November 3, 2015

Newest VC Trend: Alumni Investing

Since my college days, I’ve noticed a steadily growing interest in entrepreneurism and venture capital. Twenty-five years ago, working in the startup space was viewed as risky and out of the box. Today’s best and brightest see starting a business as the cool way to work and maximize their impact.

I've seen this trend building as an MBA student, VC, serial entrepreneur, and longtime angel. And now I'm watching as those worlds intersect in the latest venture trend: alumni investing. 

The development is the product of several other trends. One is the explosive interest in fostering entrepreneurship on campus, which is a direct result of student demand. Since 1999, the number of higher-ed U.S. entrepreneurship programs has grown fourfold. Today, over 500 schools have programs in entrepreneurship or innovation. Entrepreneurism is a key interest for millennials, with almost 2/3 of those surveyed (2014 Bentley University study) saying they want to start their own business. 

And the days of just teaching theory and case studies are long past.

Today schools are diligent about nurturing the ventures of matriculating students. A few examples: Cornell is now creating a 14,000-square foot incubator, and one more than four times that size will soon open at the University of Pennsylvania, while the University of Michigan will be putting a $10 million gift behind student startups. 

Another trend is the interest in but continuing remoteness of venture investing. Startup investing is risky, but this is where to go if you're unicorn hunting. Despite recent legislative changes meant to open up venture investing, most individuals have limited access to such deals. Traditional venture capital firms don’t want to bother with an individual who has $10,000 or $25,000 to invest. Other folks are restricted by time or access to attractive deals. 

Into this funding gap, the alumni affinity fund option is emerging. The core idea is simple: alums band together to pool capital for investing in venture deals associated with their school. While all these funds share this concept, "flavors" are different. Some like the Stanford's StartX have close ties to the university. Others like the Red Bear Angels (backing Cornell University graduates) and the XFund (favoring Harvard alums and local companies) are not affiliated with the school. 

Non-profit and for-profit models also exist. And Duke combines the two, with a for-profit Angel Network and the philanthropic sidecar Duke Innovation Fund that is being seeded by the University and will invest $1 for every $3 by the Network. 

           Dartmouth College. Green D Fund
                                        Dartmouth College (Photo from Dartmouth Facebook Page)

This trend also inspired my own company: Launch Angels, where we take a “big tent” approach to creating alumni investment groups. In early 2015, we launched the Green D Angels to support Dartmouth College entrepreneurs. We're now helping raise a second Green D fund, as well as funds to back companies associated with the University of New Hampshire entrepreneurs (The BlueCat Angels) and another for Yale entrepreneurs (Blue Ivy Ventures). 

The alumni fund works for all participants on a number of levels. Investors love it because it presents a chance for them to pay it forward, while networking with other alums and peers. They also like the ease of investing in a key but—as noted—largely inaccessible asset class. Finally, in the case of Launch Angels, our Limited Partners also appreciate the discipline of a "for-profit" lens and the simplicity of dealing with limited paperwork.

For entrepreneurs, a new source of funding is always a benefit. But many also appreciate the power of the network that alumni funds represent. 

The university relationship can be trickier. Some administrators view alumni as their cash cows and are suspicious of anything that might divert donor dollars. However, more forward-thinking schools appreciate that an independent alumni fund contributes to the entrepreneurial ecosystem, ultimately enriching the school with a huge multiplier. 

With brick-and-mortar universities increasingly asked to justify the cost of a college education, the value of hands-on entrepreneurial experiences on campus is likely to remain a priority. And for all those eager students looking to launch or invest in ventures, alumni funds serve an old need in a new way.  Re-spinning the old cliché about Harvard, I like to think of college as an alumni venture fund with a football team and English department.

Michael Collins is CEO of Launch Angels and Lead Manager of Green D Angels. You can follow Michael on Twitter @MikeCollins63 and Green D Angels @GreenDAngels.