Blog posts tagged Private equity

Why business owners should go to the casino and save us all a lot of trouble

I have just read an article claiming that 10% of companies that America’s top ten venture capital firms or VCs [ie private equity firms] invest in actually succeed. This correlates exactly with the yardstick that VCs and seed corn capitalists I know use. 10%!

One chance in ten. We know that only 10% of small businesses actually make it to year five, so it could be reasonable to suggest that anything greater than 1:10 (10%) odds would be better than you get from starting a business. Just 10%.

So, is it worth it for a 10% gamble? Well, to put all this in perspective, here are the chances of winning at the casino:

Slot machines          32%

Horse racing            41%

Blackjack                47%

Roulette                 47%

Here are some conclusions (if you are in any way rational).

1.  If you go to a casino then do not go near the slot machines (but 68% of gamblers do.) Another conclusion might be:
2.  If you have money to gamble then do not open a small business (but more than 4m people have done so in the UK).
3.  If you are the government, then do not gamble anything on small businesses but spend the money in the casino (higher odds of success).
4.  As far a small business owners are concerned, maybe it is just not about the money.

Do not gamble at small business unless… Unless what?

• Robert Craven is the author of business best-seller Kick-Start Your Business (foreword by Sir Richard Branson). His latest book – Grow Your Service Firm – is out now.