The recent U.S. court rulings against VC funds focusing their financing on minority entrepreneurs might seem like a setback. However, this change could actually empower minority entrepreneurs to follow the Unicorn-Entrepreneur path that has led many to success without VC or with delayed VC. Historically, about 94% of America’s billion-dollar entrepreneurs built took off without venture capital, retaining control of the venture and the wealth they created.
Without debating the wisdom or stupidity of the court decision, it may be useful to explore why this is not as great a barrier as it seems. Historically, entrepreneurs from Sam Walton (Walmart), Dick Schulze (Best Buy), and Michael Dell (Dell) built billion-dollar companies without VC – and they kept control of the venture and the wealth created. More recently:
· Gaston Taratuta did not wait for VC to build his unicorn. He got the skills to start his venture with $2,000 and launched the company that became Aleph, a unicorn.
· Joe Martin did not wait for VC. He immigrated from Israel and started his venture with $375. He built the unicorn Boxycharm.com.
· Sara Blakely did not want for VC. She started Spanx with $5,000 from her savings and built it to a unicorn.
These examples, along with 94% of billion-dollar entrepreneurs, are important because they show that success without VC is not only possible but quite common. The recent court rulings would not have affected them and may actually benefit minority entrepreneurs by encouraging them to focus on the Unicorn-Entrepreneur ecosystem that helped most entrepreneurs take off without VC – rather than the hyped VC-Ecosystem that helps very few entrepreneurs in very few areas and then dilutes them heavily.
The 2 Unicorn Ecosystems
The reality is that there are two Unicorn-Ecosystems. One helps about 20 out of 100,000 entrepreneurs. The other helps all entrepreneurs.
The VC-Based Ecosystem: Raising Money
This VC-Based Ecosystem, which is hyped by the press and VCs, focuses on innovation, the pitch competition (“shark tank”), and angel capital and VC. This ecosystem has impediments:
· Limited Access: Most minority entrepreneurs are not likely to get VC – even if targeted VC were legal. The entire VC industry is said to only invest about 100 out of 100,000 ventures.
· Pitch Limitations: VCs cannot see potential by listening to a pitch. This is why about 10 VCs, including Tom Perkins of Kleiner Perkins, rejected Steve Jobs, one of the greatest entrepreneurs of all time. VCs wait for Aha, i.e., evidence of potential. All entrepreneurs need to know how to get to Aha.
· High Failure Rate: VCs fail on about 80% of their investments. And due to the relative inexperience of minority-focused VCs, more of their ventures are likely to fail with VC.
· Few VCs succeed: According to Marc Andreessen, only about 15 unicorns a year provide most VC profits, and about 20 VCs are said to earn 95% of VC profits. History has shown that minority-focused VCs are unlikely to be in this august group. Read about Minority Enterprise SBICs.
· Dilution: Most entrepreneurs are heavily diluted by VCs. In a study of 22 billion-dollar entrepreneurs, those who got VC early kept 7% of the wealth created while VC avoiders kept ~52% (The Truth about VC at www.dileeprao.com).
The Unicorn-Entrepreneur Ecosystem.
Minority entrepreneurs have a better chance of building their unicorn by following the Unicorn-Entrepreneur Ecosystem. They can maintain control of their venture and grow by emulating the 94% of billion-dollar entrepreneurs who took off without VC and got to Aha with skills and smart strategies. To takeoff without VC minority entrepreneurs need to:
· Find Growth Opportunities: Use skills to identify opportunities.
· Develop Dominant Strategies: Craft strategies that drive growth.
· Use Smart Financing: Utilize financing methods to fuel growth and maintain control.
· Take Off without VC: Demonstrate potential through proven results, not pitches.
· Get Unicorn Skills: Nearly all billion-dollar entrepreneurs went way beyond the Idea-Pitch-Angels-VC Ecosystem. They focused on the Skills-Strategy-Growth-Control Unicorn-Entrepreneur Ecosystem. You should too.
In addition to Taratuta, Martin and Blakeley, successful examples include:
· Jan Koum: Grew WhatsApp to millions of users with angel capital of $250,000.
· Mark Zuckerberg: Launched Facebook with capital from family and friends, and
· Jeff Bezos: Attracted one of the world’s leading VCs after proving Amazon’s potential.
MY TAKE: The courts may have benefitted all entrepreneurs by exposing the reality about VC and encouraging entrepreneurs to get the skills and strategies that worked for billion-dollar entrepreneurs.
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