"Aha Investing" — The Surprising Secret of a Billionaire Startup Investor

By Matthew Milner, on Wednesday, April 20, 2022

Fred Wilson is one of the most successful startup investors in the world.

For example, he was an early startup investor in Twitter, Twilio, and Etsy — all of which are now multi-billion-dollar publicly traded companies.

That’s why he regularly tops Forbes’ “Midas List” of early-stage tech investors, and is rumored to have a $1 billion fortune.

So today, I’m going to reveal three of Fred’s most important rules for startup investing success — including a secret I bet you’ll find very, very surprising…

“Invest in Bits, Not Atoms”

First of all, when you invest in startups, you should invest in “bits” not “atoms.”

In other words, rather than investing in businesses that produce physical products, you should focus on businesses that build software.

Why? Because companies that build physical products have far higher operating costs!

Sure, some hardware companies will become successful. But statistically speaking, higher costs correlate to a higher risk of going out of business.

By investing in software companies, you’re more likely to back companies that survive and thrive — and you’re more likely to earn market-beating returns.

“Love Your Losers”

With this second rule, Fred is acknowledging a fact:

If you’re aiming to earn big returns in the startup world, you have to take some risk.

Therefore, it’s inevitable that you’ll back some “losers” along the way — in other words, investments that won’t work out like you were hoping.

The thing is, if you build a portfolio and diversify your startup investments, your winners should more than make up for your losers.

So embrace your losers, love them. They’re part of the formula that can lead startup investors to financial success.

“Aha Investing” — The Surprising Secret of a Billionaire Startup Investor

And to explain the third rule, let’s look at a blog post Fred published a few weeks ago.

It’s entitled, “Keeping it Simple.

In the post, he talks about three investments he made where he was richly rewarded for keeping it simple.

Permissionless Money
In the first story, he talks about bumping into a friend in 2011 who told him about Bitcoin. He didn’t understand the whole thing. But he saw it was a system for “permissionless” money. He was immediately hooked. As he said, “That was all it took for me.”

So he bought some bitcoin, and he went looking for a Bitcoin startup investment. He soon found Coinbase (Nasdaq: COIN), and you can probably guess how that turned out: homerun!

Anyone Can Be a Publisher
In the second story, he talks about how he met someone at a party in 2003 who explained blogging to him. As he said, he was “struck by the idea that anyone could be a publisher.”

This big but simple idea soon led him to invest in Twitter back when it was a tiny startup. Again, you can probably guess how things turned out: homerun!

Scarce Digital Goods
And in the third story, he talks about how when he first saw Rare Pepes, the NFT collection, he was “struck with the idea of making unique, rare, and scarce digital goods.”

So when he had the opportunity to invest in an early private round for Dapper Labs, the NFT startup, he “didn’t think too much about making that investment.” He just went ahead and did it. And today, Dapper is valued at $7.6 billion. Homerun!

Here’s how Fred wraps up his thinking about all this:

“The point of these stories is that aha moments come around every so often and you just need to let them grab you and take you to a foundational investment.”

Does it work every time? Of course not! (For reference, see “Love Your Losers” above. And as Fred says, “We get more wrong than we get right.”) But by following these rules and keeping it simple, Fred is now worth an estimated $1 billion.

Your Path to Startup Success?

Fred makes startup investing sound easy.

And for him, after doing it for 35 years, maybe it is easy.

But for the rest of us, here are a few takeaways to keep it as simple as possible:

First, find some “foundational” startup investments in areas you believe in. For example, maybe you’ll decide to invest in the commercial space sector, or in Electric Vehicles.

Secondly, aim to make at least 25 of these investments. Why? Because most of them won’t work out like you’d hoped. You need to build a portfolio of these investments, so your winners have the chance to more than make up for your losers.

And third, try to follow the rules of pros like Fred. That’s how you can put yourself on a path to hit some homeruns.

If you’d like to learn more about what the pros look for in their startup investments, check out our free “10 Commandments” report here »

Happy Investing

Best Regards,



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