I wrote a book and will be releasing the the first few chapters on Medium in the coming weeks. The first half of the book centers around what I call “The Startup Hero’s Pledge”. This is chapter one.

Freedom matters most.

The more I live, the more I travel, and the more people I meet, the more I realize that freedom matters most. Free people are capable of anything. Free countries outgrow government controlled countries, and the more free they are, the faster they grow. And free products spread faster. Here is my favorite story about freedom.

The Hotmail Story.

Sabeer Bhatia and Jack Smith were two 26 year olds. Sabeer was a confident Indian who commanded certainty with his every word. Jack was a focused engineer who believed that he could make anything work. They came to Draper Fisher Jurvetson through Dev Purkayastha, a fellow VC from Idanta Ventures, who told John Fisher that he liked these two young guys, but their company was too young for Idanta to fund. Jack and Sabeer’s original plan was not particularly exciting to us, but Steve Jurvetson, seeing a couple of strong co-founders asked if they had another idea. Well, they came forth with an unusual idea to give people web-based email. It would be so inexpensive to provide that they wanted to give it away for free! We were all stoked about this company because it was so novel, but we had no idea how the company would ultimately make money by providing free email for everyone.

Their messaging was clear. Free everything. In addition to providing free email, their offices were on Freedom Blvd in Fremont, California. And they launched their product on Independence Day.

Steve Jurvetson and I were sitting in the first Hotmail board meeting, when Jack said, “It is up.” He meant that Hotmail had just launched free web-based email. After a short demo, I asked, “How are you going to market this amazing product?” Sabeer answered, “We will put billboards on Highway 101, and get TV ads.”

I responded that with the funding we provided, about $150,000, they could get about a nanosecond of TV time and a postage stamp on a billboard for a day. But before he had a chance to respond, I asked, “Hey, can’t you just send an e-mail to everyone on the internet?” At that time, the internet was mostly visited only by academics and military personnel, but I figured that audience could be early customers. Jack responded that sending out a blast e-mail would be “spam,” and that was against the spirit of the internet.

Then I thought, “Words spread. If I send emails to my friends, then they send emails to their friends, and them to their friends, and eventually we reach everyone.” So I kept at it. I said, “You are giving this away for free. What if you put a message at the bottom of everyone’s emails that says, ‘P.S. I love you. Get your free email at Hotmail.’ It will go from one user to the next. From me to you to your friends and to their friends.” It reminded me of the Tupperware case we studied at business school, where anyone who wanted to buy Tupperware would have to throw a Tupperware party, making the customers its salesforce. As I spoke, I got more and more excited.

It was very contentious at the time, Sabeer kept saying, “No.” So I focused on Jack and his technical chops. I said, “But Jack, can you technically do it?” Jack responded that yes, he could technically do it, so I pleaded with them, “Just try it!” Eventually, Sabeer came back to me and said, “We are going to try it, but there will be no ‘P.S. I love you.’ It will just say, “Get your free email at Hotmail.”

Now, with the benefit of 20–20 hindsight, I joke, “if they had kept the “PS I love you,” we would have a much more peaceful and loving world. But either way, the company did extraordinary things for global communication. Hotmail spread to 11 million users in 18 months. Sabeer sent one email to his friend in India, and within three weeks we had 100,000 Hotmail users in India (This was extraordinary because it is likely that there were not even 100,000 computers in India at that time.). Hotmail became the fastest growing consumer product of all time.

Steve and I called my invention “viral marketing” because it was a new method for marketing that spread like a virus from person to person, and we thought that the name viral marketing was catchy. We were a little concerned that computer viruses had become a real problem around then and it might have a negative connotation, but we went with viral marketing anyway, since a little controversy might even be to our advantage.

Incidentally, I decided not to patent, but instead to give away my invention — for free — to everyone. I thought about the long-term impact that this kind of marketing would have on the world and I didn’t want to add friction to it. I was also extremely caught up in the venture capital business and didn’t want to waste a lot of effort on legal work.

Hotmail spread throughout the world. People were communicating with their long-lost relatives, and making new friends online. The company was growing its user base at 10,000 new users every week.

