Contrary to the popular and highly exaggerated assumption that unicorns would not be possible without VC and that getting VC means unicorn success, the reality is that most unicorn entrepreneurs take off without VC interference because the VC portfolio has so many failures and very few releases. and unicorns.
· the failure: These are glitches from VC. Some never live up to the hope, while others, like WeWork, Theranos, and FTX, don’t live up to the hype. The VCs might have been hoping for a Unicorn or a Fast Flip but ended up with a Fast Flop.
· the turn: These are VC-Successes that are sold on a “fast” flip to corporate buyers. There are some successful leapfrogs such as Instagram which was bought by Facebook for 2x the valuation paid by the VCs a week earlier. The annualized return is mind-boggling. Some flips are great for businesses, like Instagram and Facebook. Many, as evidenced by the high proportion of failed corporate takeovers, are not – an estimated 70-90% of takeovers fail. Some of these failures are likely to be VC inversions.
· the unicorn: VC home runs are when the venture meets expectations and generates much, much wealth.
Ratio of flops, flips and unicorns
To evaluate VCs and VCs, entrepreneurs need to consider the proportion of flips, flops, and unicorns in the VC portfolio (Designing Successful Venture Capital Funds for Area Development: Filling the Hierarchical and Equity Gaps Dileep Rao, Applied Research in Economic Development, 2006. Volume 3. Number 2). It’s rare for VC funds to have unicorns in their portfolio, and when they do, it’s mostly in Silicon Valley. VCs outside of Silicon Valley have mostly flops and flips in their portfolio:
· Many VCs do not have unicorns in their portfolio. According to Marc Andreessen, around 15 investments account for approximately 97% of VC returns. Home runs and top VCs are mostly in Silicon Valley
· A normal early-stage VC portfolio has about 80% misses (mostly flops), about 19% are considered hits (mostly flips) and about 1% are home runs (mostly unicorns). However, while all VC funds have flaws, unicorns are not evenly distributed. That’s why Andy Rachleff, a successful VC, estimates that the top 20 VC funds (about 3%) generate ~95% of industry returns.
· Analysis of a VC portfolio shows that without home runs, VC portfolios have low or negative annual returns (Designing successful venture capital funds for area development: Bridging the Hierarchy & Equity Gap, Applied Research in Economic Development, 2006, Volume 3, No. two). This means that most VC funds fail, including many formed with good intentions to help those who would otherwise not get VC.
The key question for you is whether your venture will:
· VC-Unicorn with long-term potential and a very profitable exit – around 1% of VC-ventures.
· VC-Flip, which is usually sold to a large corporation or an industry leader for a profitable VC outlet.
· VC-Flop, meaning VCs will quickly lose interest, try to get what they can and move on.
Here are 5 strategies to increase the chances of becoming a unicorn:
· Find the right high potential emerging trend. If you are at the start of a high-potential trend, have stayed on top of your venture, and are following unicorn strategies to find the foothold of the emerging trend, you have a chance in the brass ring. If you entered after the trend took off and the leaders built a strong position, you can still dominate a niche market and reverse the venture.
· Takeoff without VC interference. This allows you to stay in control of the venture and decide whether your chances of success are better with VC as rocket fuel. If you don’t have control of the venture and you have to pivot to find your growth strategy, you might fail because the VCs might not stick around. That’s why 94% of billionaire entrepreneurs delayed VC or avoided it to maintain control (The truth about VC).
· Focus on business strategy, not product innovation. Entrepreneurs like Sam Walton, Bill Gates, Brian Chesky, Jeff Bezos and others have not succeeded in creating a “better” product. They created a better business strategy for the emerging trend. In fact, about 9 out of 10 early adopters fail to make smart changes.
· pray for a good time. Beware the phase of the stock market cycle. If you’re in the middle of a sensational market, when pigs can fly, you can sell a mediocre company as a high-flying company and have an arcade or a unicorn in your hand. If you are in a bear market, stay tuned below.
· prove your potential. Can you prove that you can dominate the main segment of an emerging trend? VCs want proof of potential – not promises in pitches. Get the skills to prove potential. Wait until you prove your leadership potential for your venture and stay in control of your venture and the wealth you create.
MY OPINION: If you need VC to grow and want to avoid becoming a failure, wait until you take off and prove you have the potential and ability to master. So your chances of building a flip or a unicorn are higher. But even after Aha, make sure you get VC from a fund that has a track record of building unicorns. Very few funds build unicorns. Finally, stay in control if you want to improve your chances of creating wealth and keeping more. Get unicorn skills like Michael Dell.