Venture Capital vs. Individual Investors… What’s Different?

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Are the attributes of a good company universal?

There’s no question that the difference between the goals of venture capital investors (who invest money in private startup companies) and individual investors (who invest in public companies on the stock market) is huge.

But when it comes down to it, we’re both investing in businesses. We’re both investing in management teams. We’re both investing in ideas. The results, though, are far from the same. The vast majority of VC investments result in successful exits… that means that the companies they invested in were either bought by bigger companies or went public through an IPO – either way, the VC investors make money the vast majority of the time (think Google for instance).

Is the same true of your portfolio? If not, is it because you’re not looking for the right stuff? On the American Express OPEN blog, Venture Capitalist Guy Kawasaki (a cool guy who I interviewed here) outlines what he looks for in investments for Garage Ventures, his VC firm. The verdict – look for realness, traction, cleanliness, forthrightness, and enemies. For the rundown on what that all means, visit the post here or his blog here.

Beware the Recession-Proof Stocks

Is there such a thing as recession-proof?

Now that we’re in the midst of recession and approaching 2009 with breakneck speed, there’s no way to draw readers more surely than for investing publications to tout the merits of their “recession-proof” picks.

“Recession-proof stocks: Consumers may be skittish in this weak economy but they haven’t completely closed their wallets. Here’s which companies will benefit,” reads a headline on CNN Money.

“9 Recession Proof Stocks,” promises the Motley Fool to its readers. I’ll admit it – I too have become an investment writer who has thrown about the words “recession proof” to describe a stock I’ve liked this year… but those days have passed.

The truth is (and I’m sorry to say it) that the recession-proof investment is a myth.

What stocks have analysts been bandying about with recession-proof claims? CNN Money’s Paul La Monica talked about Apple (AAPL), Toyota (TM), and – are you ready for this one – Coach (COH) in an April article. Since then, the best performer of the three has been Toyota, only down 36%… not even the browbeaten S&P 500 has fallen so hard.

At the Fool, Joe Magyer took a more conservative approach, talking up the virtues of ampersand-riddled consumer non-cyclicals like Johnson & Johnson (JNJ) and Proctor & Gable (PG). Still, both companies are eating red ink since his article went to print.

What gives? If the best minds in the investment world can’t pick out recession-proof plays, what chance is there for the rest of us?

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