Invest Like a Venture Capitalist

According to Steve Bernardez, a principal at ONSET Ventures, "VCs strive to personally and actively add value to their portfolio companies. ... We take an active role in accelerating the growth of our portfolio companies in a variety of ways over and above financing them, such as assisting with strategy formation, recruiting and business development."

There are definite differences between VC and investing in the stock market. Bernardez explains, "Investments in private companies can take years to get liquid , while public stocks can be traded intraday. Historical financial information on public companies can be easily accessed, while for start-ups it's nonexistent. Private companies don't have analyst coverage, while most larger-cap public companies do."

But for all the differences between VC and public investing, there are impressive similarities.

The Venture Capitalist Approach

As investors, we often see the practices of business and investing as two separate worlds, it's important to remember that behind those stocks that we trade are corporations that make business decisions each and every day (see "Talking to Management"). So a lot can be learned from the way venture capitalists approach their decisions to fund companies.

"There is an extremely high correlation in both these worlds: Luck. Luck is everything," explains Guy Kawasaki, author, blogger and managing director at Garage Technology Ventures. Kawasaki says, "No entrepreneur truly knows in advance what the outcome will be. Roughly 100% 'know' they'll go public. Roughly 0.5% actually do. Insisting that you 'know' doesn't show determination and guts. It shows you're clueless about what it takes to build a successful company."