Venture Capital: Is it a prerequisite for ENTREPRENEURSHIP?



My twin asked me to write about venture capital, I prefer to phrase it as: why one doesn’t need venture capital (VC) to be an entrepreneur.

It is difficult to pick up a major business publication today without reading about venture capitalists, about their skills in finding great investment opportunities, and about the ventures they fund. A list of Ugandan billionaires is circulating in the media that they need state bail out. My concern however is how they rudely privatise profits but are quick to nationalise their “losses” which I even doubt.  Since we all like to talk about our successes, most stories are about how entrepreneurs secured VC and soared to wealth in a very short time via an IPO or a strategic sale. This can lead us to think that this is the only model for success, that there is no other way to build a major company, and that they should write business plans, sell property, beg for presidential hand-outs, seek loans thus giving other entities control of their venture.

Due to the high risk in emerging ventures, funders are very picky. And in mixed, state controlled economies there are always more dreamers than successful ones. So it might not surprise you to know that VCs finance only about one or two ventures out of 100 business plans they see. They reject the other 98-99 percent either because they are not in the preferred industry, have not displayed the potential or the proof of potential, have not been referred by a “God father “, or any one of many reasons.

The reality is that most ventures do not qualify for venture capital and never will. According to available statistics, so many businesses are started in Uganda each year and the number of start-ups funded by VCs are almost non existent. The probability of an average new business getting VC is about 0.0005 (300/600,000), and it also means that 99.95 percent of entrepreneurs will not get VC at start-up.

This means about 97 percent goes to ventures on a post-start-up basis, and the number of ventures funded increases with time. In addition, by building your venture to a level where your potential is evident, you are more likely to attract many VC funds to show an interest in you. This allows you to pick the right portfolio for your business, negotiate better finance terms and have greater leverage on your business.

But what are your odds of getting VC at a later stage? The average age of a venture at VC funding was about four years. So the probability that you will get VC funding at a later date is about 0.0.00068 (3,250/4,800,000), which means that 99.93 percent of us will never get VC.

So if nearly all Ugandan entrepreneurs save for the “genetically blessed ones”, and an even larger proportion of entrepreneurs around the world will never qualify for VC, you may want to know why you read about VCs continuously in the business press, especially if the journalists believe in writing for the audience. Firstly, the home runs that VCs fund, like Microsoft, Google and Apple, do change the world. Secondly, VCs believe in public relations.

Therefore you should spend millions to get positive public image. By investing in public relations, they manage to make themselves and their investments more glamorous so they can command high valuations for them when they sell their ventures to a strategic buyer or to the investing public via an IPO. But please remember that just because you read about venture capital, venture capitalists, or their successes, does not mean that you will get venture capital.

MY TAKE: Hardly any Ugandan will ever get VC. Actually, most of us may never get an appointment to reach credible financiers. So, if you want to build a major business, learn to build it without VC. That’s what most of the entrepreneurs did.

To the Ugandan tycoons, I believe it’s one way of showing off, arrogance and taking advantage of the ignorance of people. Mind you, very few of the listed companies make it on the top 10 tax payers list. One wonders in whose pockets they have been paying their taxes to the extent of accruing so much debt. I am not talking about the lifestyle they lead for now, I leave it to my humble readers.

The author is a writer, researcher, news reporter and businessman.

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