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31 July 2013

New Model Army: the venture university

Few universities have traditionally regarded VCs themselves as disruptive. This, however, is starting to change.

Author: James Mawson

Universities have traditionally seen venture capital firms (VC) as a double-edged sword. They might invest in a student or faculty member’s start-up and pay licensing fees for intellectual property (IP) developed on the campus, but they might also fund entrepreneurs who could disrupt the institution’s business model, such as Coursera.

Few universities have traditionally regarded VCs themselves as disruptive. This, however, is starting to change.

True Ventures, an early-stage venture capital firm, said it started its university more than six years ago with 20 entrepreneurs.

Its most recent university programme lasted two days at Stanford University’s Graduate School of Business campus, had 24 classes, 31 speakers, 88 companies and 298 attendees.

Jon Callaghan, partner at True Ventures, said while it paid Stanford to host its own university days on its campus, it also allowed 10 Stanford students to attend the True University experience.

He said Stanford’s, as well as local peer Berkeley’s Haas business school that hosted previous years’ True University days, acceptance of the programme “very much typifies the Valley’s [Silicon Valley, California] mantra of openness”.

But he warned: “There is no bigger bang for the buck than VC”, which manages 0.2% of US gross domestic product (GDP) but whose portfolio companies are responsible for 22% of GDP, and VCs educating entrepreneurs is the most effective way to bring about further innovation.

Another True University partner described his firm’s plans as “a new model university to help people get a job”, adding: “Universities are going back to providing education of basic principles and only at year four you choose a specialism, as the faculty knowledge is increasingly outdated due to the speed of innovation and change.”

The disruption potential, therefore, lies in the speed at which innovation is affecting one of most universities primary goals – education to prepare its students for finding and succeeding at work.

In his opening remarks at True University, Callaghan told attendees: “If you have a question, or a problem, or an issue that you need help with, I guarantee you, the answer is in this room.”

He added that True University was started to foster “deep connections among founders and their teams to help one another build the best businesses possible, all while encouraging education by bringing in world-class speakers and experts”.

He said: “For many of our portfolio companies, True University has become as much about connection as curriculum.“

True’s VC peers have started to follow its university model. Venture capitalist Tim Draper, partner at DFJ, launched his entrepreneur-focused Draper University of Heroes earlier this year and said it would hold its first online session from September 30 to November 15 for $399, in tandem with the boarding school session in San Mateo, California, that costs $7,500. And venture capital education provider Kauffman Fellows Programme has been setting up KF Academy, run by Clint Korver, partner at Ulu Ventures, to provide online courses.

And as the New Model Army’s independence from the UK’s parliament and monarchy during the English Civil War contributed to its willingness to overthrow both institutions, so the independence of VCs, and accelerators such as Y Combinator, from traditional academia could bring longer-term disruption.

John Stokes, a partner at Real Ventures, moderated a panel at the Quebec City Conference in December entitled Accelerators as the next generation of business schools.

The panellists, Alex Bangash, managing director at Rumson Group, Carlos Espinal, partner at Seedcamp, Garry Tan, partner at Y Combinator, Dave McClure, founding partner of 500 Startups, and Senia Rapisarda, vicepresident of strategic initiatives and investments at the Business Development Bank of Canada, suggested that accelerators compete more with business schools than with venture capital funds to whom they provide a screened dealflow and whom they need for follow-on financing.

Accelerators were seen as a “very efficient way to select and train the most promising entrepreneurs. Entrepreneurs learn more through this operational experience on how to build a successful business than they do from discussing business cases”.

Stokes’s panel followed the conference’s first panel – Building the early-stage ecosystem for technology startups: accelerators, mentors, business angels and seed funds – which also saw accelerators as the “next generation of business schools addressing the vast market of entrepreneurs globally numbering between 25 million and 250 million people”.

One of the most important criteria for an accelerator is its connection to good mentors. Eyal Bino, founder of Worldwide Investor Network, said in a blog post: “Some companies go through a recognised global accelerator such as SeedCamp (Europe), IDC Elevator (Israel) and Extreme Startups (Canada) to solve this problem [finding a mentor].

However deciding which accelerator to apply to is not an easy task for entrepreneurs looking to build a global company.

“This is one of the reasons why Y Combinator and Tech- Stars are being referred to as the Harvard and Yale of the accelerator world. Their mentorship programmes match selected start-ups with mentors representing the best and the brightest general partners from top VCs, serial entrepreneurs, angel investors, and others from the ecosystem where most success stories are coming from (San Francisco, New York).”

Outside North America, other investors and entrepreneurs are targeting this market. Doug Richard’s School for Startups has taught more than 1,200 entrepreneurs in the UK since 2010. Also in the UK, Entrepreneur First has targeted recent graduates from local universities and nonprofit Alacrity Foundation has started training and mentoring its first cohort under a 12-month accelerator where the start-ups will focus on solutions industry has asked for and where there is an expectation of purchase orders if a solution is found.

Alacrity’s model has been working in Canada with more than 20 start-ups after its foundation by serial entrepreneur Sir Terry Matthews, founder of telecommunications equipment supplier Newbridge Networks and technology company Mitel, and an angel investor through his Wesley Clover investment vehicle.

In the UK, Alacrity has set up a seed fund, sponsored by

Sir Terry, the Welsh government and Henry Englehardt, founder of UK-listed Admiral Insurance, with plans for a later-stage venture fund to support the entrepreneurs.

