Draper prediction: Tech bull run through 2016
The Draper Wave seems to be coming on schedule. This emotional gauge of venture capital and private equity shows the shape and intensity of the optimism cycle. I created this chart in 2008, and it is remarkable how accurate it has been. Basically, it says that every 16 years we have a complete cycle—from recession to unemployment to creativity to start-ups to angels to venture capital to boom to bubble to disenchantment to frugality to leverage to massive leverage to financial disaster to recession.
And it makes sense. When people are out of work, they start businesses. As those businesses grow, they require capital. The capital drives employment and a cycle of growth and optimism. Subsequently, people become "tulip" optimistic, and great wealth is created on the backs of that optimism. At some point faith is lost and irrational fear takes over, which leads to frugality and a focus on the numbers. Then the businesses start to generate cash flow, which attracts bankers and private equity.
These financiers make the businesses more efficient and productive. They then begin overleveraging and pushing the businesses too hard, and eventually we have a financial collapse with a recession. And people are out of work. The cycle begins again.
So when people ask me if this is another bubble, I think we are safe to say that this is another cycle. We are nowhere near the top of the cycle, but this is a very exciting time for entrepreneurs. Those entrepreneurs who have thrown their blood, sweat and tears into a business for as long as 15 years are starting to see the light at the end of the tunnel. For venture capitalists and their investors, it has been a long wait, and they are about to see their patience pay off.
I would argue that this is an even more exciting time than the late 1990s, when the Internet was starting to show its potential. So many new technologies have come to light that will allow so much creative energy to flow from entrepreneurs. Here are seven to keep in mind.
1. Bitcoin. Say what you will about bitcoin, but virtual currency is just another step in the "trust" continuum of trade. Trade begs constantly for easier liquidity. As we trust each other more, we are more and more willing to use currencies at higher and higher levels of abstraction. We started by trading shells and pretty stones. Then it was gold for goods and services. Then gold was too unwieldy and it was gold promises. Then silver certificates. Then Federal Reserve notes "backed by the standing and good faith of the government."
Now as people are having less faith in their monopoly governments and are looking for something even more liquid than a Federal Reserve note, bitcoin emerges as a currency of faith, simplicity and enhanced liquidity. In some countries, people have more faith in bitcoin than they do in their monopoly government currencies.
There is a huge opportunity here to recreate and compete with every aspect of our financial system—from banking to credit to venture capital. CoinLab, the first venture-funded bitcoin company, led the charge here. Vaurum, a cryptocurrency exchange for financial institutions, and Bitpagos, a payment gateway that supports bitcoins focused in Latin America, are companies to watch.
(Read more: How can you make money with bitcoin?)
2. Crowds. Crowds are amazing. We humans have extraordinary knowledge and capacity as a group. From Uber and Lyft in the pick-up service to DoorDash and Favor for food delivery. From TaskRabbit and crowdfunding companies, like Indiegogo and AngelList, to FundersClub and Wikipedia, the crowds are making us more efficient and effective in our lives. These business models are extraordinary in that they allow us to serve ourselves and help each other with more perfect knowledge.
3. Wearables. Steve Jobs created something I still marvel at: the IPhone. It has more functions, features and applications than I'd ever dreamed would be at my fingertips. Well, now I believe that we can have those functions and features with even more convenience.
New products, like Google Glass and Epiphany Eyewear, are giving us visual connection without the need for the iPhone. The Body Bug, the Fitbit, the Loopd bracelet, the various brain-wave readers and the other wearable technologies allow us to send information to the cloud. I believe the next wave in start-ups will be companies that use this information to anticipate our needs. The growth in mobility is firing up this trend. As mobile apps continue to be rolled out, they will increasingly become wearable.
(Read more: Wearable smartbands set for 35% growth in 2014)
4. Big data. Along those lines, companies can now tap into where their customers are, what they need, how much they can spend, what products and services they like, who their friends are, when they like to eat, what their calendar looks like, what their status is, when they have vacation time, what their favorite color or music is, what they are allergic to, their blood type, their weight, current health, etc. With this information, anything is possible.
The obvious example is knowing when someone needs a coffee or a pizza, but the cloud can now anticipate when you need to exercise, when you are close enough to a former classmate to reconnect, when you need entertainment. Imaginations boggle at the possibilities. Theranos can now provide blood data for a fraction of what labs currently charge, and the data can be taken regularly so diseases like diabetes and cancer can be anticipated early and save lives
(Read more: Can wearable tech boost business productivity?)
5. Space. SpaceX has reopened the cosmos, and the space race is back on, only this time it is in the private sector. From microsatellites from Planet Labs and Skybox to rides in space provided by Virgin, there is a wide opportunity to participate in what could be a many trillion-dollar (or billion Bitcoin)-sized market.
(Read more: Drones are invading the Arctic!)
6. Education. While the education system wallows in its monopolistic dark ages, the cloud provides amazing opportunities in education. At Draper University of Heroes, we have identified the opportunities and possibilities that lie in having an online/offline school. For $850 we can now provide a similar experience to people who pay $9,500 for our immersive residential school.
7. Government. Monopolies are bad because people get bad service for high prices. Competition is good because people get good service for competitive prices. Start-ups thrive by using technology to compete with (even overthrow) monopolies. Hotmail stunned the post office. Skype turned the phone companies on their ears. Wikipedia became our encyclopedia. Google and Baidu challenged libraries, media and advertising. Solar City is taking on the utilities. And Napster challenged the music industry.
There is another insidious monopoly to challenge. That is government. Government is the only industry in which we don't have a choice. If you live somewhere, you belong to that government. So we get bad service for high prices. This doesn't have to be. There are movements like SixCalifornias afoot to try to give you a choice, and there are technologies that are making it possible to have many forms of government be "virtual" and inexpensive.
All in all, I think we have a beautiful future. Draper Waves will come and go, but the world progresses at an ever accelerating clip, investment opportunities abound, and anything is possible. Yes, anything is possible.
—By Timothy C. Draper. Draper is the founder and managing director of Draper Fisher Jurvetson, a venture capital firm in Menlo Park, Calif and founding headmaster, Draper University of Heroes. Follow him on Twitter @TimDraper.