Build More Business with Less
Due to the relentless hype of venture capital funds and the business press, many entrepreneurs believe that getting venture capital is synonymous with a successful venture and great wealth. And they also believe that you cannot build a giant business without venture capital. Both assumptions are not true.
What is true is that venture capital is very, very difficult to get. In fact, they fund so few ventures each year that the only reason why they are so important is that a few of their ventures become glorious successes. Out of an average of about 600,000 new businesses started each year, venture capitalists fund only about 300 startups and about 3,500 to 4,000 total deals. To get VC, you need to be in a hot industry and have the potential to be a dominant company in the hot industry.
Even if you are able to obtain venture capital, you cannot count your zillions yet. Estimates are that about 20% of all venture funded deals fail, and that another 60% are partial failure to minimal successes. 18% are said to be good successes and 2% are home-runs. Except for the home-runs, your returns are likely to be meager because the VC gets their money and returns first. 2% of the time you are likely to be a zillionaire, unless you have been diluted out of existence.
To add insult to injury, you also get the boot from your own company. VCs like to find “professional” management with good reason. They don’t want to have to train you to be a CEO. But not all managers live up to their own resumes.
So in summary, in 98% of the time, your financial returns are lousy and someone else is screwing up your company – perhaps your one great idea. If that’s what you want, go get venture capital.
If, however, your goal is to make money, read on. I did a study of 28 entrepreneurs who built their companies from scratch to $100 million+. One is at $84 billion in sales (UnitedHealth) and another at $44 billion (Best Buy) and a third is Medtronic. Would it surprise you to know that NOT ONE got VC at the start? One got VC 18 months after startup and an investment of $1.5 million by the entrepreneurs, in addition to getting a conditional customer. Another got it for his second venture after selling the first for a nice profit. A third got it in his sixth year when he was profitable and growing. One got it for her second venture when it had sales of around $10 million and she had just sold her first for millions. One got it in his 12th year when he stumbled due to uncontrolled spending, and he had just invented the heart pacemaker. One got corporate capital, and VCs had financed the corporation. The rest (79%) got nothing from VCs.
It can be done – you can build a $82 billion company without VC.