Venture Capital

How To Make Entrepreneurial Education 16x More Productive

Read more at www.forbes.com

An article in the World Economic Forum site by professors in the U.K. and Australia mentions reasons for universities to support more student entrepreneurs. The article points out that entrepreneurship curricula from 41 universities includes the following:

  • Theory of entrepreneurship
  • New venture creation
  • Venture finance
  • Intellectual property
  • Negotiation skills
  • Design thinking
  • Creativity management, and
  • Lean Startup to “shorten business development cycles.”

The above curricula follows the venture capital method that focuses on the idea, the strategy, and VC. The assumption seems to be that VCs, mentors and other “volunteers” will help take the idea developed by the students to a level where the VCs can fund it and select someone qualified to lead it. The implied assumption seems to be that the idea needs to be exploited and there is no need to train the student. Will the student get any benefits or get to lead the venture given that VCs find professional CEOs on about 30% of their ventures? Perhaps, but by the time the venture goes through multiple rounds of funding and suffers from dilution from the VCs and the various members of the professional management group that grab stock options, the students will be lucky to get a few shekels.

In an analysis of 22 billion-dollar entrepreneurs, who built ventures from startup to more than $1 billion-dollars in sales and valuation, entrepreneurs who were replaced as CEO kept about seven percent of the wealth created, while entrepreneurs who avoided VC kept an average of 52 percent – more than 7x.

Another problem with the above method, and all of the “accelerators, hackspaces, makerspaces, invention rooms, incubators, wet-labs, and digital observatories” offered by the universities (at considerable cost) is that it focuses on the opportunity, i.e., the product or service or app. It does not focus on the skills of the student to build the business based on the opportunity. This is important because in an analysis of 85 billion-dollar entrepreneurs, about one percent took off with the Idea + VC model, i.e. developed the idea and then got angel and venture capital.

5% developed and proved the unicorn strategy. They were then replaced (or fired) by CEOs hired by the VCs. This means that about 6% used the classic VC model.

The remaining 94% used the unicorn-entrepreneurship model where the entrepreneurs built the venture and stayed in control of the venture. This suggests that the unicorn-entrepreneurship model is 16x more productive than the VC model.

The problems with the VC method are the following:

  • VCs only fund about 100/100,000 ventures
  • VCs fail on about 80 of the ventures funded, which means that VCs succeed on about 20/100,000 ventures and only one is a home run
  • VCs fund after Aha, i.e. after the venture’s potential has been proven. Entrepreneurs need skills to bridge the capital-gap and bring an unproven idea to Aha!
  • 94% of billion-dollar entrepreneurs focus on skills, not on the innovation. Some of history’s greatest entrepreneurs succeeded with a product (or service) that they imitated or that could be easily imitated. This includes unicorn-entrepreneurs such as Bill Gates, Steve Jobs, Michael Dell, Michael Bloomberg, Jeff Bezos, and Mark Zuckerberg.

The article points out that in the “unpredictable post-pandemic world, universities need to prepare them (students) for careers they define themselves.” I am seeing the opposite – more students seem to want the shelter of a large corporation. It would be good to see the data supporting the assumption in the article.

The authors are proud of the number of startups. Startups don’t mean successes. Can we get more successes with lower investment by teaching unicorn-entrepreneurship skills used by the billion-dollar entrepreneurs, and not waste money on the endless array of “makerspaces” and the like.

MY TAKE: It is tragic that the entrepreneurial education community has bought into the Idea + VC method hook, line, and sinker. Given that academics are proud that their intellectual contributions are based on “research,” is there research to support their focus on the Idea + VC method? My data shows that 99% of billion-dollar entrepreneurs used business skills to take-off and 94% used the unicorn-entrepreneurship method to avoid VC. Why are we spending millions on a strategy that can be improved by a factor of 16?

For more, please feel free to attend my talk on Developing Globally Competitive Entrepreneurs on January 21, 2021.

FiuRedirecting – go.FIU.edu – Florida International University

World Economic ForumWhy universities should support more student entrepreneurs

Read more at www.forbes.com

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