The Missing Catalyst In Senator Klobuchar’s VC Fund

Sen. Amy Klobuchar is promoting the New Business Preservation Act to start a $2 billion fund to bring Silicon Valley VC to Main Street. (

). The key to the fund is that it will be matched by early-stage venture capital (VC) from the private sector.

To make this fund successful, and not a giant boondoggle, I think it should reverse the VC process.

It should follow the example of America’s billion-dollar entrepreneurs and hundred-million-dollar entrepreneurs who actually built growth ventures and used skills and smart strategies to take-off without VC.

It should fund proven entrepreneurs. It should promote skills first and then fund the entrepreneurs who demonstrate great skills.

It should eliminate the VC process where “smart” investors pick “shark” opportunities and fail 80% of the time. Let’s not waste government money on second-tier opportunities picked by people who fail 80% of the time.

Here’s why.

The reality of America’s most successful billion-dollar-entrepreneurs is that 99% took off without VC and 76% never got VC (see The Truth About VC at www.dileeprao.com):

·        Only 1% got VC after developing a unicorn-opportunity

·        23% got VC after taking off. They took off without VC. They used skills along with limited capital from friends and family and angels and alternate financing sources, i.e. limited capital (LC). 

·        76% never used VC, which means they grew with maximum skills.

The reality of America’s VCs is that VC is only offered to 100/100,000 ventures and yet fail on 80. Let’s repeat this fact. VCs think they are funding the best ventures with the best opportunities, and yet fail on 80%. What will the loss record be if they fund those who are not the best opportunities?

Secondly, VCs fund after there is proof of potential, i.e. Aha. And yet they fail on 80%. How much money will they lose if they fund before there is proof of potential, which seems to be the goal of this program?

VC is not available easily outside Silicon Valley because VC has mainly failed outside Silicon Valley. Klobuchar’s own state of Minnesota was in the top 5 in VC in the 1970s. But it failed and the VCs moved west to Silicon Valley. VCs don’t create opportunities. Entrepreneurs do and they do it with skills. Look at the billion-dollar entrepreneurs from Minnesota – Glen Taylor of Taylor Corporation, Richard Schulze of Best Buy, Robert Kierlin of Fastenal, and Richard Burke of UnitedHealthcare. None of them used VC and yet they built companies that are the biggest employers in the state. Most entrepreneurs who have built billion-dollar companies have taken off without VC. They used skills.

More VC is not the magic bullet. Look at the history of the Minority Enterprise SBIC program. It was started with great intentions to help minority entrepreneurs. It was shut down because only 4 MESBICs did well. Out of more than 160. Please study history. Otherwise you will repeat it. Capital without skills will fail. Skills without capital will find a way. Minnesota proves it.

MY TAKE: Sen. Klobuchar, you are my senator. Much as I admire you, I think this is a misguided program. More VC is not the solution. It has failed in the past. More skills first, then VC to the ones who prove skills is the solution – if they need it. Venture skills are better than venture capital if you want more venture growth outside Silicon Valley. Instead of asking VCs, who have a self-interest in this case, ask America’s best entrepreneurs. Better yet, see how they grew. That is as unbiased a data set as you can find.

Capital without skills is likely to lead to failure (except for the rare fluke). Skills without capital is unicorn-entrepreneurship – they have the skills to succeed. Some will need capital after they take off, many will not. But there will be less wasted money capital and more useful human capital. Rather than offering more capital to entrepreneurs without skills, let’s offer skills to entrepreneurs and let them find their own capital. They will if they are motivated and have learned their lessons well.

Inc.com