An Interview with Billy Draper: Fintech, Marketplaces, and Advice for Entrepreneurs

Billy Draper is a Partner at Draper Associates. He’s responsible for seed-stage investments in companies such as Robinhood, Laurel & Wolf, Tempo Automation, and LawTrades. Prior to DA, Billy worked at in Operations at Facebook and Product Design at ApartmentList. He was named to the 2016 Forbes ’30 Under 30′ List for Venture Capital.

Kumar Thangudu: Let’s lead with a question about Robinhood. At what moment did you know that Robinhood was a great venture, both for its liquidity, and other factors, and when did you first learn about it?

Billy Draper: It was early 2013. I think Vlad and Baiju, who were the founders, just had a really good sense for the problem they were going after. It’s intimidating to open a brokerage account. The world has been telling us for so long that you don’t get a brokerage account ’til you’re in your 40’s, ’til you start to have some real liquidity saved up – you know, brokerage accounts are only for people who are working in finance, or people who are incredibly financially literate.

Robinhood just wanted to break down those barriers, and so they did it in a number of different ways – most notably, the building of [a] beautiful, very approachable product.

The value of these consumers is just so high.

They have the ability to access this younger demographic that Schwab and E-Trade and others have always wanted, and not been able to get. So, that’s sort of exciting.

I was just excited about the idea that people can learn how to think about stocks, how to trade stocks. It should be more approachable. It shouldn’t be so scary. I think there were a lot of younger people in their 20’s and 30’s who didn’t even consider opening a brokerage account – like “Oh, I don’t trust myself with trading.”

Robinhood built the on-ramp for people to get comfortable trading and they’ve done great work since then.

Kumar Thangudu: A lot of FinTech companies are coming out now, because the banking API’s are opening up. Plaid API, Finicity, and Yodlee are good examples, and there are a few savings apps, as well – but where do you see that sort of infrastructure moving? Will these marketplace-building activities take FinTech into segments it hasn’t traditionally reached?

Billy Draper: Yeah, that’s a great question.

The capabilities and possibilities are really endless. I think what you see with companies like Robinhood, Wealthfront, Betterment, and a few of these others – is that they are empowering the end user with their own finances.

I think that’s really where finance is headed. In a number of different financial verticals, it feels like people can take control of their stocks, when they used to pay someone to trade stocks for them. People can take control of their 401k, when they used to pay someone to manage their 401k for them.

There’s more information out there, and as these tools become available, I think that is where finance is headed – just this accessibility element, and people taking control of their own finances.

Or, if they don’t – if they would rather have their finances managed – because of all the information out there, they’re much more comfortable deciding how those finances should be managed.
Then, on the Plaid side – I think all of the businesses in that space are really interesting. Plaid has the ability to power a lot of the client FinTech ecosystem. A lot of the other FinTech start-ups are powered by Plaid, or use Plaid to enable a feature.

Kumar Thangudu: When you’re managing unicorn marketplaces, dealing with 1099 contractors can raise some serious issues. How do you deal with these workers at a legal, regulatory, and financial level? Do you have any insights to share on how the gig economy plays out, or where you think the biggest pains for marketplace builders may arise?

Billy Draper: I think there will always be a regulatory challenge when you’re going after a new market, or a new way of doing something. I think a lot of those 1099- or sharing-economy companies face regulatory challenges. You know – “are these 1099 workers, or are they full-time employees?”.

[Overall], I think it’s for the better – the world is moving more towards this sort of free-flowing, gig-economy, shared-economy style. People entering the workforce today might work for 9 to 15 companies in their lifetime – maybe more – whereas 20 or 30 years ago, someone entering the workforce might work for the same company for 20 to 25 years. I think it frees people up to do a lot of interesting or exciting things – travel the world, manage their own schedule. It empowers the individual, just like we were talking about with finance. Now that the individual is empowered with their own work, [they] are responsible.
From my perspective it’s all very positive, and all the regulatory hubbub of “oh, we found this line between what a full time employee is, and what a 1099 contractor is”… I think the regulations are going to have to somehow account for that. It’s going to be up to the regulators to (hopefully) change for the better – and for the betterment of the gig economy, because it seems that’s where the world is going. There are enough of these giant multi-multi-billion-dollar sharing economy companies, that now the regulators have to pay attention.

This is good for the world. This is finding an inefficiency in the way we live today, and fixing it as a crowd. I think that’s almost always good business.

