David Weisburd here – investor in 23andMe, DraftKings, Headspace, Palantir, Robinhood, and Wish.

One of the most common questions I’m asked is what the hottest new startup sector is. Is it crypto? Is it cannabis? How about VR (virtual reality) or AR (augmented reality)?

Many investors have very strong opinions on these spaces, and stake their entire careers on the belief that they know the right answer. These types of investors are called thematic investors – and some of the top venture capitalists in Silicon Valley fall into this group.

If you want to be a thematic investor, be prepared to only invest a very small amount of your net worth, as the result will be binary. In other words, there’s a small chance you will be very rich, and close to a 100% chance you will lose all your capital.

I do not teach thematic investing, and here’s why.

  1. It’s Incredibly risky, and in a way that doesn’t provide better returns
  2. To be a successful thematic investor, you need to have significant experience within the theme you choose (traditionally 10+ years in one space)
The strategy I prefer is an investment style called generalist investing.

I’ve honed my abilities with more than 15 years of experience – and I’ve been able to invest into seven billion-dollar companies (23andMe, DraftKings, Headspace, Palantir, Robinhood, Wish, and one company that’s still in stealth mode). Three of those are now worth more than $10 billion.

I’ve learned a lot through these experiences, and I can say with confidence that the key to becoming a great generalist investor is to follow an expert entrepreneur down the rabbit hole of a new sector.

The quagmire when it comes to investing into the next $1B+ companies at the early stage is that these companies tend to be category creators. In other words, prior to the company’s founding, there was no industry to study or be an expert in. Two great examples of this are Airbnb and Uber, which created the homesharing and ridesharing industries respectively.

This is the single biggest flaw in thematic investing, since sticking to one existing category often tends to capture everything but the biggest new companies (which as we learned earlier makes or breaks portfolios).

So how do you go about finding the best entrepreneurs?

This is the billion-dollar question. The short answer is that you learn by starting to invest and constantly improving your skillset just like any other skill.

The longer answer is that you must learn how to find hardworking geniuses – and I’ll be covering that later this week.

Very best,


David

Comments

3 responses to “How to Pick the Next Billion-Dollar Company”

  1. David, great article, and congratulations on all of your success. Do you keep a journal, or a log of all your lessons and of each investments (in addition to any diligence efforts)? How do you optimize growth between each investment?

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