All this spreading became a problem and ultimately, an opportunity. Every time Hotmail gave away a new email account, it cost us a few cents in compute power and bandwidth as people sent and received emails on our servers. We were able to raise some money from Doug Carlisle at Menlo Ventures, but with our new-found method of spreading our product through viral marketing, the user base was growing exponentially and the wheels were starting to come off the business. The company blew through the Menlo Ventures’ investment in a matter of months. The team at Menlo Ventures started to worry. Doug Carlyle told his partners, “They are handing out dollar bills. What are those guys at Hotmail smoking?”

I cobbled together another small round of funding by stretching my own investment and by convincing a few other investors to support the company. We put together a creative financial term sheet that covered both our upside and our downside, but the money we invested would only last the company another month or two. We got a little hopeful when we got a term sheet from GE Ventures to invest $10 million at a $120 million valuation, but when they learned about how fast we were burning through money, they backed away. We then got an offer to buy the whole company from Yahoo! for $40 million. Before we even got back to them, Microsoft came in with a $90 million offer. And the bidding war began. Eventually, it came down to Microsoft offering $350 million in all cash, and us being non-committal. After hearing that offer, Doug Carlyle came to me, told me what he had said to his partners, and then jokingly said, “What are you guys smoking? We want some!”

Microsoft set up a meeting with us and brought about 20 people including CFO Greg Maffei down from Redmond, Washinton to negotiate the deal. We met in an enormous board room provided by the Microsoft law firm. Sabeer Bhatia and I sat on one end of the table and the Microsoft CFO sat at the other side flanked by his extensive entourage. Jack Smith and his father Rex sat next to Sabeer and my partners, John Fisher and Steve Jurvetson sat next to me. Greg spoke first saying, “We like your company, and we will pay you $350 million cash for it. That is our final offer.” After consulting with Sabeer and Jack, I responded with as much bravado as I could muster, “We like the company too. It is worth $2 billion, but we will take $400 million in Microsoft stock.”

The Microsoft team hemmed and hawed. Greg mumbled something like, “This is all we are authorized to pay.” The team’s nervousness and what seemed like the closeness of their offer to our counter, made me think that maybe the Microsoft stock was worth more than the market said it was worth, and these guys didn’t want to give it up, so we stuck to our guns.

Greg said, “Well then, we have nothing more to talk about.” Sabeer and I said, “OK,” and we left the room with tension and bravado lingering like fog. Rather than allowing us to leave, the Microsoft lawyer escorted us both into a small conference room where we were expected to rethink our decision. It was a little weird. We thought we were walking out, but our team didn’t follow. John, Steve, Rex and Jack stayed behind. None of them wanted the deal to die.

Meanwhile back in the big boardroom, John Fisher took over masterfully. He said to the Microsoft team, “What is the problem? You only have to pay $50 million more and to make it in stock rather than cash, and then you get the prize.” John said “prize” with a lilt and an emphasis on the “I” sending a strong message to the Microsoft team that a small change would be all that it took to win the day.

Greg told John that he would no longer deal with Sabeer, Steve or me in the negotiation. I guess we seemed irrational. John and Greg continued to negotiate and finally, a few days before Christmas, as John was about to board a plane to the Bahamas where he explained that there was no phone service, so it would have to wait until after January 1st, Greg shouted, “Goddammit! ALRIGHT! I will pay it,” and continued to curse a blue streak. John cleared it with Sabeer and boarded the plane just before the door shut.

We agreed not to say what Microsoft paid for the company, but it was in stock. Sabeer and I were still a little steamed from the drama, but we were also a little relieved that the deal came together. In looking back, I realize that those 20 Microsoft big wigs were not going to leave empty-handed, so we might have been able to hold out for more, but lucky for us, the Microsoft stock quadrupled over the next year, so holding out for stock turned out to be the right decision for our investors. And it worked out well for Microsoft too. Bill Gates has said that the best purchase he ever made was Hotmail. Hotmail reached 500 million users around the world, helped Microsoft market all its other products to all the new Hotmail users, and we helped make freedom ring around the world.

Viral marketing and the implied endorsement spread Hotmail broadly. Many companies followed suit. Yahoomail, G-mail, and many others have spread web-based email to reach over 3 billion people (nearly half the world). The free product made an enormous impact on the world. People became closer, better connected, and had more freedom because they could now email anyone anywhere for free. Communications around the world was now free. Hotmail even helped several countries free their people.

