Tim Draper Keynote at OnDC ’09–“Land of the Free, Home of the Brave”

How free are we?

The government spends 40% of what we make.

We spend more for our average prisoner than for an average student.

Going through the airports, almost every time I get the probe.

Some construction permits take more than 6 years.

How brave are we?

There are more lawyers per worker than any other country. More bureaucrats per worker than any other country.

Average salary for a public worker is higher than for a private worker now.

Speedy trials? He shows picture of OJ Simpson.

Are we still free to own guns?

We’ve become very politically correct, except maybe me. But I’ve always thought I was correct politically.

How happy are we?

Do we all fit into a mold and become automatons?

Thoughts:

• Pay increases for bureaucrats based on GDP growth, not cpi. (Right now, they are incentivized to create inflation, not GDP growth.)
• Drop the border with Canada. They have oil. (And they want to do this.)
• If a department can do the job with less, give them raises.
• If a department fails, eliminate it.
• Free trade.
• Right to work. (Right to work states are outperforming the rest of the union by quite a bit.)
• Leave venture capital alone. It works.
  
  

All these were VC funded: copier, semiconductors, PCs, Skype, etc, etc.

Also, solar panels, Electric cars, space launches, wind energy, genetics, etc, etc

The “Draper Wave” shows that the recessions are all part of an economic cycle. VCs create a bunch of jobs, new innovations, the market gets excited, and inflated, then the market comes crashing down. The Private Equity business comes in, buys companies, fires half their workforce. (He shows how VC funds create surges in innovation and jobs, then private equity comes in and fires lots of people, creating another recession.)

It’s time for another VC resurgence.

Viral marketing works. Hotmail has now reached 500,000,000 people. All web based email has reached about a billion. Skype has reached a billion even faster.

It’s a global game now.

The game has changed for governments too. Each government used to govern a geographic territory. Now we have competitive governance. Better communication, perfect information, simplified supply chains. Governmens have to compete for great businesses, for capital, for entrepreneurs.

As he goes around the world, he notices how governments around the world are doing a great job attracting capital and entrepreneurs. The U.S. is not. The U.S. is adding more difficulty, more regulation for entrepreneurs. Imagine if the world completely opened up, and you could pick and choose. You might pick Chile’s privatized social security, you’d pick something about Singapore, US freedom of speech, maybe Sweden’s ______.

He looked at the government spending chart at usgovernmentspending.com. It’s gone from 7 1/2% to over 40% in the past 100 years. That may be a good thing, but I want to see whether it really is.

He showed charts of government spending per capita (normalized per capita) In 1820, India, US and China were all dirt poor. He has charted spending over time, and he has determined that US GDP growth is hurt by the increase in government spending. He can show this correlation.

He spoke with SBIC head Seth Greene today about the government’s plans to invest in Infrastructure, Market, CleanTech. The government can:

• make us secure (Tesla loan example)
• create the market platform that works–Sarbox after 10 public years
• encourage good behavior–such as green incentives
  
  

His fund used to tell entrepreneurs that if in five years they could do $20 million in revenue and $3 million in profits they could go public; but now, with Sarbanes Oxley, that entire $3 million in profits would be taken up by compliance, so the entrepeneurs don’t go public.

He thinks Sarbanes Oxley should only apply to companies of a certain size and only after they’ve been public for 10 years.

What the government should not do:

• Do not invest equity capital
• Do not regulate/tax venture capital
• Do not scrutinize entrepreneurs
• Do not hire and spend
  
  

Government does a great job of identifying problems: energy, security, health care, traffic, pollution. I understand there is more traffic here (in DC) since the stimulus because everyone is coming here.

Business Solves problems:

• Energy (EnerNoc, Konarka, GreenFuel)
• Security (Lumena, SafeView, Tesla)
• Health Care (Athenahealth, Epocrates)
• Traffic, Pollution (Skype, Hotmail, Meebo)
• Poverty (SugarCRM, SocialText, World of Good)
• Education (Baiku, Google)
  
  

He ran though a number of companies that are solving big problems in energy. Oasys does water purification. Tesla lets you go very fast (0-60 faster than a gas car) and this is the wave of the future. When you drive an electric car past a gas station you realize you are driving by a dinosaur. (And gas does come from dinosaurs, so this is just the circle of life.)

Reva is the India version of the Tesla. I drove one around.

Technology just continues to march on. Think of all the inventions in the past 50 years. Airplane, etc.

Imagine all the inventions that may be coming. Clean air and water. Near infinite energy supply. Green buildings. Batteries that last. Self-navigation electric cars. Education holodeck. Space travel. Immersive 3-D entertainment. Genetic disease prediction. Cure for heart disease. Cures for cancer, aids and malaria. Non-invasive surgery and security. Near thought communications. (I have moved a mouse cursor with just my mind, with a new technology.) New life forms. Food drop.

Liquidity is a problem. Mark to market from FASB 157 is a problem for our economy.

We have set up something called XChange, to provide liquidiy.

My daughter said, “everyone was rich before, and now everyone is poor. What happened?” I had to think about it for a minute, and then said, it’s all about the deal. If we make deals with each other, everyone is better off. (He walked through an example of lettuce, tomato, beef farmer, etc, cooperating to make a perfect cheeseburger)

We are all better off if we are freely able to trade with one another. Let’s say there is a big wall between us and China. Our semiconductor would be a slide-rule. Except for Micron there are no memory semiconductors here in the U.S. We’d have no flat screens. Without China, there’s no memory. Without computers, there’s no software. Without software, there’s no new media. (We’d go back to hieroglyphics).

The biggest problem we have is friction to free trade. Tariffs, customs, quotas, import duties, licenses, standards, subsidies. When you see these reported in the press, you know someone is trying to hinder free trade.

This is what I call the Sucking Sound of Socialism:

Good Words and Bad Words

• When you hear Entitlement, think Opportunity.
• When you hear Rights, think Earnings.
• Government Intervention, think Business Solution.
• Bailout, think “let losers die.”
• Regulation, think Freedom.
• Patriotism->Protection->Poverty think “Free Trade.”
  
  

Audience question about XChange, the private stock market. He said, this is only for qualified institutional buyers, so it doesn’t affect the individual investor, unless the government saw that it was working well and they changed their mind. This is a way a company can be traded among qualified institutions, it helps the entrepreneur who wants to buy a house, but can’t get the company public. It helps VCs, because we have a lot of portfolio companies that can’t get liquid yet, and our investors need some liquidity.

Sarbanes Oxley rules are all designed to protect the individual investor, the widows, the orphans, to protect them from themselves, I guess. So the XChange would only work for institutional investors. But I believe personally that individual investors should be free to do what they want.

Audience question about the new Tesla. Tim said the upcoming Tesla will be $40-80k. The high end will have a 300 mile range, the low end will be 120 miles. I see this as being the Great American Car. I see Tesla as the next GM. It’s very exciting. If you have new technology, Tesla can incorporate it in a matter of months where it may have taken GM five years. You’ll see more computerized things in a car, like iPod connections, computer stuff, etc.