Kumar Thangudu: I’ve been looking at some of the marketplaces you’ve invested in, including Equidate , and Teachable. Though they are in vastly different industries, they share a focus on empowering businesses and individuals to own their information. Is this something you specifically seek out? Or are there particular marketplaces you are most inclined to invest in?

Billy Draper: In the case of Teachable… there was an old way, where you show up to a class, you get taught. Teachable enables online learning, by supporting the simple creation of beautiful classes.

We [also] did Laurel & Wolf, which is a marketplace for interior design that’s doing quite well. We’ve done a marketplace for legal work called Lawtrades, we’ve done a marketplace for architects, for chefs – we definitely drove home on the theme over the last couple of years.

There are two things I look for, when assessing an investment opportunity.

First – is this an industry that works for an online marketplace? In the case of interior design – [traditionally], you have an interior designer come and charge you, just to show up and go through your home. [They] basically just tell you what furniture to buy, and where to put it.
It’s a very valuable service – but really, really expensive – and never really available to anyone but the upper-middle and upper class. So, first – you check off the industry – and interior design? Not necessarily the sexiest industry, in a lot of ways – but a big, huge, huge opportunity – especially when you account for the price of furniture.

The stat that I usually get most excited about in a marketplace is – how many people on the marketplace are making over $1,000 a month? Let’s say an interior designer is making a pretty good living, or [at least] a side hustle, on Laurel & Wolf – or someone is teaching classes at night on Teachable, and they’re actually making pretty good money (almost to the point where they could consider doing it full time). Usually, if a lot of them are,and if that number is big… Money talks.

So, I think that is a huge, huge indicator. You’re powering a pretty big percentage of what these people are earning, and that speaks really, really well to one side of the marketplace. It also, in turn, speaks to the other side – because it shows that people are willing to pay for these services.

You want a lot of people happy on both sides of the marketplace, but usually you can tell a lot by how many people are making either a side gig, or a full-time living on the market.

Kumar Thangudu: What advice do you give to these marketplaces after you fund them? They’re all going through different stages of building both sides of the market up, and sometimes one side will be easier. The infusion of cash might give them something to focus on – but what other patterns have you seen, in marketplace building?

Billy Draper: It’s really interesting, because we have a few companies going through similar stages, but they all have very different problems. In a marketplace, you need people buying things, you need people selling things.
There’s no silver bullet [of] advice [for] every marketplace, but I guess one of the things to think about, is [that] a lot of times, you have a healthy supply of workers in that space. You could have 10,000 workers on the marketplace ready to work – but the number there is not what you should really be focused on. You should be focused on, the number of workers who are working. You don’t want 10,000 workers if 9,000 of them aren’t getting jobs – so, it’s much better to grow that side of the marketplace organically.
Let that grow as your early adopters are starting to get too big of a workload. Then you can start to do a bit more of a step function, where you can bring on more workers, and [then] bring on more workers, knowing that everyone’s gonna be able to make a certain [income]. Whether it’s $1,000 or $100 in a given month, whatever you decide is the right amount for your space.
So the advice is not to grow the supply side too heavily, or too quickly, and spend most of your focus on the demand – acquiring customers, retention, engagement, keeping the customers coming back, using the marketplace – again and again. Repeat usage is a really good statistic for every marketplace I can think of, aside from some service that you might only need once a year, or every couple of years.

Just like any product, if someone is using your marketplace multiple times, that’s really powerful.

Kumar Thangudu: The other sector you seem to lean toward is logistics. Companies like Tempo Automation, for example. What’s your take on that sector, as a whole? You seem to have some fascination, there.

Billy Draper: Yeah, I think there is a lot of inefficiency in logistics – and that’s interesting, because it’s not necessarily a space we were targeting early on, but as we’ve seen more and more big opportunities in logistics, we get excited at companies going after big swings. Tempo Automation is a company that wants to make hardware prototyping as simple, seamless, and fast as software prototyping. It seems crazy to us today – but then you meet this team, and they’re just totally focused. [They believe] we can automate a ton of what goes into low-run manufacturing chips.
All these IoT companies and hardware companies are constantly sending off these CAD designs, to get chips in return – to these mom and pop shops. And, it takes two weeks – and that’s two weeks of potential iteration time that’s lost. It’s pretty expensive. And, while you’re waiting for hardware, you’re waiting for a new piece for whatever it is your building, you’re twiddling your thumbs.
Tempo has reduced the time [it takes] to get your early iteration chip back – from two weeks to three days. So, these hardware companies can be working on much tighter cycles, they can tighten their feedback loop. We love that company – we love that team, and we love that space. (Logistics, as a whole.)
We’ve invested in third-party logistics companies, we’ve invested in a packaging company – these are [just] pieces of the logistical pie that we’ve taken on. In terms of the space, it’s just more opportunistic – and [the companies we invest in are] companies that get us pretty fired up.