Viral marketing provided companies like Facebook, Twitter and Skype the ability to spread global communication too. Nearly the entire world is connected, and I believe that a new chapter of freedom and prosperity around the world is happening. When communications are combined with all the shared information we get from search engines like Google and Baidu, all the people of the world will have similar footing when they look to become productive. An entrepreneur in Tel Aviv will have access to similar information and communications tools available to an entrepreneur in The Silicon Valley, or Jakarta, or Accra.

I have made it a part of my practice to apply viral techniques to help companies spread their products, and I believe that it gives those companies a competitive edge in attracting and acquiring customers cheaply and rapidly. If a product is spread more quickly and easily, the entropy of a great product happens faster, and we all benefit from the new way of life the product offers. Ultimately, viral marketing has the effect of leveling the playing field, because when there is a breakthrough, it spreads so fast that anyone with a computing device gets it.

For the Startup Hero, this new fast spreading virus of information and products creates both an opportunity and a dilemma. If word spreads so quickly around the world, the startup needs to get its product out before the competitors do. But it also means the Startup Hero needs to be more innovative than the other people in his or her industry. New product ideas are transitory. People create new modifications to whatever is the state-of-the-art of the times. Since they all have access to the same information, they can all innovate from there.

Hundreds of companies now use viral marketing to distribute a wide variety of product categories. Any product that is communications based uses viral marketing. The AT&T Friends and Family marketing program, the LinkedIn network and the Twitter hashtag are some obvious examples. Facebook and Snapchat use viral marketing to share photos. The founders of Skype implemented several viral elements in growing their audio business and even more when Skype video was introduced.

The Skype Video Story.

I was fascinated by the new peer to peer technology that allowed people to share files. I met with Napster, Streamcast, and Grokster as I searched the industry. I had gotten the distinct impression that the file sharing business was pretty much crushed by a powerful and litigious music industry, but I was pretty sure there would be other applications to this revolutionary technology.

I read in the paper that the guys from Kazaa, another file sharing music business were selling the business and looking to do something new with file sharing technology. I put it in my head to make sure I found out what they were up to. I registered that Niklas Zennstrom was from Sweden and Janus Fries was from Denmark, so I would have to make sure I connected when I was next in Northern Europe. Later, I heard the company was starting in London.

My dad hired Howard Hartenbaum to scout for companies in Europe for his venture business. I first met Howard at an ETRE conference in Seville, where we discussed the venture business generally while we were on a bus going from one venue to another. He had just joined Dad and wanted to get a feel for what I looked for when I invested. I gave him some advice, and suggested that he run down a few leads of businesses I had seen at the conference. And then, knowing that he was regularly traveling throughout Europe, I said, “Hey Howard, will you also go see the guys who started Kazaa, I think they are working in London now.” Howard said that he would.

About three months later, Howard called me and said, “Tim, I think you should come out and check this out. The founders of Kazaa you asked me to look at have something called Skyper and I think they are on to something.”

So I flew out to London to meet with Niklas Zennstrom. Niklas is about my height, 6’4” and has a commanding presence. We met in a London pub and started discussing his new idea. The idea was that Skyper would use peer to peer file sharing technology to allow people to share wi-fi signals. I was so excited, I committed on the spot. I negotiated out a term sheet with Niklas to invest in Skyper, where DFJ and dad’s fund would share the investment.

Then Niklas called me and said, “Tim, before you invest, we have to tell you something. Instead of doing shared wi-fi, we have decided to take on the phone companies and make these peer to peer packets into a vehicle to transport voice calls.” I said, “I didn’t realize that was possible, but of course, we are still in.”

I came back to my partnership to plead my case and was shot down. There was talk about piracy, and liability from their previous company and the final nail in the coffin came from one partner, when he said, “Those guys are outlaws.” So, instead of sharing the deal, that first round went exclusively to Dad.

The team changed the name to Skype and the peer to peer free calls were a hit. The company would give free calls to anyone who had signed up for Skype and charge for calls, both incoming and outgoing, that came from outside the network. The service was taking off, and they had over three million users and were running about 100,000 simultaneous audio calls. Skype was now a hot ticket. The company decided to raise more money from venture capitalists, and our partnership was now ready to go in big. It was competitive, because by now many venture capitalists knew about Skype’s newfound ubiquity, but we were lucky that Howard was on our side. He fought hard for us and we invested through our international fund, DFJ ePlanet. I joined the company’s board of directors and we had a tiger by the tail.

