Should You Control — Or Be Controlled?
It is not just about creating wealth. It’s also about keeping more of it. And to keep more of it, you need to control it.
Unfortunately, you won’t control the wealth or keep more of it if you relinquish control of the venture to the venture capitalists (VCs).
There are 3 kinds of entrepreneurship. The first centers around the starting and building of a successful small to mid-sized business. The other two revolve around the concept of unicorn-entrepreneurship, which involves building billion-dollar ventures, creating immense wealth, controlling the wealth you create, and keeping more of it.
Unicorn-Starters represent the initial breed of unicorn-entrepreneurs who conceive ideas, develop a “minimum viable” product or service and prove the “business model” with angel capital. However, they often get VC before Leadership Aha, i.e., before the entrepreneur has proven leadership skills. Alarmingly, statistics suggest that VCs have replaced the entrepreneur with a professional CEO in about 20% to as many as 85% of VC-funded ventures depending on the number of rounds of VC funding. And this list of ousted CEOs includes Steve Jobs and Travis Kalanick. Consequently, the entrepreneurs lose control of the venture, and their ownership stake becomes diluted by the VCs and the newly hired executives.
Unicorn-Builders comprise the second category of unicorn-entrepreneurs who embark on the journey of starting a venture and building a unicorn. They skillfully navigate through the various stages of the venture, relentlessly working towards its growth and dominance. What differentiates them is their strategic approach of delaying or even avoiding VC involvement. By doing so, these Unicorn-Entrepreneurs retain their position as CEOs, enabling them to maintain control over both the venture and the wealth they create. They reduce dilution to the VCs by delaying VC and by avoiding professional CEOs. Notable examples of billion-dollar entrepreneurs who have successfully employed this method range from the likes of Sam Walton (Walmart) to Brian Chesky (Airbnb)
Why do Unicorn-Builders delay or avoid VC?
Contrary to the “common wisdom,” VC is not essential for launching unicorns or building unicorns. The relentless hype surrounding the VC industry, including its supposed “unicorns,” and perceived successes, has fostered a misconception that wealth creation without VC is near impossible. It is crucial to challenge this notion and recognize that alternative paths exist for entrepreneurs to achieve wealth and billion-dollar status, unshackled from the constraints and dependencies of traditional VC funding.
Among 85 Billion-Dollar Entrepreneurs, 94% were Unicorn-Builders. These entrepreneurs strategically opted to delay (18%) or completely avoid VC (76%) involvement in order to keep control of the venture and of the wealth created. This striking statistic serves as a crucial reminder that relinquishing control to VCs reduces your likelihood of becoming a Unicorn-Builder and of seizing the full potential of entrepreneurial success.
Just as crucial is VC timing. An analysis of 22 unicorn-entrepreneurs shows the crucial role of VC timing in wealth retention. Those who delayed VC retained a substantial 16% of the wealth created while those who secured early VC but were subsequently replaced as CEO held a mere 7%. Remarkably the VC avoiders emerged as frontrunners, retaining an impressive 52% of the wealth created. These findings underscore the paramount importance of delaying or even avoiding VC to keep a larger share of the wealth created from your venture. How to do it is the pivotal question.
In addition, about 80% of VC-funded ventures fail. This highlights another significant downside to relinquishing control to VCs.
MY TAKE: To maximize the value derived from your venture, you need to create wealth and control it. The fact that about 80% of VC-funded ventures fail suggests that VCs focus on growth or bust. If this approach does not align with your goals, consider getting to Leadership Aha before seeking VC, a path followed by 18% of billion-dollar entrepreneurs – if your growth strategy is capital-intensive. Or avoid VC, as was done by 76% of billion-dollar entrepreneurs, if you want to decide what you want to do with your venture and keep more of the wealth created. VC has a high cost. Consider reducing it.