal was "damn expensive," says Lyndon Rive. In the end, though, the brothers took it, deciding that Jurvetson brought something to the table that was more important than the money: in Lyndon's words, "the influence in the industry, people with contacts, people that can help you when you need certain things done."

Within eight months, DFJ's seed capital and business connections transformed Everdream's operation into one with 100 employees in a 40,000-square-foot space. Thrilled, Lyndon custom painted his Jeep Cherokee end-to-end with Everdream's blue-and-white logo. Russell began work on a new technology that would make Everdream's computers "self-healing."

Jurvetson, meanwhile, shaped a more ambitious plan for Everdream--one far bolder than even the Rive brothers had dared imagine. The company's ultimate mission would be to create a network akin to an America Online for small businesses. In a sense, this was an inspired twist on the concept of desktop buddies. Jurvetson saw that Everdream could quickly evolve into a software environment for small businesses, constructed on top of Windows. This meant that Everdream's customers would have to go through its proprietary interface every time they used their machines. In other words, by building a large national business for its desktop-enhanced computers, Everdream could create a powerful new disruptive platform.

Says Jurvetson: "Ultimately, the hardware companies of the world are sitting on a gold mine that they aren't taking advantage of. If you're Compaq or Dell, you're kind of fumbling your future if you think your business is selling computers. Everdream realizes that. A computer is like an afterthought; it's a vector to get a services platform in front of the users. It's in front of their eyeballs every day."

Jurvetson also realized that Everdream offered a platform for application service providers. ASPs are rentable computer applications managed remotely through the Internet. They enable businesses to outsource functions and software, ranging from invoicing to a company E-mail network, all without the hassle of upgrades or bug-related breakdowns or paying for more software than necessary. Even a simple word processing program can be provided and maintained by an outside vendor. With a suite of ASPs built in, Jurvetson figured, Everdream could offer a full range of services to small businesses: "I can just imagine five years from now you read a press release that Intuit pays $60 million to get distribution through Everdream's network."

Of course, Everdream faces its share of obstacles. Competition, for one. A company with a strikingly similar name, CenterBeam, also intends to build a computer network for small businesses and is equally well financed. CenterBeam was founded by 49-year-old CEO Sheldon Laube. An experienced businessman, Laube helped launch U.S. Web and build it into a company with a $5 billion market capitalization by the end of last year. He is, understandably, adamant that his latest venture will beat Everdream to the punch. "They're young [and] they have no backers of real substance," Laube asserts. "The question is, does the strategy that we're each embarking on have the potential to be a Microsoft-size company? I believe theirs has no chance."

Although the two companies have different target markets--CenterBeam is pursuing larger businesses on the scale of 100 computers--they both want to become the premier small-business network. At the moment, CenterBeam is ahead in the race, backed as it is by the Big Three of the computer industry: Microsoft, Dell, and Intel. CenterBeam's offering is a glossier, higher-end version of Everdream's, but the price is much higher, too: $250 a month. CenterBeam provides a Dell computer and a wireless technology that connects the computer to a DSL line. It monitors, backs up, and supports every computer remotely through a private data center (a sort of way station before reaching the Net). Everdream relies on a generic computer (which Laube dismisses as "a white-box piece of crap") wired to a landline and is still in the developmental phases of managing networked systems. Everdream backs up each terminal via the Web--a less secure method than CenterBeam's data center.

Jurvetson believes that Everdream's strategy of working from the small end of the market and scaling up is the best way to gain acceptance for subscription computing. "CenterBeam takes the brute-force approach. But the question is whether the middle of the market is defensible. In many other technology markets, it has proven not to be defensible." CenterBeam's Laube counters that the twentysomething Rives don't have the business acumen to make Everdream into a major company. Here's Laube on Lyndon Rive: "His biggest claim to fame was that he won a ballroom dancing contest at 14 and he ran a mail-order cosmetics company out of his house. Now, is that really the person you think is going to be the head of marketing and sales for the next Microsoft?" (Lyndon Rive says he's never entered a ballroom dancing contest, though he was a member of an underwater hockey team that placed second in the world championships in 1998. He also says that he did run a mail-order cosmetics company, but not out of his house.)

Everdream. CenterBeam. Their common syntax doesn't lie--each hinges upon a leap of faith, the fundamental idea that unruly small businesses can be corralled into a network. Both companies have acquired more venture capital and are now funded with $60 million each. Both are poised to go public in early 2001--market conditions permitting, of course.

Blips, hiccups, and speed bumps aside, the Internet promises years of opportunity for Jurvetson to upend the dominant business paradigms and to make himself into the VC icon he yearns to be. Right now, his potential is limited only by his imagination, a quality that Steven Milunovich, head of technology research at Merrill Lynch, says is Jurvetson's defining edge. "He can visualize how things could be in a number of years and make those bets," he says.

Naturally, then, Jurvetson's thoughts go beyond the Internet, as far afield as the potentially even more disruptive world of nanotechnology. The first nano-products, he says, will be in photonics--achieving molecule-level precision in the assembly of routers and switches to improve the efficiency of networks. Later, there will be nanobots that navigate the bloodstream to repair the body, he says, and much, much later, nano-powered chips with such speed that a computer could practically think like a human being ("spiritual robots"!).

Nanotech, like biotechnology--or, for that matter, change of any significance--also generates a certain amount of fear and anxiety. Bill Joy, a cofounder and chief technology officer of Sun Microsystems, warns that nanobots could some day self-replicate like out-of-control germs. But where Joy foresees peril, Jurvetson joyfully foresees opportunity. At the last retreat of the Foresight Institute--which Jurvetson likened to a "brain spa"--he received his first two business plans for nanotech start-ups, one for a microscopic entity that can "assemble sheets of perfect metal lattice." Jurvetson, inspired by the first inklings of a new frontier and seeing nothing but the upside, was giddy: "It's starting to happen!"