Venture-capital firm transforms global start-ups

MENLO PARK, Calif. -- A decade ago, skeptics scoffed at Draper Fisher Jurvetson's growing affair with entrepreneurs in faraway lands. The large venture-capital firm was pouring millions of dollars into start-ups abroad, and some rivals didn't get it. Why fly overseas when there were so many investment opportunities in Silicon Valley?

But the mavericks at DFJ saw powerful forces converging. The world's economy and financial markets kept growing. Technology was leaping across borders. Visionary entrepreneurs were emerging on all continents.

The long-run global bet by DFJ is paying off. Today, DFJ boasts a network of 20 "partner funds" in Asia, Europe, the Middle East and Latin America, with 160 professionals managing $6 billion in start-up investments.

"People are creating companies all over the world," says DFJ managing director Don Wood, a Stanford MBA who oversees the funds with director Elizabeth Clarkson, a Harvard MBA. "We're building a global brand, and we're doing it collectively."

Over the past half-century, venture capitalists and start-ups in Silicon Valley have revolutionized much of the U.S. economy by launching new technologies in the electronics, computer, software and Internet industries.

Now, DFJ is revolutionizing global start-up financing with what it calls its "federation of independent funds," a kind of United Nations of venture funds.

Early successes

As a global investor, DFJ has in recent years cashed in on two well-known start-ups: Skype, the European Internet phone firm bought by eBay for $2.5 billion in 2005, and, China's largest search engine company, which went public on Nasdaq three years ago and enjoys $9 billion in stock market value.

But since joining forces with its overseas partners, DFJ and its related funds rule the international venture scene. They've invested in more than 90 start-ups in 2007, according to Thomson Reuters and Dow Jones VentureOne, edging out Intel Capital, NEA and other U.S. rivals.

Their global push comes as the U.S. economy matures and as U.S. financial markets have dried up for start-up acquisitions and initial public offerings, or selling a start-up's shares on the stock market. At the same time, the economies and markets for IPOs and acquisitions in other countries are expected to grow at a faster pace than in the USA.

With investments in 26 countries from Brazil to South Africa, the DFJ funds focus on start-ups in clean energy, life sciences, semiconductors, information technology and nanotechnology.

One of the most promising funds is DFJ Athena in Seoul, run by managing director Perry Ha, a Harvard MBA and tae kwon do martial arts instructor. Ha founded a small fund in Silicon Valley before teaming last year with DFJ.

Ha, 45, is bullish on South Korea, whose 50 million consumers embraced the high-speed Internet and new mobile devices several years before the USA and Europe did. Ha says South Korean start-ups are well-positioned to work with Samsung, LG Electronics and other global South Korean corporate giants.

The DFJ Athena fund has invested $100 million mostly in South Korea-based start-ups such as Call Gate, which is developing technology that will let consumers call a company or person's telephone number and instantly see website-like features and online data on their mobile device screens.

"Technology applications cut across borders so much that you can't help but invest around the world," Ha says.

DFJ's partner funds were created a few years ago, when DFJ sought investments outside Silicon Valley and created independent venture funds that focused regionally on start-ups from Alaska to New York.

Then DFJ co-founder Tim Draper and his colleagues realized that the partner-fund model could work globally — with powerful benefits. Foreign venture capitalists use the well-known DFJ brand and resources to raise money from investors, while DFJ gains from the cross-cultural know-how and business and political contacts of their overseas partners. Often, a U.S.-style venture fund is the last missing piece to launch strong start-ups.

In Russia, for one, the DFJ-VTB Aurora fund sees a fast-growing entrepreneurial class, R&D centers, innovative technologies and ample financial resources.

"All the ingredients seem to be there," says managing director Alexandra Johnson in an e-mail. "The only factor missing is a venture fund structured similar to the best Silicon Valley funds. We plan to be that fund."

The overseas venture capitalists know their turfs better than DFJ does, so they choose and invest in start-ups without meddling from the mother ship.

"Each partnership has autonomy to build and manage their VC partnership in accordance with local needs, but also can provide global support," says Simon Cook, managing partner of DFJ Esprit in London, in an e-mail.

Flexibility's value

Simon Olson, a DFJ FIR Capital partner in São Paulo, Brazil, e-mails: "If you try to take the U.S. model and superimpose it on a foreign market, you will lose your shirt."

DFJ touts the power of its network, calling it a giant Rolodex or a LinkedIn for their industry. "You could introduce your entrepreneur to everybody and anybody around the world," Draper says.

The venture capitalists speak many languages, but business is conducted in English. They talk often during dinners, conference calls and a yearly gathering called MegaWeek. The next one is this fall at an ocean-view Ritz-Carlton hotel near Silicon Valley.

Among other cross-border business advantages, DFJ partners "can quickly check any prospective portfolio investment against comparable companies anywhere in the world through DFJ's global intelligence network," says managing director Andy Tang of DFJ DragonFund in Shanghai, in an e-mail.

Start-ups can take up to 10 years to go public or get sold, so it's too early to gauge the investment returns of DFJ-branded funds. DFJ executives say deal flow is strong, with the deals increasing for funds after they join DFJ.

Like other international investors, DFJ hunts for countries with rising economies and consumer markets, low political risk, good universities and a talent pool of entrepreneurs.

Fast results

At DFJ Tamir Fishman Ventures, a Tel Aviv, Israel-based firm with $200 million under management, partners landed several new deals and clients within months of joining DFJ's network.

Moshe Levin, managing general partner at the firm, says in an e-mail that DFJ partners share in-depth information on market and technology trends and business obstacles and opportunities.

To crack into the lucrative South Korean market, the Israeli venture capitalists and one of their start-ups, a chip manufacturer, worked recently with DFJ's South Korea fund to meet executives of a leading South Korean telecom firm for a potential project.

"So much for language and cultural barriers," Levin says.