It was time for the first board meeting in Tallinn, Estonia, but the date they chose, July 18, 2005 conflicted with a commitment I had to speak at Tony Perkins’ conference in Palo Alto, California. Tony was a good friend of mine and I didn’t want to let him down. I racked my brain to think of a way I could be in two places at one time, and I came up with the idea of a video conference.

Video conference systems at that time were bulky, expensive and of very poor quality. Sometimes they would have very shaky audio, sometimes the video would freeze, and sometimes they would just cut off. So for me to suggest that Tony use video conferencing for his big conference was a little unfair. And the idea that we would do a video conference from a place as remote as Tallinn made the whole thing seem like a disaster waiting to happen.

To his credit, Tony said, “sure, and I have heard of Skype. Can you get Niklas Zennstrom to be on the video conference with you?” I said, “I will check,” and called Niklas. Niklas was happy to oblige. Then, I asked him if he could get his hands on a video conference system in Tallinn, and to my surprise, he said after a slight hesitation, “sure, no problem.”

So we were a “go,” and we all figured that if it didn’t come out well, that Tony could just put our images up on the screen and we could do a voice call.

When Jesse and I got to the Skype office in Tallin, they were all set up for us. Niklas and I sat down on some plastic chairs and got ready to go on air. Just after we sat down, Niklas looked over my shoulder and shouted, “Ok, throw the switch!” I asked Niklas, “What switch? What is happening?” and he said something nebulous like, “It is interesting that we have been working on something around video in the lab here.”

Well, we did the video conference and it worked well. In fact, Tony said that he had never seen a clearer picture. “We could see the pores on your skin and the voices were crystal clear.”

Niklas started chuckling with extreme pride. I asked him, “What is so funny?” He said, “That was the first ever Skype Video call. It is our new VSkype product.” Once I realized what had just happened, I responded with excitement. “Niklas, we have a huge winner here! That is awesome. You mean we can have free video calls that are crystal clear for everyone!”

Niklas said, “Not so fast, Tim. We cut off 100,000 simultaneous audio calls to get the bandwidth we needed to operate that video call. We will have to send out an apology for being down for that hour.” The best Startup Heroes will do whatever it takes to make a company successful!

Jesse can also claim to have been on the first Skype Video call. She is a good friend of Tony’s daughter and so when she heard Tony’s voice, poked her head in and said, “Hi.” Neither of us knew how big Skype video would become, and how great a communications tool it would be, and how much more free the world would be because of it, but we knew that the world would never be the same.

Skype became the largest telecommunications company in the world by most metrics. In 2009, Skype sold out to Ebay for $4 billion in cash and eBay shares, and after being briefly held by a private equity firm, was sold to Microsoft for $8.5 Billion. There have been more than one billion downloads of Skype, over 300 million daily active users, and users have been on Skype for more than one trillion minutes. Skype has had a lasting effect on us all. Estonia became a new entrepreneurial hotspot since the engineers came from there, and that in turn brought on e-Governance there (more on that later).

From viral marketing evolved Skype calls, video calls, social media, email blasting, marketing magnets, gaming customer rankings on search engines, growth hacking, crowd sourcing, and collaborative marketplaces. When we are all connected, progress accelerates faster.

Every piece of software, website, program, app, and novel new product, whether digital or physical is, will be or should be using viral marketing. Your goal as a Startup Hero should be to best figure out how to market products liberally throughout the world with little or no cost of distribution. Now when I look to evaluate new company proposals, one of the things I look for as a potential investor is how a company will spread from customer to customer. How the customer will become the company’s salesforce. How they will promote freedom at all costs.

Hotmail and Skype created a new platform for freedom. Possibilities opened up for people. People everywhere could now freely and for free communicate amongst themselves. Physical borders would be less important now because people could befriend people from anywhere in the world. People would learn about what opportunities exist around the world. Cultures would blend. Globalism would trump patriotism. People could now decide whether they could find a better life in another place, and adjust accordingly.

