It’s not just about wealth creation. It’s also about having more of it. And to keep more of it, you have to control it.
Unfortunately, you will not control the wealth or keep more of it if you hand over control of the company to the venture capitalists (VCs).
There are 3 types of entrepreneurship. The first revolves around starting and building a successful small to medium sized business. The other two revolve around the concept of unicorn entrepreneurship, which involves building billion-dollar businesses, creating immense wealth, controlling the wealth you create, and keeping more of it.
Unicorn-Starters represent the first breed of unicorn entrepreneurs who come up with ideas, develop a “minimum viable” product or service, and prove the “business model” with angel capital. However, they often get VC before Leadership Aha, that is, before the entrepreneur has proven leadership skills. Disturbingly, statistics suggest that VCs have replaced the entrepreneur with a professional CEO about 20% to as much as 85% of venture capital financed companies, depending on the number of rounds of venture capital funding. And this list of ousted CEOs includes Steve Jobs and Travis Kalanick. Consequently, the entrepreneurs lose control of the company and their ownership interest is diluted by the VCs and the newly hired executives.
Unicorn-Builders are the second category of unicorn entrepreneurs who embark on the journey of starting a business and building a unicorn. They skillfully navigate the various stages of the enterprise and relentlessly work for its growth and dominance. What sets them apart is their strategic approach to delaying or even avoiding VC involvement. By doing so, these Unicorn entrepreneurs maintain their position as CEOs, allowing them to maintain control over both the business and the wealth they create. They reduce VC dilution by delaying VCs and avoiding professional CEOs. Notable examples of billion dollar entrepreneurs who have successfully adopted this method range from Sam Walton (Walmart) to Brian Chesky (Airbnb)
Why delay or avoid Unicorn-Builders VC?
Contrary to “common wisdom”, VC is not essential for launching unicorns or building unicorns. The relentless hype surrounding the VC industry, including its alleged “unicorns” and alleged successes, has fostered the misconception that wealth creation without VC is nearly impossible. It is critical to challenge this idea and recognize that alternative paths exist for entrepreneurs to achieve wealth and billion-dollar status, beyond the constraints and dependencies of traditional venture capital funding.
Of the $85 billion entrepreneurs, 94% were unicorn builders. These entrepreneurs strategically chose to delay (18%) or completely avoid VC involvement (76%) in order to control the venture and the wealth created. This striking statistic serves as a crucial reminder that relinquishing control to VCs diminishes the chances of becoming a Unicorn-Builder and unlocking the full potential of entrepreneurial success.
Just as crucial is the VC timing. An analysis of 22 unicorn entrepreneurs shows the critical role of VC timing in wealth preservation. Those who deferred VC kept a substantial 16% of the wealth created, while those who secured early VC but were subsequently replaced as CEO only owned 7%. Remarkably, the VC avoiders emerged as the frontrunners, with an impressive 52% of the wealth created. These findings underline the importance of delaying or even avoiding VC in order to retain a greater portion of the wealth created through your venture. How to do it is the central question.
In addition, about 80% of venture capital-funded ventures fail. This points to another major drawback of relinquishing control to VCs.
MY TAKE: To maximize the value of your business, you must create and control wealth. The fact that about 80% of venture capital-funded companies fail suggests that venture capital focuses on growth or failure. If this approach doesn’t align with your goals, consider turning to Leadership Aha before looking into VC, a path followed by 18% of billion dollar entrepreneurs – if your growth strategy is capital intensive. Or avoid VC, as 76% of billion dollar entrepreneurs did, if you want to decide what to do with your venture and keep more of the wealth created. VC has a high cost. Consider reducing it.