It is difficult to pick up a major business publication today without reading about how venture capital and venture capitalists develop unicorn ventures, privately held start-ups valued at over $1 billion. This publicity prompts entrepreneurs to ask how to get VC, rather than if they should even seek it, or when.

The reality is that very few get VC

Venture capitalists invest in few early stage ventures because of the lack of proven potential. To calculate how few get VC, consider the following:

  • The number of first-time VC financing in the U.S. in 2017 was 2000
  • Since the median age of a venture getting seed capital is about three years, it seems reasonable to assume that these 2,000 ventures were started in the previous six years.
  • Since the number of new ventures in the last six years was about 3,700,000, this means that approximately 0.05 per cent of all ventures get VC.

Implication: Approximately 99.95 per cent of entrepreneurs do not get VC. Entrepreneurs need to learn to grow without it.

Most ventures that get VC end up failing

Industry estimates are that about 80 per cent of VC-funded ventures, which amount to 0.04 per cent of all ventures, fail. These ventures range from outright failures to ventures where VCs earn a minimal return. In these ventures, the founders may earn salaries, but not much more.

Implication: VC benefits 0.01 per cent of all ventures. 99.99 per cent do not gain from this type of capital and should avoid it.

Billion-dollar entrepreneurs delay VC in Silicon Valley and avoid VC outside it

Billion-dollar entrepreneurs are entrepreneurs who co-founded a venture and led it to more than $1 billion in sales and valuation. 85 of these entrepreneurs from the VC era can be categorised as:

  • VC-traditionalists, who got venture capital early and were replaced by a CEO. Six per cent of the billion-dollar entrepreneurs were VC-traditionalists, including Pierre Omidyar of eBay.
  • VC-delayers, who stayed on as CEO by taking off without venture capital until their growth and potential were At this point, VCs financed them without seeking a new CEO. Gates and Zuckerberg were among 18 per cent of America’s billion-dollar entrepreneurs who were VC-delayers.
  • VC-avoiders, who grew without venture capital. 76 per cent of America’s billion-dollar entrepreneurs were VC-avoiders, including Michael Bloomberg, Michael Dell, Steve Ells (Chipotle), and Richard Schulze (Best Buy).

Implication: 94 per cent of America’s billion-dollar entrepreneurs took off without venture capital. By delaying or avoiding this type of investment, they kept control of their venture. In Silicon Valley, nearly 90 per cent of billion-dollar entrepreneurs used VC, but most of them delayed getting it and kept control. Mark Zuckerberg was a VC-delayer. By delaying it, Zuckerberg kept control of Facebook.

Outside Silicon Valley, 91 per cent of billion-dollar entrepreneurs grew without venture capital. Richard Burke built UnitedHealthcare in Minnesota into the world’s largest private healthcare management company without VC.

Delaying VC until take-off increases credibility because even VCs are guessing

Venture capital is a guessing game. Marc Andreessen, a Silicon Valley VC star, guessed incorrectly about Instagram. Although his firm did well in Instagram by investing in the first round of VC funding, Andreessen bet incorrectly and invested in a competitor’s succeeding rounds, not in Instagram’s.

According to Randy Komisar of VC firm Kleiner Perkins, “the relative distribution of success appears largely random.” VC seems to be a guessing game about where to plant seeds. Silicon Valley VCs, however, are guessing in a fertile field.

Only one percent of VC-funded ventures are home runs where everyone succeeds

A VC-funded home run is where everyone makes a fortune. Marc Andreessen notes that only about 15 ventures are worth investing in each year, i.e. are home runs. This means that only about one per cent of the approximately 2,000 ventures funded by VCs each year are home runs. The probability that a venture will be a home run from among all new ventures is about 0.000025 (15/600,000) or 0.0025 per cent.

VCs with home runs do well. The others do not. Andy Rachleff of Benchmark Ventures, which funded eBay, notes that about 20 VC funds (about 3 percent) earn most of VC profits.

In the approximately 19 per cent of VC-funded ventures that are successes, venture capitalists get their investment back first, along with a dividend. Entrepreneurs may not make much.

Implication: 99.9975 per cent of entrepreneurs will not get VC or are unlikely to make a fortune with it. Home runs are rare. Benchmark Partners invested $7 million and harvested about $2.4 billion from eBay in 18 months. There are few eBays.

Billion-dollar entrepreneurs who avoid or delay VC keep more of the wealth created

Billion-dollar entrepreneurs kept more of the wealth created by delaying or avoiding VC. Among 22 billion-dollar entrepreneurs, VC-traditional entrepreneurs got venture capital early and kept about seven per cent of the wealth created. VC-delayers like Zuckerberg kept an average of 16 per cent and VC-avoiders, like Bloomberg, kept an average of 52 per cent of the wealth created.

Implication: Avoid VC or delay it to keep more of the wealth created.


By taking off without venture capital, billion-dollar entrepreneurs prove the venture’s potential, establish credibility, decrease risk, increase valuation, reduce dilution, and attract financing. Some get VC after take-off and keep control, like Zuckerberg. Some use alliances, like Ells and Bloomberg. Some have an initial public offering, like Kevin Plank. Some grow with internal cash flow, like Dell and Bob Kierlin (Fastenal).

The reality is that 99.99 per cent of entrepreneurs should learn to grow without venture capital since they will neither get it nor benefit from it. The other 0.01 per cent can control the venture and keep more of the wealth created by learning how to take off without VC. To do so, all entrepreneurs should take off with skills and smart strategies.

Paradoxically, if more entrepreneurs did this, it might create more viable deals for venture capitalists by creating more high-potential ventures. This is what is happening in Utah.

And if more governments encouraged skills before capital, it would create more high-potential ventures with less waste.



Dileep Rao is clinical professor at Florida International University’s department of international business and has taught high-performance entrepreneurship, innovation, and venture financing in universities including Harvard, Stanford, University of Minnesota and INCAE (Costa Rica). He has managed five turnaround companies (four succeeded), and financed over 450 businesses and projects using equity, senior debt, subordinated debt, and leases. Professor Rao has consulted with Fortune 500 corporations, governments and development financiers. He has two engineering degrees and a Ph.D. in business administration from the University of Minnesotta.