U.S. firm transforms start-ups worldwide

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. 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.

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 Baidu.com, 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, reports 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 United States.

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.

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.

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,” said Simon Cook, managing partner of DFJ Esprit in London, in an e-mail.

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