Estonia-born US venture capitalist Steve Jurvetson (pictured) from Draper Fisher Jurvetson gave a captivating interview for us, where he analyzed what’s hot and what’s not.

What are your most exciting new investments? 

Overall we have a lot of exciting investments in the fields of energy and cleantech – new approaches to sustainable fuels. Chemicals and energy efficiency as such. Some of them, like BrightSource for example have in the last year booked $10 billion dollars worth of business.  That is pretty remarkable for a startup that didn’t exist 3 years ago.

Some of the companies I am more personally involved and exited about are certainly Wowd, as well as Tesla – the electric car company, that starts selling in Europe this month. And of course Spacex, doing rockets to put satellites in orbit.

Then there’s a whole category of companies, that you might call industrial biotech 2.0, like there was web 2.0. These are companies in the field of synthetic biology. They build or modify micro-organisms, like bacteria, algae and yeast, to make chemicals or fuels. And they do so with a power and capabilities that just didn’t exist ten years ago.

Before you could only cut and paste from nature. You had to find something living on the planet that had the genes you wanted and with a lot of effort and work you could physically cut and paste some genes in clumsy fashion from one organism to another.

Now you can make the entire DNA structure of an organism form scratch, without any animals involved. You can treat DNA as if it was any other chemical that you can make in a chemistry lab.

“Before you could only cut and paste from nature. Now you can make the entire DNA structure of an organism form scratch, without any animals involved. “

That gives you sord of the same flexibility computer scientists are having when they write computer programs.

So companies like Synthetic Genomics, Genomatica or Glycos Biotechnologies (all in DFJ’s portfolio) are rapidly making progress. They are converting waste into valuable products.

That’s indeed exiting but when it all becomes profitable?

It takes time. And that’s true in any of our newer companies. Skype and Hotmail were among the fastest ones to reach revenue growth.

In case of these industrial biotech companies, you are exactly right, it will take a little longer than average. But the don’t have to go through the approval cycle like in case of pharmaceuticals. If you are making drugs to cure cancer, for example. It’s a great endeavor and we applaud that, but it has got about the longest time to revenue of any business we would consider looking at.

Money is coming in large amounts, hundreds of millions of dollars for synthetic genomics already, even though the companies aren’t in what we consider a revenue stage. Nobody is buying gallons of products yet.

“If you are making drugs to cure cancer, for example. It’s a great endeavor and we applause that, but it has got about the longest time to revenue of any business we would consider looking at.”

You claim to be investing into booms before they actually happen. So the next one will be named synthetic genomics?

Exactly. It is a new and emerging technology filed, that’s still too early. Just like nanotech is too early. But we’d like to be early movers, very active. Then we get to see the best ideas and experience.

Why do you think it is best time now to invest into start-ups?

There are two major reasons.

From investor’s perspective, when there are less investors around, there’s less competition for start-ups. If you think about the supply and demand for capital, when all the other venture firms are retreating and becoming inactive, not talking to entrepreneurs and not writing checks, then there’s less competition for all the good ideas out there.

Now you might say that it’s true, but the whole economy is suffering and that’s the reason why there’s not that much investments.True, but in early-stage of venture capital, these are long term projects. Investments we make today, we don’t expect to go public for another five, sometimes seven years. And there’s not way one could correlate whether  the ideas happening today be happening also in 2014. You just can’t predict that far.

But an even better argument for the entrepreneurs is that these are great times to start companies. If you look back at the kinds of companies that were formed during recessionary times, companies like HP, Microsoft and Cisco – some of the most enduring cultures and firms were formed in down markets
It is quite remarkable how many of the best companies were formed in recessionary  period. And there are few reasons logically why that might be.

“Some of the most enduring corporate cultures and firms, such as HP, Microsoft and Cisco were formed in down markets.”

One is that you tend to grow your company in the early days in a slightly less favorable conditions. You focus more on customers than investors. You are not trying to raise money from VCs all day and you are not listening much when investors are telling you what’s hot and what’s not, instead you listen to the customers. You also tend to develop a corporate cultural of frugality, meaning that you hire people and teach them the value of money. Its almost like parenting!

If you raise them in market of scarcity, they learn how to look for value and how to create value. More than if you would live in an economy of abundance, where everybody is making money and it doesn’t matter if you make mistakes – you still make money. 

So we find that very healthy corporate cultures get formed in down markets. And those are the kind of companies we’d want to invest in.

“If you raise your workers in market of scarcity, they learn how to look for value and how to create value. More than if you would live in an economy of abundance, where everybody is making money and it doesn’t matter if you make mistakes – you still make money.”

How much money have you lost with the current crisis?

Interesting question. The DFJ’s portfolio of public companies have their stocks fully rebounded after they went down. Baidu is a good example here.

Our private companies, some of them are of course failed and run out of business over the last two years. But I am not sure if that’s at their higher pace than usual. Most start-up companies fail statistically, no matter what, in any market.

If anything I am noticing that the companies are reacting to the downturn quickly. They remember the last dot com crash, so when they see signs of turning economy the technology companies were quick to react and got in a very healthy position in terms of their head count etc. Ironically, within the economy the tech sector was best prepared to take the right steps when heading into the downturn. Whereas financial services and other areas weren’t.

The other interesting thing is that some companies are doing superbly. For example Tesla Motors and other electric car companies. It’s perhaps obvious now but there’s no way anybody could have predicted 3-4 years ago that this would be such an amazingly good time to launch a car company. If you are trying to compete with General Motors or Chrysler, this is a perfect time. Because they are so wrapped up in their pension, debt or other financial crisis and have nothing to do with their car business. They are completely distracted.

In general, start-up companies thrive on disruption. You need something to be changing in the market place, be it technology, regulation, channels of distribution or perhaps just economic chaos. Anything that makes business as usual not work well. That’s ironically exactly what a start-up needs.
For example – lets look at how cars are sold in the US. Laws are really crazy, there are dealership networks and you’ll never get out of them once you have find one of them. All the old companies that have dealer networks across America are unable to enter the Internet age of how you ideally would like to sell cars to customers.

“In general, start-up companies thrive on disruption. You need something to be changing in the market place, be it technology, regulation, channels of distribution or perhaps just economic chaos.”

I am sure you don’t want to go to these cheesy sales dealerships, owned by franchisees  that pass on from father to son several generations. It is really an unpleasant way to buy a car. Tesla to the contrary is totally free to do what they want. It can sell over the Internet or do eBay auctions.

Will the world’s economy be healthier one year form now?

I think it will be. The main reason is that against the backdrop of fluctuation, the long term trend is improvement, largely driven by technology and the economies of India and China coming online.

There’s more engineers graduating in India and China each year than we have in America! And that’s just kind of astounding to think about all these creative minds, new products and innovations. It further fuels the accelerating pace of technology change and technology is increasingly important part of the economy.

“There’s more engineers graduating in India and China each year than we have in America!”

So even though I have no specific short term forecast, I know trend upwards and we will inevitably see progress.

You have said to Estonians that in case they have a good business plan, they should  send it to you for review and financing. Have you received any good ones from Estonia lately?

Yes, in fact I have received a number of proposals. But I can’t give flavor on what the ideas are and I shouldn’t be commenting their quality either. Because in our business the entrepreneurs send us their precious plans with trust and confidence that we’ll keep everything strictly confidential.

Is Eastern Europe an innovative place at the moment?

I am not sure how many broader Eastern European plans we get, since business plans coming from let’s say Poland or Finland won’t necessarily make their way to me, because we also have the London office.

Thanks Steve!

Thank you.