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B-Schools Bridge Students' Fast-Growth Start-Ups To Venture Capital Industry

Entrepreneurial MBAs raising increasing amounts of start-up cash

As business school start-ups like BlaBlaCar and WorldRemit begin to make their mark, schools are coming up with new ways to bridge their MBAs with the venture capital industry.

A whopping $62 billion has already been raised by MBA-led ventures over the past five years.

At CEIBS in Shanghai, the HGI Finaves China Fund provides up to RMB 300 million ($46 million) for the early financing needs of CEIBS alumni enterprises. And the CEIBS-CHENGWEI Venture Capital Fund invests in early or growth stage businesses, with investments ranging from $500,000 to $15 million.

The rush among business schools to provide seed and venture capital for graduates’ ventures comes as more students seek their fortunes in start-up ventures, and shun blue-chip employers like JPMorgan or Google.

“Overall there is a growing interest in entrepreneurship,” says CEIBS’ Professor Charles Chen.

Globally at Oxford Saïd, San Diego, and Babson College, more than 35% of full-time MBAs are launching companies, although most on the side of corporate gigs.

“It’s infectious,” says Silvia McCallister-Castillo at London Business School. LBS has Sussex Place Ventures, an independently managed venture capital company owned by the school, which backs alumni entrepreneurs building software and digital companies. Examples include Kimble Applications, which provides management solutions software, and which is ranked by Deloitte as the UK’s fifth-fastest-growing tech company.

“We also see many students willing to support other students’ start-ups, often backing them as investors and advisors,” Silvia says.

When Daniel Macklin founded SoFi, the disruptive student loans provider in 2011, he tapped into his alumni network for cash. “There were about 40 or so [investors] in our early round, and every one was a Stanford alumnus,” Daniel says.

Since then, SoFi grown to raise in September this year a $1 billion venture capital round, led by Japan’s SoftBank and Third Point Ventures. The company has 515 employees, 90,000 members and recently hit $6 billion in loans funded.

The Stanford GSB graduate says the school’s San Francisco location — straddling Silicon Valley — is a huge benefit for raising funds. “There are lot of people with deep pockets out here,” Daniel says.

US business schools have been the most successful at pairing students with venture capitalists.

Frederic Kerrest has raised $230 million for cloud computing company Okta, which he co-founded while at MIT Sloan.

Valued at $1.2 billion, Okta is under pressure to scale quickly. “Taking venture funding comes with the understanding that your investors will make a return on their investment within a reasonable timeframe,” says Frederic. “And to do so, you have to grow smartly.”

Start-ups from 10 top business schools have raised combined investment of $28 billion, according to data from PitchBook, a private equity and VC research firm. Nine of them are US based, including Chicago Booth, Columbia and Kellogg business schools.

“Seed money is abundant here, thanks to SEIS and EIS [government investment schemes], and some far sighted government regulation in respect of crowd funding. But the real issue is growth capital,” says Simon Stockley, at the UK’s Cambridge Judge Business School, echoing widespread concerns over access to venture capital in Europe.

The top US schools’ start-ups include GrabTaxi, a rival to Uber from Harvard, which has raised $680 million in venture capital; The Honest Company, from UCLA Anderson, which offers eco-friendly care products and which has secured $222 million in funding; and Wharton's Harry’s Razor Company, which has secured $287 million in financing.

Big US business schools have also been among the most aggressive in providing early-stage funding for students’ ventures.

Michigan Ross in July announced a new $10 million fund to support student ventures, and has channelled $4.4 million into start-ups so far. Carnegie Mellon said it would set aside $8 million for seed funding and other support for students. Berkeley Haas launched the Dean’s Startup Seed Fund, which will provide $5,000 grants to early-stage start-ups.

“The most important reason why I chose Haas is its entrepreneurial environment and resources,” says Leo Popov, who in October launched with MBA classmates TrueCare24, a digital health app that gives users access to urgent care clinicians.

In Europe, Spain’s ESADE Business School last year doubled the amount of funding given to students' ventures through its alumni association, to €4 million.

Thomas Roggendorf raised more than €1 million from FINAVES, the seed capital fund of IESE Business School, and other sources, for Ofertia, a start-up which digitizes catalogues and print listings.

“I learnt a lot [from the MBA] from different case competitions related to entrepreneurship or venture capital investing,” says Thomas, a former Goldman Sachs banker.

Later stage successes in Europe are led by schools such as HEC Paris, whose entrepreneurs have raised $275 million for 42 start-ups over five years, and IE Business School, with 39 founders raising $360 million in venture capital.

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