Why venture capitalist Tim Draper wants to divide California into six states (interview)

Tim Draper, the founding partner of Draper Fisher Jurvetson (DFJ) venture capital firm, recently won an award from SVForum for being a Silicon Valley visionary at its annual Visionary Awards. (His father, Bill Draper, by the way, previously won the same honor for being a pioneering Silicon Valley venture capitalist.) Draper used the opportunity to talk about his ballot initiative to divide California into six different states.

While it sounds crazy, Draper has been right about a lot of things. He backed companies like Hotmail, Glam, Skype, Baidu, and Overture.com. He believes that the Six Californias initiative is the right way to hold politicians more accountable and to make the state more governable. The deadline to gather 807,615 signatures and put it on the November ballot if July 18. He said that the state is a lot like a monopoly, with high costs, low satisfaction, and little choice for those who deal with it. He came up with the proposal after trying to fix California’s educational system for years.

“I marveled at the number of choices we have in the private sector because of entrepreneurs,” he said. “Then I realized we only have one choice of government if we want to live in this kind of weather.”

We caught up with Draper at the event for a one-on-one interview. Here’s an edited transcript of our chat.

Above: Tim Draper’s proposed Six Californias

Image Credit: GeoCurrents

VentureBeat: One of the last things I remember was you were thinking about dividing up California into different parts.

Tim Draper: Yeah. We’re creating six new Californias. It’s an opportunity for Californians to get a refresh. The government is 50th out of 50. It’s the worst government to do business with. It’s 47th out of 50 in K-12 education. The SAT scores are bad. Whereas Silicon Valley is this great place that everyone comes to pursue their dream, our roots are starting to rot. We have 20 percent of the population in California living below the poverty line. Our infrastructure is starting to fall apart, because we used to spend 23 percent on infrastructure, and now we spend three percent. The state is also getting a little distant from its constituents. The constituents feel out of touch with their government. It’s supposed to be “we the people.” It’s supposed to be our government.

I think that with six Californias, it gives us a chance to make it our government. We can make it more local, better representation, closer to us. It also creates a choice. If some people feel that their government isn’t working for them – and I know a lot of people in very poor regions feel that the status quo is not working for them – this would be an opportunity for them to easily move to another state without leaving the beautiful weather we get here.

VB: It sounds like moving mountains, so to speak. Moving state lines might even be harder. How do you feel about your chances?

Draper: You need to start somewhere. This is probably the best place to start, to allow Californians to speak out and say, “We would like to have six Californias, because we can then choose the state that’s right for us. We can have those states all get a refresh. They’ll perform better.” Even if these states are average, with the bad performance California has, we’ll still all be a lot better off. We pay the most and we get the worst service. It’s like a monopoly. The service provider can do whatever they want and charge whatever they want. That’s what’s happening in California.

VB: I don’t know if this has much connection to the concerns you’ve had about the gentrification of San Francisco.

Draper: It’s a huge problem. I’ll tell you, if I were poor and living in San Francisco, I would be pissed too. There’s bad infrastructure. The MUNI buses don’t have air conditioning. They don’t have Wi-Fi. The service that’s provided by our state and that city is not good. For the amount people pay for that, it’s really not good. That’s why they get frustrated and they say, “Let’s get mad at the Google buses, because they have Wi-Fi and air conditioning and good service.” All that is Google taking care of their customers. If California took care of its constituents, we wouldn’t have this problem.

It all starts with education. We’re 47th in education. We used to be first. 40 years ago we were first in education. That’s why our economy is so strong now. 40 years from now, who knows? If you’re 47th in education, it’s pretty likely you’re going to have some trouble in your economy in 40 years. If you’re living below the poverty line right now, and you have a bad education system, the American dream is nowhere near you. You’re trapped. We have 20 percent of the population living below the poverty line. The states with good education have more like 9-10 percent of the population living below the poverty line. This is a relatively rich state. Yet we have 20 percent of our population living below the poverty line. That’s unacceptable.

Above: Visionary Awards presenters and winners. Tim Draper has the red tie, flanked on right by his son Billy.

Image Credit: Dean Takahashi

VB: It’s always interesting to see which cause to get behind. Silicon Valley’s sometimes tried to save the world. Here it almost seems like Silicon Valley should also take care of itself.

Draper: That could happen. Silicon Valley would be its own state. It could do the things that make sense for it. Each of these state-regions, each of these six states, would have its own personality. They would have their own ways to govern themselves. California doesn’t even recognize digital signatures for initiatives. We have to get a million handwritten signatures in order to get an initiative on the ballot. That, to me, sounds like it’s a very narrow group of people who can put an initiative together.

The central valley has been getting water dripped out there, one form at a time. They go out and beg California for water and get a little more, but they’re feeding the entire world from central California. We need to give that more respect. In the current regime, central California is the poorest state in the union. If they could govern themselves, I could see them encouraging manufacturing jobs into central California. Central California could be a wealthy state – not suddenly, but over 10 or 20 or 30 years.

Tons of jobs are leaving Los Angeles. Sony just sent 2,500 jobs to Louisiana. So did Disney. If west California operated as a state, they could attract those jobs back. They just lost 8,000 jobs when Occidental Petroleum decided they could move to Texas. When I talk to the leaders of these companies that are leaving California, they say, “California didn’t even try.” If you’re in west California, near Los Angeles, and you’re seeing all these movie jobs leaving, you’re going to fight to keep those jobs.

California, at last check, is out of the running for the Tesla battery factory. We’re doing something wrong. We’re losing lots of jobs outside of the state. We’re losing lots of economy out of the state. We have a horrible education system, K-12. The higher education is great, because they have real competition there. They work very hard to compete. In the K-12 education system, it’s a disaster. It’s bad for all those students who are coming up through it, and it’s bad for the families that live in poverty because they’re just going through a cycle of continued failure

The state will be nothing like what it is if 20 percent below the poverty line becomes 30 percent or 40 percent. That could happen because of the education system. We have high recidivism. A lot of big problems.

VB: You’re in the venture business here. How do you feel about the boom we’re having now?

Draper: It’s great. We’ve got four or five more really great years ahead. I don’t see the bubble everyone else sees. If people are talking about a bubble, we’re not in a bubble. We have some good times ahead, for both venture capital and entrepreneurship.

VB: Are there any sectors or companies you’re most excited about?

Draper: I’m interested in a bunch of companies that are just getting started today. I’ll tell you the technologies I love. Crowdsourcing, where you can find a provider who can provide a service more efficiently and cheaply than anybody in the world, because they’re all interconnected now. That’s an amazing service, an amazing technology.

I like bitcoin. Bitcoin could really transform all of the currencies of the world. It could end up being a way for money to move much faster. Money moving faster means more liquidity, which means more wealth for the whole world, more deals. If I make a deal with you, we’re both better off. We can make those deals better and faster with bitcoin. That’s exciting.

3D printing could change a lot of things, a lot of industries. Medicine needs some structural change. Education needs some structural change. Venture capital, banking, investment banking all need some structural change. Government needs structural change. For entrepreneurs, those all provide huge opportunities.