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Flow Of Venture Capital Into Business Students' Ventures Picks Up

As graduates turn away from corporate careers, schools are pumping investment into their fledgling start-up ventures.

By  Seb Murray

Tue Jul 28 2015

The flow of venture capital into business students’ start-ups is gathering pace.

As graduates turn away from corporate careers to launch their own ventures, academic institutions are pumping investment into their fledgling companies.

Over the past three years, the ESADE Ban network of Spain’s ESADE Business School alumni has invested €15 million in 56 companies. Investors channelled €4 million to 29 start-ups during the 2014-2015 academic year, nearly doubling the amount invested by the group’s 170 members the previous year.

Key investments include in Intercros, a start-up which makes high-quality frozen artisanal pastries, which received €780,000 from ESADE BAN network between 2013 and 2015; and RedPoints, a tool that locates and eliminates illegal digital content for businesses, which raised €300,000.

“Increasingly, there are programs both local and national that provide increasing amounts of [financial] support,” said Shailendra Vyakarnam, director of the Bettany Centre for Entrepreneurship at UK based Cranfield School of Management.

Michigan Ross this month earmarked $10 million to create a fund to invest in student ventures. The US business school has in total awarded $4.4 million in funding to students, including through three student-led venture capital funds.

Ross has this year raised more than $2 million to invest stakes in students’ companies through grants, according to a source.

Successful Ross exits include its investment in Intralase, an optical laser company which raised $86 million when it floated on Nasdaq in 2004. It was in 2007 acquired for $808 million.

Student-led investments have blossomed in the US, with UNC Kenan-Flagler, Wharton and Haas School establishing funds.

Pennsylvania’s Carnegie Mellon University last month received a $31 million donation from James Swartz, founder of venture capital firm Accel Partners, with $8 million allocated for seed funding and other support initiatives.

Start-up activity among Mellon faculty, students and alumni is high, with 140 companies created since 2009. The ready flow of funds into academic spinouts has coincided with the wider rise of start-up companies founded by business students globally.

Diane Morgan at Imperial College Business School said students are increasingly aware of how start-ups have successfully challenged traditional players. “They want to be a part of that,” she said.  

Schools have increased their entrepreneurial offerings. The Cass Entrepreneurship Fund at City University provides up to £10 million in venture capital to students each year; the Saïd Business School Seed Fund invests up to £25,000 in early-stage ventures founded by Oxford students and alumni.

“We make extensive use of entrepreneurs on our courses,” said Jeff Skinner, executive director of London Business School’s Deloitte Institute of Innovation.

LBS recruits around 50 established entrepreneurs to act as mentors to students on its Entrepreneurship Summer School program, he said.

As well as receiving investment from universities’ funds, graduates have received billions in investment from venture capital groups. Between 2009 and 2014, entrepreneurs from ten universities raised more than $25 billion, according to PitchBook research.

Harvard came top with $4.2 million, followed by Stanford whose graduates raised $2.9 billion. MBAs from the business school INSEAD raised $1.2 billion for 92 start-up companies.

US academic institutions dominate the funding tables but there are notable initiatives sprouting in Europe.

Goldman Sachs, the US investment bank, works with the UK’s Aston Business School, Leeds University Business School, Manchester Metropolitan University and UCL to help create opportunities for entrepreneurs to access finance.

Most programs are clustered around the London, Oxford and Cambridge cities. “Seed money is abundant here,” said Simon Stockley, senior teaching faculty in entrepreneurship at Cambridge Judge Business School. But growth capital is an issue, he added.