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$4bn Of Venture Capital Flows Into Business Schools' Start-Ups

Business schools' efforts to bolster their start-up ecosystems are bearing fruit, with the top-20's MBA ventures securing billions in funding from venture capital firms.

Wed Mar 4 2015

Business schools have been nurturing start-up ecosystems and ventures launched by MBA students have secured vast amounts of funding, according to new data.

Start-ups founded by MBAs from the top-20 business schools have raised $4.4 billion in combined investment in the past five years from angel networks and venture capital funds.

The data, compiled in a ranking by education site Poets&Quants, echo similar findings by research firm PitchBook, which found that ventures from the world’s top-10 universities raised more than $25 billion between 2009 and 2014.

Start-ups produced by big brand schools have raised the largest amounts of funding. These business schools typically have more resources at their disposal and have larger alumni networks which their students can tap into.

Stanford GSB’s MBA graduates have raised the largest funding rounds, securing about $1.7 billion in funding for 25 companies, according to Poets&Quants.

The Silicon Valley connected school also produced the three businesses that raised the largest total amounts of capital.

This includes SoFi, the peer-to-peer lender that was founded by Mike Cagney, an MBA and former derivatives trader, which has raised $766 million in funding, according to investment data site CrunchBase.

Stanford’s top venture is Skybox, which provides high-resolution satellite imagery in real time and which was bought by Google for $500 million in June last year.

Co-founded in 2009 by John Fenwick, a Stanford MBA who graduated the same year, Skybox has raised $91 million from investors including VC firms Khosla Ventures and Bessemer Venture Partners.

Julian Mann, Skybox’s co-founder and a Stanford engineering graduate, said in a statement that when he launched the company he knew that he had an opportunity to change the world.

“As part of Google, we are inspired by the opportunity to up our game and make a difference at a much larger scale,” he added.

Harvard has produced the largest number of start-ups, 34, which raised combined investment of more than $1.1 billion.

Harvard start-ups include Kolltan Pharmaceuticals, an early-stage biotechnology company led by alumnus Michael Schmertzler, which recently pulled a planned $86 million IPO.

Dafiti, an e-commerce group that was also produced by Harvard, has raised about $249 million in venture funding since its launch in 2010.

MIT’s Sloan School of Management has produced the third-largest number of start-ups, with the 13 companies going on to raise $491 million in funding, up from $189 million at last year’s count.

MIT ventures include Okta, an identity and mobility management service provider that was co-founded by MBA graduate Frederic Kerrest.

In its first year of business the start-up raised $10 million from investors including Andreesen Horowitz, the renowned VC fund that was an early backer of Facebook.

Since its foundation in 2011, Okta has raised a total of $155 million in venture capital.

“With the cloud and mobility, just about every industry is being re-invented by software,” said Todd McKinnon, chief executive of Okta, who studied business at Brigham Young University.

He added that Okta plays a critical role in accelerating this shift by removing barriers to innovation for developers.

Wharton has produced six start-ups that have raised $614 million in funding, including CommonBond, the student loan group, which has received $254 in investment since launching in 2011.

Michigan’s Ross School of Business, Chicago’s Booth School of Business and Columbia Business School have all produced three start-ups in the ranking, with Ross’ companies raising about $120 million in funding.

The top eight companies in the ranking have all raised at least $100 million in total funding.

More than half of the top-100 start-ups founded by MBAs have raised more than $15 million each, suggesting that business school is now a more viable route for entrepreneurs.

But the findings reinforce the view that Europe’s start-ups have access to less capital than in the US, which has a more developed start-up ecosystem and more highly-ranked business schools.  

IMD, which is based in Switzerland, is one of only three European business schools included in the list. It's one ranked venture, Nexmo, has raised $22.8 million in funding.

The start-up, which provides cloud communications services, was founded by MBA alumnus Tony Jamous, who is also its chief executive.

He said that traditional communications platforms have high set-up costs and lengthy contracts with carriers, but the cloud offers easier integration provided by APIs.

Nexmo generated 85% more revenue last year than in 2013, and Tony predicts further fast growth this year. “We forecast broad adoption of cloud offerings,” he said.

Elsewhere, WHU Otto Beisheim in Germany has produced SumUp, a mobile payments business that has raised $33 million in venture capital.

INSEAD, which has a campus in France, is the third European school included in the Poets&Quants top-20 list, with $28 million in funding raised, but this total is far from comprehensive.  

A single INSEAD venture, money transfer start-up Transferwise, tops the total amount listed in the ranking with a recent funding round of $58 million that valued it at close to $1 billion.

PitchBook data show that $1.2 billion has been raised by INSEAD alumni over a four-year period for 92 start-up companies.  

Also absent from the ranking is Spain’s IESE Business School, whose alumni have raised $116 million in venture capital funding for 26 start-up companies, according to PitchBook research.