Profiting From His Inner Geek

Steve Jurvetson's talent for spotting disruptive technologies is serving him well amid venture capital's current resurgence.

By: Adam Piore

Nov. 2, 2007

With his brown hair parted a little bit too far to the right and the sleeves of his button-down shirt a couple inches too short, Steve Jurvetson certainly doesn't look like your prototypical daredevil racecar driver.

But on the hierarchy of requirements needed to succeed in the world of Silicon Valley venture capital, an appetite for risk-taking often runs a distant second to a healthy streak of geekiness.

Jurvetson, who builds and sets off high-speed rockets in addition to doing occasional laps at the local racetrack, is blessed with both traits. Nowadays, as the "Web 2.0" buzz helps feed a resurgence of V.C. investment not seen since the fading days of the dotcom boom, he's got something else going for him: hindsight and experience.

In the first dotcom era, Jurvetson was a poster child for youthful prosperity. In 1995, the Stanford valedictorian brandished his visionary credentials within months of landing a job, at the age of 28, at a company then known as Draper Fisher, when he backed an Indian immigrant with what Jurvetson calls "hallucinogenic optimism." The immigrant, Sabeer Bhatia, couldn't find anyone to finance his idea for a free, Web-based email service.

In only his second deal, Jurvetson forked over $300,000 to get a 15 percent stake in the company that came to be known as Hotmail. The deal made his firm $250 million when Microsoft bought the company for $400 million in stock two years later. But by then, Draper Fisher had become Draper Fisher Jurvetson ("Steve was one of the most brilliant people we'd ever met and we wanted to lock him in for years going forward," says John Fisher on the decision to make Jurvetson a partner so quickly), and the young dealmaker and "unapologetic geek" was firmly established in the center of the dotcom boom. By some estimates D.F.J. invested in almost one-third of the total number of early-stage internet deals prior to 1997; by the time the tech bubble burst in 2000, they were receiving 50,000 business plans a year.

Those business plans did much to help Jurvetson learn to discern the truly innovative from the merely interesting. But he credits his own success in large part to his inner antennae for the blind, joyful, and often socially oblivious enthusiasm he sees in his fellow nerds.

"I have a real appreciation for�and an irrepressible sense for�the childlike spirit," says Jurvetson, who earned both a master's in electrical engineering and an M.B.A. from Stanford. "The engineers and scientists I see who are successful have a childlike mind, and the ability to suspend that knowing inner voice of self-critical analysis. That gets to geekiness. As an investor, I don't feel as much a parent as a peer in being able to relate to them."

It's a skill that will no doubt continue to come in handy in the months ahead. Investor hunger for a piece of tech and other cutting-edge companies is heating up again. In the second quarter of the year, V.C. firms poured $7.1 billion into 977 deals, the highest level since the third quarter of 2001, according to the National Venture Capital Association. That continues a trend: In 2006, V.C. invested $25.5 billion, up 25 percent from 2005, and the most since the dotcom bust. Much of the investing is in early-stage "seed deals," the area in which D.F.J. specializes.

But there are a number of differences between the current surge and the boom-to-bust years of the late 1990s, among them the fact that most of the companies being invested in have actual revenue streams, and also that internet innovation today is happening not just in the U.S. but all around the world. It's that second trend that D.F.J. is ideally situated to cash in on.

In 1999, the firm opened its first overseas offices in Beijing, Hong Kong, London and Singapore, predicting that internet innovation would soon go global as the network proliferated ("Ten years ago, customers were only in the U.S.," says Jurvetson. "Today, that's just not the case."). In the last three months alone, D.F.J. has formed new partnerships in Europe, Russia, Brazil, and Vietnam, bringing the number of offices to 33 around the world, with more than 150 investment professionals and more than 500 portfolio companies across the network.

"Our goal," says Jurvetson, "is to be ubiquitous."

Already the plan has paid off. In 2006, D.F.J. hit it big when Skype, the internet telephony pioneer and a product of Estonia, was bought by eBay for $2.3 billion (D.F.J. was the largest outside shareholder but did not reveal its actual ownership stake). Then came Baidu, the Chinese internet portal that went public on the Nasdaq stock market last year and currently has a market cap of more than $12 billion (D.F.J. owns 28.1 percent of the company, according to filing documents). All told, the global affiliates now manage $2 billion worth of investments, sharing contacts and revenue with one another.

But the global expansion is only part of the story. The size of the funds managed by D.F.J.'s main office has exploded from less than $20 million 10 years ago to about $4 billion today. And this time the firm is involved not just in funding internet-related startups, but also in a wide array of other cutting-edge industries ranging from genomics to brain fitness to clean technologies.

For Jurvetson, the underlying calculus for finding successful companies remains the same, whether it's a company that aims to build a better search engine, like Edgios, or one that's attempting to revolutionize the way brain disorders are treated by using videogames, like Posit Science.

"What we're trying to invest in is companies that will change the world, usually companies that are doing something disruptive," Jurvetson says. Hotmail's business plan was disruptive because it offered free email, undercutting AOL and CompuServe and changing the underlying paradigm of email providers, he says. Skype was disruptive in a similar way with telephony, offering free and close-to-free international calling.

"The reason startups thrived on the internet is because they disrupted so many business models of classic distribution," he says.

"What we did in the internet, we've repeated in a variety of areas," Jurvetson says. "We have a lot of bets on the table that as these industries mature, they will pay off like the internet."

At least that's the hope, but others are not as sanguine. Jurvetson has been an especially visible booster of nanotechnology, the science of fabricating new products at the atomic and molecular levels. Among other things, he has spoken on panels, gone to Washington to lobby for research funds, and talked up the field's potential in the press. His company has also invested approximately $100 million in 30 nanotech-related companies. But so far, nanotech remains an area with potential only, with no hugely profitable nanotechnology firms having been started yet.

"To me, he has become Mr. Nanotech," says Lawrence Aragon, editor in chief of Venture Capital Journal, a trade publication, of Jurvetson. "If there's a big winner in there, he will be totally validated. But that's the trick with V.C. You can be right about a technology, and your timing could be completely wrong."

Jurvetson is unconcerned. He says D.F.J. has already made money from its nanotech investments, since a number of the companies they invested in have already been sold (he declined to say how much his company has made on those deals, however). And he says they expect a number of significant nanotech-related I.P.O.'s in the next two to four years that will dwarf those initial profits. Besides, Jurvetson adds, failing is just part of the game.

"This is an unusual career in that most of the time we're wrong," Jurvetson says. "That can really bug people if they're thin-skinned about it."