The Draper Wave
(From: The Entrepreneurial Bible to Venture Capital by Andrew Romans, 2013)
Tim Draper points out historical trends in a cycle between venture capital & private equity (PE). He shows there has been a shark tooth cycle trend between them every 9 year.
VC Phase: His grandfather started a venture capital firm back in 1957 to help start businesses during an economics crisis which Draper doesn’t remember. His narration however, starts at this point when entrepreneurial ideas stared happening. Many entrepreneurs pushed their ideas forward & VCs started pouring their money in. Jobs started to pick up, pick up, pick up & so was the venture capital. The bubble continued till 1965. Investors saw many great companies raising to a crescendo & some crashing down. Fear crept over them as the bubble began to grow.
PE Phase: Fearing the bubble, many large companies became conglomerate, buying other companies. Thus the private equity phase started again. They acquired & fired, acquired & fired to keep the system “efficient”. That was the roaring 60s between 1965 to 1974. Then came ’74 recession crashing down many big companies. Many job losses led to rekindle the entrepreneurial quest. The computer companies were started & many interesting things happened.
VC Phase: 1974 to 1983 VCs boomed again. Arthur Rock, Steve Jobs & Bill Gates were featured in Time Magazine before the next crash kicked in.
PE Phase: In 1985 Leveraged Buyout (LBO) concept became popular & people started leveraging through it. This was a new form of leverage that improved the efficiency of the system like conglomerate had before. This PE phase went well till 1991 when RJR Nabisco deal brought the house down. The banks stopped lending that triggered 1991 recession.
VC Phase: Again people started creating new companies that led to decade-long internet boom that started bursting from 2000. Many crazy ideas came in & went bust. 2002–2003 was a peak.
PE Phase: The next strategy was PE-LBO which made the inefficient companies created during the previous phase, efficient. This phase lasted until the sub-prime crisis in 2007.
VC Phase: From 2008 onward more angels jumped in from nowhere, than ever before. From the Draper wave, he predicted another tip-off point sometime during 2017. Then came Covid 19 pandemic & chaos began. Will the next phase be the re-emergence of PE to put the failing businesses back on the track & continue till 2025? Let us wait & watch…
