What Fred Wilson learned from Flatiron Partners’ failure

Fred Wilson may be a reigning name in the venture capital world, but he’s been on both ends of the industry’s peaks and valleys.

“We made a fortune and we lost it in the blink of an eye,” Wilson said about his dot-com era venture capital firm, Flatiron Partners, which he founded in 1996. “We shut down Flatiron in early 2001 and I spent the next two years licking my wounds and internalizing the lessons of Flatiron.”

Wilson was the inaugural speaker April 13 at the General Georges Doriot Lecture Series on campus. Doriot, who died in 1987, is often credited as the “father of modern venture capitalism.”

Wilson today is the co-founder of Union Square Ventures. He has worked in venture capital for more than 30 years. A graduate of MIT and The Wharton School, he joined Euclid Partners in the mid-1980s before co-founding Flatiron. At the time, Wilson’s peers told him he was “crazy” to invest in a “niche” market like the internet, he said.

By consuming lessons of his failure in the late 1990s, Wilson wrote a playbook for himself that has been the secret to his success since then, he said.

Wilson’s lessons:

Making big mistakes is good for you

Failure is favorable if you take the time to learn from it, Wilson said. “I am who I am because of the [failure of] Flatiron,” he said.

These lessons stayed with Wilson when he started his next endeavor — Union Square Ventures — which he co-founded with Brad Burnham in 2003. It took the pair 18 months to raise funds for the venture and they were rejected by “several hundred investors” along the way. They eventually raised $125 million, and to date, have distributed $1.6 billion out of that fund, nurturing startups such as Twitter, Tumblr, and Etsy.

The venture capitalist’s most important role is cheerleader

It’s a lesson Wilson learned when others in the industry maintained that their customers are investors. Wilson disagreed, and said a venture capitalist must be a cheerleader for the entrepreneurs. “Our customers are the entrepreneurs and the companies that they build … and so we must be focused on the entrepreneurs and the teams they build. The entrepreneurs are the center of gravity in this business.”

“Venture capitalists are a service provider to entrepreneurs. We ride on their coattails. And, so even though venture capitalism requires a sophisticated understanding of finance, technology, markets, strategy … it is ultimately a people business. And learning how to be a successful venture capitalist is about learning how to work with people … who are charismatic, brilliant, frustrating, anxious, and fragile,” Wilson said.

Get your own cheerleader, too

Wilson’s cheerleader is his wife, Joanne, whom he followed to New York in the 1980s as she pursued the fashion business. Today, Joanne Wilson is an angel investor with her own portfolio of more than 100 companies.

“Joanne is the secret to my success. She understands that being supportive is important, and she believed in me from day one,” Wilson said.

The best time to invest is when no one but you believes

“The corollary to that is you have to totally believe in it and you have to know why,” Wilson said.

Wilson acknowledged that it sometimes tricky knowing when you are wrong about something you believe in, but that ultimately, a bad company or product will fail “as long as you don’t prop it up.”

“We are fortunate, in some ways in the venture business, that bad ideas reveal themselves,” Wilson said.