On the wall of his sunlit, 14th-floor Manhattan office, facing his desk, venture capitalist Fred Wilson has a painting that contains five words: "What are you gonna do?"

In three-and-a-half years, what Wilson has done is turn his firm Union Square Ventures into a hot technology venture capital firm through savvy investments in Web 2.0 startups such as del.icio.us, Twitter, and Tumblr.

In the process, Union Square Ventures, a $125 million venture capital firm, has become something of a mascot for New York's technology venture capital community.

Portfolio.com sat down with the outspoken Wilson last Friday for an interview in which the only subject off limits was the next startup on the firm's list of investments.

"I can't talk about that," Wilson said, laughing.

Wilson, 46, prefers to stay out of the spotlight. He initially declined to be interviewed, saying, "I don't like to talk about myself. I like to talk about stuff that's happening, stuff that's going to happen, and the people who are going to make it happen."

When he did agree to sit down, Wilson, a Wharton graduate, said the financial turmoil spawned by the housing meltdown and credit crunch threatens to douse the red-hot venture capital market. However, there is a silver lining to a recession: smart venture capitalists will "take advantage" of any economic contraction by investing in startups at lower valuations.

Later, he predicted that beleaguered Web giant Yahoo will either be sold, or strike a major strategic deal in the next 6 to 12 months—and that Microsoft is the most likely suitor.

Wilson praised Facebook's 23-year-old founder, Mark Zuckerberg, but said he needs to follow the examples of Bill Gates, Larry Ellison, Sergey Brin and Larry Page, and bring in some experienced help if he wants to successfully take his company public.

Wilson, who was an early investor in TheStreet.com, also panned Rupert Murdoch's recent decision not to make the wsj.com free, calling the mogul's move "a mistake" that resulted from "short-term thinking.

Finally, Wilson hinted that micro-blogging Web site Twitter, the current star of his portfolio, is eyeing a potentially controversial monetization scheme, in which "sponsored messages"—read: ads—could be integrated into Twitter's feed of personal updates.

Portfolio.com: What effect will the housing meltdown and the credit crunch have on the venture capital market?

Wilson: It will have some impact, but I'm not sure how pronounced the impact will be. I think it will certainly impact the I.P.O. market. It might impact the mergers and acquisitions market. People are moving out of equities and into fixed income and "safe" investments. There has been a real "de-risking" of the market, which will certainly affect the I.P.O. market; there is no question about that. That will impact the late stage venture market, because the I.P.O. market drives the late stage venture market. And that will slowly impact the early stage venture market. And so it's going to have an impact. Valuations will come down. There will be less exuberance about venture capital investments. That's going to happen. What will probably take place is a flight to quality. Venture capitalists will want to invest more in the companies that look like they're going to be successful and be a little less willing to take fliers on things that are hard to really handicap. And all that's probably healthy. And that will probably cause some form of a shakeout, but I don't think it will be anywhere near what happened the last time around. As much of an "exuberant" time period as we've seen in the Internet sector in the last year, it isn't anything compared to what we had in 1999 and 2000.