Countries too would have to reinvent themselves and their thinking. Countries from this point on, would have to think about how best to compete for their citizens. Now geographic borders would start to dissolve, and the world would really open up. The tribal world that has held the planet’s people since before the dark ages might finally be overthrown by a free market for governance. If people could freely move around the world, the governments of the world would now need to attract those with the brainpower, the money, the businesses and the entrepreneurial spirit to help them succeed. Governments would now have to make their services attractive for potential citizens, or they would lose them to a more attractive government. “International” would now be a term of the past. “Global” would be the term to drive the next century.

The Ukraine Story.

I took my daughter, Jesse with me to Kiev, Ukraine. I like taking my children on business trips so they can learn about my work and see where I go. I heard about a potential investment in an outsourcing company in Ukraine called USC, and I wanted to go check it out. The promoter of the company was a fast-talking man called Roman Kyzyk, who knew (then) Ukraine President Yuschenko, and he arranged for us to meet President Yuschenko. Roman told me about the Orange Revolution, where the revolutionaries kept the heat on the capital by using instant messaging to organize the supply chain of food and flowers for the rebels. The food was to keep people pressing the capital to overthrow the government. The flowers were for the pretty girls to put in the guns of the men guarding the capital to melt away the front line. The revolution succeeded, but not without at least one casualty. President Yuschenko was poisoned. He lived through it, but the poison left him a little weak and his face blotchy.

We went through a maze of buildings and a variety of security guards to eventually get to the President’s office. He met us in a beautiful room with a great tapestry. He pointed to it and explained that it was a historic tapestry that showed that Ukraine was actually the first democracy, and he said that he planned to bring Ukraine back to its roots and become a democracy once again. Then he told me to invest in his country. I said, “Why would I invest in your country? I heard that it takes 6 months and 23 bureaucrats to even incorporate here.”

He said, rising above his illness and with great authority, “That will be one bureaucrat, one week!” This was a man who had fought for his country’s freedom, and he planned to make bold moves to make that country free. We left hopeful that he would be successful in bringing freedom and free markets to Ukraine.

Still caught up in the excitement of just having seen the President, we went to see the outsourcing company. Unbeknownst to me, they had staged 40 engineers to sit and look like they were working in order to get me to invest. And it worked. Against the better judgment of my daughter who thought the entrepreneur was “creepy,” I invested in the company. Roman then set up a huge, standing room only press conference around the investment. I don’t think I have ever seen so many cameras in one place. We then left Ukraine feeling excited about all the entrepreneurial goodwill we had left there.

As it turned out, the entrepreneur failed, and he couldn’t account for where the money went. Interestingly, this is one of only three times in my thirty years as an investor where I believe I was cheated. Entrepreneurs are by and large driven by their mission, and the money is just a conduit to their road to unfurling their visions.

What I learned was that Ukraine has a long way to go to building an honest entrepreneurial society, but I also saw that Ukraine was trying to change. Through technology, both viral marketing and new communications systems, Ukraine has put in motion a new way of thinking. And even though Yuschenko lost the next election, and the country went back to its corrupt past, the nation was exposed to the potential of democracy and capitalism. It is likely that eventually, competition and accountability will permeate Ukraine, and the country will have a chance at prosperity. Corrupt government leads to corrupt people which leads to poverty. Honest open government leads to honest open people and wealth.

Ukraine wasn’t an isolated incident. Soon after the Orange Revolution, Facebook and Twitter were instrumental to the successful overthrowing of bad (not free) governments in Tunesia and Egypt in the so called Arab Spring. So freedom and openness are spreading through viral marketing. The countries of the world are all connected now, and they have been put on notice that they need to perform for their constituents or they may have a viral revolution on their hands.

Estonia’s e-Governance.

President Toomas Hendrik and Prime Minister, Taavi Roivas of Estonia took this new opportunity to heart. They made it their mission to virtualize government, and compete for real and virtual citizens around the world, just as businesses must compete for their customers. The two leaders coined their mission e-government, and I suspect that the world will never be governed by geographic territory alone again.

The Prime Minister came to speak at Draper University’s Hero City. He said, “Just by instituting digital signatures, we saved 2% of our GDP.” and “By digitizing our voting, all the young people started voting.” Apparently, young people would rather check boxes on their mobile phones than go into some antiquated creepy booth.

He went on to discuss Estonia’s digital identity program, which he suspects will lower the crime rate and improve the business climate in his country. He later bestowed on me the third virtual residency of Estonia. Now, I can open a European bank account in less than 24 hours (I did this), buy European real estate, and do business digitally anywhere in Europe.

