5 Unexpected Perks of Phasing Out Targeted VC for Minority Entrepreneurs

The recent U.S. court rulings against venture capital (VC) funds that focus their financing on minority entrepreneurs might initially seem like a setback. However, this change could potentially empower minority entrepreneurs to follow an alternative, and historically successful, path to building billion-dollar companies without relying on VC. Contrary to the prevailing hype around venture capital, history tells us that some of America’s most successful entrepreneurs, such as Sam Walton, Dick Schulze, and Michael Dell, built their ventures without any VC funding. Their stories, along with data suggesting that 94% of America’s billion-dollar entrepreneurs didn’t use VC, underline a significant point: success without VC is not just possible but quite common.

The court rulings, therefore, may actually benefit minority entrepreneurs by encouraging them to focus on the Unicorn-Entrepreneur ecosystem. This ecosystem emphasizes building sustainable businesses through smart strategies and skills, rather than the hyped, high-risk, and often dilutive VC ecosystem. The latter tends to concentrate its benefits on a small number of entrepreneurs and regions, thereby limiting its overall effectiveness. For minority entrepreneurs, who already face significant barriers to accessing VC even when it is available, this shift could be a blessing in disguise.

Consider the example of Steve Jobs who, despite being one of the greatest entrepreneurs of all time, was initially rejected by about ten VCs, including Tom Perkins of Kleiner Perkins. This underlines the limited access to venture capital that even highly promising entrepreneurs encounter. Indeed, if someone like Jobs had difficulty securing VC, how much harder is it for minority entrepreneurs? Moreover, minority-focused VCs, due to their relative inexperience, are more likely to back ventures that may eventually fail, exacerbating the already precarious situation for minority entrepreneurs.

The data also reveals a stark contrast in outcomes between those who take VC early and those who avoid it. In a study of 22 billion-dollar entrepreneurs, those who received early VC funding retained only about 7% of the wealth created, whereas those who avoided VC kept around 52%. The dilution effect of VC can be severe, stripping entrepreneurs of control and a significant portion of the wealth they generate. This is a crucial consideration for minority entrepreneurs who aim to maintain control over their ventures and maximize their potential gains.

Finally, it’s worth noting that almost all billion-dollar entrepreneurs acquired skills and developed strategies that went far beyond the traditional Idea-Pitch-Angels-VC ecosystem. These skills and strategies were instrumental in their success and can be equally beneficial for minority entrepreneurs. By focusing on acquiring these unicorn skills, minority entrepreneurs can emulate the 94% of billion-dollar entrepreneurs who succeeded without VC, thereby maintaining control and reaping the full rewards of their efforts.

In light of these recent court rulings, entrepreneurs—especially those from minority backgrounds—might actually be better positioned to achieve greater success. By following the Unicorn-Entrepreneur path, they can avoid the pitfalls of venture capital, develop essential skills, and join the ranks of the many successful entrepreneurs who have built billion-dollar companies without diluting their ownership and control. This shift in focus could ultimately serve as a significant boon, encouraging a more diverse and robust entrepreneurial landscape.