Kumar Thangudu: You were quoted in Tech in Asia as talking about investment in Asia, India and Indonesia. Have you been there? And, what is your take on the tech companies you’ve been meeting with, internationally?

Billy Draper: We’re really excited about the potential for Indonesia, just as a lot of venture capitalists are. Just the size is really exciting – the growth potential for that many connected devices in a young population. We’re excited about Nigeria and Ghana for similar reasons.

It just feels like there’s something in the air, and now with information spreading, and entrepreneurship being more at the forefront of the media worldwide – it’s really an exciting time to be a venture capitalist. We can go out in any country, any time, any city – and potentially find a great entrepreneur, who’s going after something big.

I was just in Mexico City a few weeks ago, for a conference, and I felt the same way about Mexico, Central America, Latin America. We actually hear at the government level from a lot of the these countries [that they] want more entrepreneurship, [they want to] build [their] own Silicon Valley.

The truth is, they can’t build their own Silicon Valley – but they can build a version adjusted to their market, and that version could be better, could be bigger. A lot of them look to Silicon Valley, as it’s the gold standard of encouraging entrepreneurship, but I think in a lot of ways that might be holding them back. They might be thinking in terms of “we need a Google”, or “we need an Apple in our city”, or “we need to start a tech hub or WeWork”, but really – all that just comes from solving a problem.
The real thing they need is a couple of great entrepreneurs who find huge problems that exist there, that may not exist elsewhere – or may be less of a problem elsewhere – and then they can build. You know, put their flag in the ground, [and say] “hey, this works here – look what we did!”.

A lot of them need someone to look up to – a company, or a success story. When I talked to people in Mexico, they were discouraged by the fact that there wasn’t yet the big Mark Zuckerberg success story out of Mexico, but that should just create more inspiration. [Anyone] could be the first!

I think the same thing applies to South East Asia, and India. China has had several huge successes. China might not fit into this conversation, but I think that’s the key – it’s going to take really great, forward-thinking entrepreneurs and visionaries to come in, and solve problems. I think that’s the way [Silicon Valley’s success] started, and the same way it’s going to start around the world.

Kumar Thangudu: When you fund international entrepreneurs, are they required to incorporate in the United States? Both countries? Is there a preference?

Billy Draper: No, we don’t have a particular rule. There are certain countries that make incorporation more difficult. I don’t think we have any sort of set rule around that – I guess it’s on a case-by-case basis. We believe that people can start great companies from their home base, so when it comes to incorporation, it’s not typically a big problem.

Kumar Thangudu: What’s a type of company you would invest in if it existed… but does not yet exist?

Billy Draper: That is a great question, and if I knew the answer I would just be hunting it down! Every once in a while, I wonder if anyone’s doing a particular thing [and I research it]. Recently, I’ve been doing a bit of a deep dive on insurance, mostly in the U.S., but… I don’t know, if I knew the answer to that question, I would be digging for it. Or, I would be letting the world know [someone needs] to go start it.

Kumar Thangudu: Last question. If you could share one piece of advice with the employees and founders at early-stage tech companies, what would it be?

Billy Draper: There’s a difference between when it’s two people and when it’s 15 people – but, especially if you’re early, early stage – make sure you take a step back, every once in awhile, and make sure you aren’t going insane working alone on your business. I know the ones who really need the message out there, are the ones who are working alone right now, unfunded – and just decided to take on some project, gave up their job.

For those people, make sure you still go out to tell people about your business, don’t get stuck inside, or stuck in your own world. Make sure you’re always iterating, make sure you’re always flexible, be open to new ideas. Go out, and get feedback.

There’s some quote, I wish I could attribute it to someone – it’s something like “If you want to go back, go alone – if you want to go forward, go together.” That applies – even if you are building your business on your own.

Use the resources you have – your friends, who are going to be honest with you, and your family, who are going to be honest with you. Don’t let your business consume you. Just enjoy the ride. Life should be fun.

And, this is probably along the lines of my dad’s thinking, but – you truly are a super hero. There aren’t a lot of people out there telling you that, until you get to a certain size, but you are a hero, and it’s important for you to know that. You are putting everything on the line to risk something for [what is] hopefully a greater good. There’s an element of “don’t give up”, but everyone gives that advice, so I’d probably rather err on the side of, “hey, make sure you get exercise, and have a social life, and stay healthy.”