MBA Grads Are Quitting Their Jobs To Found The Next Uber Or Airbnb

MBAs are ditching cushy corporate jobs in favour of risky entrepreneurial ventures

When Frederic Kerrest quit his job at Salesforce, the cloud computing juggernaut, to begin an MBA at MIT Sloan, he planned to work in venture capital. But, like a growing number of business school students, start-up life proved too tempting to pass up.

“I’ve always had the entrepreneurial bug,” Frederic says. So, after working at Hummer Winblad Venture Partners, the venture capital firm, he founded Okta. In the seven years since, the cloud computing start-up has grown to challenge Amazon Web Services and Microsoft Azure. Frederic has raised $230 million for the company, securing a valuation of $1.2 billion.

He’s part of a growing trend in which MBAs ditch cushy corporate jobs in favour of risky entrepreneurial ventures. Less than 10% of MBA students found their ventures fresh out of school. But three years after graduation, around 24% have launched start-ups, according to new data published by the Financial Times.

In the heart of Silicon Valley, at Stanford’s Graduate School of Business, just 13% of MBAs founded ventures while still in school. Yet three years after donning their graduation caps in 2012, 34% of MBAs had launched companies. And at Babson College, the start-up rate surged from 17% at graduation to 46% three years later.

“When I was an MBA, I went and had a corporate career. But now, being an entrepreneur is something students are interested in,” says Stanford GSB’s director of careers, Maeve Richard.

Business schools say MBAs are attracted by the prospect of founding the next Uber or Airbnb. There are 169 so-called “unicorn” companies — those valued at or above $1 billion — according to CB Insights.

“There has definitely been an appeal to join, create or finance the next unicorn. Perhaps it has been the wave of VC funding and tech IPOs in previous years, or popularity of HBO’s Silicon Valley, that has lured students away from more traditional paths,” says Emily Taylor, director of MBA career education at UCLA Anderson School of Management.

It is not just the elite US schools which are seeing the trend. At Barcelona’s IESE Business School, for instance, the percentage of MBAs launching start-ups three years after getting their degrees is 26%, up from just 2% at graduation. At INSEAD, which has a campus in Singapore, the figure rose from 5% to 20%.

When Ismail Ahmed began studying for an executive MBA at London Business School, he worked for Industrial Alliance, the Canadian insurance company. But in 2009, he developed the business plan for WorldRemit on the side.

Today, the money transfers business is valued at about $500 million and posted $39 million in revenues in 2015. Ismail says: “In many ways, WorldRemit owes to the connections I was able to make at LBS, and has benefited hugely from the supportive network of the school.”

MBAs praise the help they get from their school and alumni network in setting up a venture, securing funding, and hiring key staff.

Yet few of them are truly taking the plunge. Only MBAs from three of 25 business schools surveyed by the FT derive most of their income from their start-ups. At USC’s Marshall School of Business, just 18% do.

They may be hedging against potential flops. While most of the start-ups are still in business, many graduate ventures are failing. At Chicago’s Booth School of Business, 43% of MBAs’ companies shut within a year or longer, according to the FT. At Dartmouth’s Tuck School, 42% ceased to exist.

“No company or industry is immune from disappearing or going out of business in a short period of time,” says Vincent Ponzo, director of the Eugene Lang Entrepreneurship Center at Columbia Business School.

Yet Stewart Thornhill, executive director of the Zell Lurie Institute for Entrepreneurial Studies at Michigan’s Ross School of Business, believes that working for at least three years can give MBAs the time to accrue the experience and wealth needed to run a stress-laden start-up — and the exposure to new opportunities.

“The challenge of launching right after an MBA program is that the debt burden is often significant,” he says. Two-year MBA degrees at top schools can cost up to $200,000.

The venture capital industry has provided the start-up cash needed by indebted MBAs. The vast majority of graduates’ companies raised at least a third of their equity from private investors, instead of from family or friends, according to the FT. At UC Berkeley’s Haas School, 82% of ventures secured at least one-third of funds from private backers.

The abundance of venture capital being thrown at start-ups is what is tempting some MBAs to launch, says Todd Carson, senior associate director of career management at the Wharton School. Last year saw $148 billion invested globally — the highest venture capital activity in nearly two decades, according to consultants at EY.  

“The barriers to entry from an economic standpoint are low,” adds Stanford GSB’s Maeve.

At the same time, business schools are significantly upping their entrepreneurial offering. Harvard Business School and Northwestern’s Kellogg School, for instance, now both offer launch-pads, electives, and funding to entrepreneurial MBAs.

“Courses will in future be more relevant to students with entrepreneurial backgrounds,” says Lara Berkowitz, executive director of London Business School’s Career Center.

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