Unlock the Top 20 VC Clubs
I recently spoke with a group of early-stage venture capitalists (VCs) about strategies to improve performance. Corporate VCs such as regional VCs, minority-centered VCs, and women-centered VCs are constraint-driven VCs (CLVCs). They often aim for high profits, but there are constraints to that. It's like fighting a world-class boxer with one hand tied behind your back.
Here's why: A common belief is that there is a VC shortage and that this scarcity allows all VCs to succeed by funding unicorn companies waiting to develop.
This belief is a myth. Most VCs' track records are far from exemplary. A few VCs are doing well because they are open-ended and focused on funding potential unicorns.
Is there a lack of VC?
If a VC's goal is to earn an attractive return, there seems to be no shortage of VCs. As mentioned previously, the top 20 VCs are said to earn about 97% of their VC revenue, with most of their revenue coming from about 15 home runs. And the top 20 are VCs that continue to provide funding. These top 20 companies are based in Silicon Valley or have offices in Silicon Valley.
This suggests that most VCs that are not in the top 20 are likely close to breaking even or incurring losses. If CLVC wants to earn higher returns, his one strategy to finance the few home runs is to eliminate the constraints, but that would destroy his CLVC's reason for existence and lead him to move to Silicon Valley. Become. Or learn how 94% of billion-dollar entrepreneurs who avoided or delayed VC created home runs with less capital and more skill.
Here are three strategies CLVCs can follow to succeed within constraints.
#1. Rethink the role of VCs.
As entrepreneurs like Thor Walton and Steve Jobs demonstrated, most technologies can be imitated and improved, so a unicorn strategy is important, rather than a “first mover” idea. Silicon Valley VCs can rely on their deep entrepreneurial talent to bring venture companies into Strategy Aha. CLVC should train entrepreneurs to achieve strategy Aha without VC. This doesn't happen in pitch competitions because no one can predict the potential of a pitch. CLVCs need to add appropriate training to their repertoire and improve their skills.
#2. Develop a skills-based unicorn entrepreneurial ecosystem (UEE).
No one can predict unicorn entrepreneurs. no one. Steve Jobs was rejected by over 10 VCs, and so was Google. Even Mark Cuban, perhaps the most successful angel shark, admits to being in the water. If CLVC wants to gain an advantage in VC, it needs to develop UEE. This means training everyone to take off with skill, rather than picking winners based on pitch and intuition. 94% of $85 billion entrepreneurs, including Bill Gates, Michael Dell, Michael Bloomberg, Mark Zuckerberg, and Brian Chesky, became successful by acquiring skills. Teach skills. Evaluate your skills. Reward proven skills.
#3. Develop unicorn entrepreneurs and fund potential unicorns before the top 20 companies do.
For CLVC to do better, it needs to break the top 20 with a few home runs, mostly in emerging industries. Top 20 can reduce risk and find a path to a home run, giving them an edge over other VCs by raising large amounts of money after Strategy Aha. Once Mark Zuckerberg launched Facebook and it took off, Silicon Valley venture capital poured in. When Jeff Bezos launched Amazon.com with capital from his family and friends and expected annual sales of more than $100 million, Silicon Valley venture capitalists funded him. To gain an edge over his top 20 VCs, CLVC needs to reduce risk and become the first investor with proven potential. They need to train everyone in emerging industries of interest and fund entrepreneurs who prove unicorn skills to bridge the gap to takeoff.
My take: CLVC can beat the top 20 VCs by changing the rules of the game. They can develop a unicorn entrepreneur ecosystem and train unicorn entrepreneurs to bridge the first mile from idea to “Aha!”
