What A Venture Capitalist Can Teach You About The Stock Market

Fred Wilson is a venture capitalist.

And despite his decidedly generic name, he is far from a generic VC.  Perhaps “premiere VC of his generation” is a more apt description.

Through his firm, Union Square Ventures, Wilson has been an early stage investor in a wide range of companies, including Zynga, Tumblr, Foursquare, Coinbase, Lending Club, Kickstarter, Etsy, and a little thing called Twitter.

Recently he gave a presentation at LeWeb tech conference in Paris, where the moderator asked if he was interested in making investments in more extreme type ventures, a la Elon Musk.  He answered as follows;

Fred Wilson: The kinds of things that Elon does, the electric planes, and the Hyperloop, and the SpaceX, and the Tesla; those aren’t things that that interest me, and those aren’t things that interest our firm.  They are great things, and I wish that more people would do those things….

Moderator: Why not? Too far away?

Fred Wilson: (shaking his head) We don’t have a view, we don’t think we have a unique view – - and point of view – - about those things.  And you know, the venture capital business is very competitive, like the business of entrepreneurship is a very competitive business, and the only way you win is by knowing what you are good at and what you are not good at, and sticking to what you are good at.  That is my feeling anyway.

For market participants there is a very important lesson in that last statement.

Successful VC’s live or die on their deal flow.  Because they only want to invest in the deals with the best opportunity for a successful exit, and because those deals are few and far between, they need to sort through a lot of opportunities in order to find the winners.

Wilson probably sees more deals than any other VC out there, but by his own admission, he only invests in one, or maybe two, each year, and only in areas he has a unique view.  That unique view gives him an edge over his competition and has no doubt contributed to his record of success.

Let me put that through the “VC to investor” translator.

Deal flow in the world of investing emanates from different equity classes, sectors, and instruments.   Every day that flow – - those opportunities – - present themselves in each of these areas, and your job is to sift through them, casting aside those that don’t offer a favorable risk/reward, choosing to act on only those with the best chance of success AND that are in your area of expertise.

That Wilson, with all his success, only stays in areas he knows he is good at, is a lesson in patience, focus, and not letting ego into the mix.  And understanding how his statement “knowing what you are good at and what you are not good at, and sticking to what you are good at,” relates to the markets is the key to your success.

 My Talk At LeWeb Yesterday (A VC)

Brilliant stuff like this rains down like..well, rain, on my stream during the week.  If you want to get wet, follow me on Twitter and StockTwits.  You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.  All proceeds go to fight pediatric brain cancer.

Brilliant stuff like this rains down like..well, rain, on my stream during the week. If you want to get wet, follow me on Twitter and StockTwits. You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.