One of those connected to Alacrity described it as “the new generation of MBAs for entrepreneurs” adding: “Rather than graduate with a piece of paper, they have a 25% share of a business and a cheque for £250,000 [$380,000]. It is appropriate for a charitable foundation to take the incubation risk and shift the investment cycle to the left for other investors to come in at effectively the series A round.”

But other VCs and governments are looking to support traditional universities to improve the local entrepreneurial ecosystems (see box, overleaf) , while some universities, such as ETH Zurich in Switzerland and Finland’s Aalto University, are responding by looking to their US peers by offering entrepreneurship as part of the curriculum or helping them intern with start-ups and local companies.

In a December blog post on news provider Fortune, Michael Gaiss, a marketing executive and former senior vice-president at Highland Capital Partners, identified seven initiatives by VCs, which, he said, was “interesting to note that many of them are university-focused as firms step up their efforts to get closer to what is happening on campuses from both an entrepreneurial and talent perspective”.

Data provider CB Insights said the top investors for each university were:

l  Stanford – DFJ and Kleiner Perkins Caufield & Byers.

l  Harvard – Accel Partners and Google Ventures. New York University – Union Square Ventures and Spark Capital.

l  University of Pennsylvania – MentorTech Ventures and Bessemer.

l  MIT – General Catalyst and Highland Capital.

These VC initiatives have focused on two main areas – helping its existing portfolio companies to hire and scouting for the next big start-up success, such as Harvard University- founded social network Facebook.

On recruitment, General Catalyst’s University Hacker Olympics involves 25 engineering schools in the US sending their five highest-scoring students to participate in an all-expenses-paid, three-day event in San Francisco, while First Round Capital and Greylock Partners have set up

Common Application and GreylockU respectively to help students apply for internships and permanent positions at

their portfolio companies.

To ease scouting, General Catalyst has funded Rough Draft Ventures as a student-led fund to invest up to $20,000 each in 10 to 20 student initiatives or start-ups in the Greater Boston area.

First Round Capital has set up a Dorm Room Fund with $1.5m to invest in 75 companies chosen by students at three universities, after initially allocating $500,000 to be invested in current students or recent grads from Philadelphia-based universities.

As Josh Kopelman, founder of First Round, said: “They [the students] are better at seeing the talent than we would be.”

Patrick Chung, a partner at VC New Enterprise Associates (NEA), one of Silicon Valley’s premier investment firms, co-chairs its Experiment Fund, which offers training, mentorship, and funding for Harvard University-spawned start-ups.

In an interview in news provider Inc earlier this year, Chung said: “Thirty years ago, when Bill Gates [co-founder of software provider Microsoft] left Harvard, there was no real concept of what it would mean to support a sophomore who wanted to start a software company that could change the world.

“Fast-forward to 2004, and there is no excuse why a young Mark Zuckerberg [co-founder of social network Facebook] would not have that level of support. But the fact is that he did not.”

NEA previously raised a fund in the 1980s to support university spin-outs, while Stephen Atkinson, founder of Harvard University’s first technology-transfer programme in 1976 and Harvard Medical School’s Office of Technology Licensing and Industry-Sponsored Research in 1984, directing each for eight years, wrote in Health Affairs in 1994 that Harvard set up the $36m Medical Science Partners fund in January 1990.

But perhaps the most ambitious attempt by a VC to support universities to create more and better entrepreneurs has come from Invoke Capital, which has raised $1bn to back start-ups from UK academia.

Mike Lynch, founder of software provider Autonomy before its sale to technology company Hewlett-Packard, founded Invoke after his research while studying at Cambridge University.

But whether they are trying to disrupt or tap into university resources, there is little doubt VCs are spending more time in the halls of academic institutions than they have done for years.


Africa seeks new ways to encourage young innovators

While most countries in Africa have seen increases in gross domestic product, rapid population growth has put pressure on youth unemployment levels and standards of living, resulting in a host of measures to help encourage innovation and job-creating start-ups.

The Uganda government last year set up its Ush16bn ($6.4m) Graduate Venture Capital Fund to facilitate graduates to develop bankable project proposals and create enterprises for self-employment. This followed a similar Ush25bn scheme targeting all youth in the 2011/12

Budget, which was to support young people starting or expanding their business enterprises with loan sizes ranging between Ush100,000 and Ush5m.

It is estimated that while Uganda’s unemployment rate is seen as underreported at 3.5%, for the young it is 32.2% and for those who have university degrees it is 36% as more than 30 universities and degree-awarding institutions produce more than 20,000 new graduates every year.

Muhammad Mayanja, chairman of the Justice Forum (Jeema), said in an article for news provider www.campusjournal.ugt: “On the side of education, the rapid expansion of opportunities at both advanced and tertiary levels over the past 20 years have failed to respond to the need to expand training in the physical sciences and technology. Up to now, merely 20% of all university graduates are in the fields of science and technology while 80% graduate in the liberal arts, education and administration.”

Morgan Jones at Merrill Lynch South Africa and Chipo Mlambo from the UCT Graduate School of Business and AIFFA set out five points to encourage early-stage VC in South Africa, including, their fourth recommendation: engage universities.

“Many respondents also pointed to the need to alter learning at schools and universities to encapsulate business management and other skills likely to aid entrepreneurs, [such as] creating realistic and investable business plans.”

Find the full report here.

Copyright Mawsonia Limited 2010. Please don´t cut articles from www.globaluniversityventuring.com or the PDF and redistribute by email or post to the web without written permission.

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