I recently completed a financing with Kaidi Ruusalep of Funderbeam, a company that provides liquidity to private companies in Estonia. We sealed the deal with a remote smart contract electronically signed on the Estonian blockchain. This process freed us from having us be on site or even from having lawyers physically present for a signing. The contract is permanent and easily accessible for each of us to see.

Other countries are following Estonia’s lead. Singapore’s government has been working on its own form of e-governing, since it has historically led the way with digitizing and automating government services. The British Parliament has begun to automate and encourage crowdfunding and bitcoin. And both Singapore and Switzerland have innovated by leading the world with legal systems for smart contracts and blockchain initial coin offerings (ICO’s). I will discuss more on that later. Japan announced that they are accepting bitcoin as legal tender in their country. Governments are recognizing that they are in competition for the great minds and capital of the world, and they are being held accountable to their citizenry — a citizenry that is armed with information, communications and community.

The Prime Minister of Kazakhstan came to meet me and to see Draper University and Hero City to try to understand what the magic of the Draper Ecosystem is. He invited me back to Astana, Kazakhstan to come speak to some of his advisors and staff. He is trying to change Kazakhstan.

I suggested that he take a page out of Estonia’s book and create a competitive e-residency system. I said, “But Estonia only has 20,000 e-residents four years after launching. You need to do something to spread your message to billions around the globe.” I came up with the idea that instead of asking everyone for a visa, he should have nice people greet visitors with e-residency card saying, “Welcome to Kazakhstan. This is your e-residency card. Swipe this the next time you are here and you will skip the customs line. Then I learned that “Kazakh” means “free.” So, I thought he had an opportunity for viral marketing if he created a campaign around the e-residency card getting people to say, “I am free. I am Kazakh.” Of course, once people have the card, the government can offer them services like health insurance, pension management, title insurance and any other government service that doesn’t require physicality. I left Kazakhstan feeling optimistic for the country hoping the Prime Minister promotes “Kazakh” at all costs.

Conversely, the US and China are suffering enormous backlash for making decisions to command and control its citizens. China’s decision to try to prop up its currency by not allowing money to leave the country backfired. The currency went into a downward spiral and international investment is freezing up as people realize that investing in China is a “black hole” where money can come in, but cannot escape. The US’s hopes to try to build a wall on the border with Mexico also backfired. It angered people on both sides of the wall for many reasons, but mostly because people believed that their freedoms were under attack. Today, a majority of the people the wall would affect want to come from Mexico into the US. Tomorrow it may be just the opposite. Who knows which way people will want to migrate in the future?

Freedom is catching, and in my opinion, freedom is the most important feature for humanity to live prosperous, happy lives. Freedom also allows and encourages more progress than control does. Free markets allow for more liquidity and societal wealth than closed markets do. Free speech is better than muzzled speech to identify and air problems so that rather than festering, they become opportunities for progress. Free thinking allows entrepreneurs to imagine transformative businesses. Freedom is the most important thing. Free speech. Free press. Free religion. Free markets.

It may take extra thought and effort to create a platform for freedom where people are incentivized to do the right thing than it does to just create a law that blocks people from doing something, and it is far easier to just make a new law or regulation that stops aberrant behavior. But freedom is more important than regulations. And negative incentives often seem to backfire and require more negative incentives. A little more creativity and effort in planning can create a free system with proper incentives. And as a Startup Hero, you can do just that with your own company. Create a platform for freedom that generates maximum success and the behaviors you aspire to have for your team. People respond positively to freedom and trust. Likewise, they respond negatively to controls.

The first line of the pledge: Promote freedom at all costs, is first because I believe it is the most important.

A Startup Hero will create an environment for freedom, while still pointing the company in the right direction. The best managers are those who set an ambitious goal and allow their people to achieve it in any way they can. The worst managers are those who tell people exactly what they have to do, and give them no freedom to deviate. Freedom allows the use of everyone’s ingenuity and creativity. Startup Heroes who devise a platform for freedom tend to be surrounded by people who strive to make their businesses and missions successful. Those who micromanage with regulation only allow the use of their own brain to grow a business and they find it to be lonely at the top.

Quexercises about Freedom: