Venture capital is a business where “the rich get richer,” Fred Wilson, managing partner at Union Square Ventures said Wednesday at Business Insider’s Ignition Conference in New York.
That’s because a favored few firms, such as Andreessen Horowitz and Sequoia Capital, have the right of first refusal on the most promising opportunities thanks to their previous early stage investments in companies like Facebook and Google.
“They see every single opportunity of quality that comes along,” Wilson said.
Wilson made it clear that his New York based shop has “elbowed” its way into this exclusive club because it has backed the likes of Twitter, Tumblr and Kickstarter. Union Square Ventures manages $650 million across four funds.
Becoming a member of this elite club is important because Wilson argued that “unicorn” investments, those trend-setting companies, help compensate for the inevitable losses that come with putting money into the start-up world. Forty percent of the companies in a venture capital fund’s portfolio end up failing, he said.
For second or third tier firms there often are not enough quality investments to help them paper over those kinds of losses. Wilson has experience in failure too. His previous firm, Flatiron Partners, was essentially shut down after the tech bubble burst of the early aughts.
Wilson said his recent success has allowed him to accept the possibility of failure and has made him, “a bigger risk taker.”
At 52, Wilson could be seen as an éminence grise of the youth-dominated world of technology. When it comes to chasing the next big thing, Wilson said it’s often wise to bet on youth, but there are moments when experience is beneficial too.
“The people who are supposed to keep you out of trouble, out of jail, I think older is better,” Wilson said.