University partnerships: Democratising venture capital for tomorrow’s investors
2018 was a banner year for the global venture capital market. Early analysis by Crunchbase called it a “year of superlatives”, with the highest number of private tech company financing events on record and the largest ever deals made in history.
Underpinning this seismic growth is the equally dramatic expansion of the global startup ecosystem over the past five to 10 years, a trend largely driven by China’s rise as a technological superpower.
The third wave
Today, although US cities like San Jose (Silicon Valley), New York and San Francisco continue to dominate the landscape, ecosystems across Europe and Asia are fast gaining ground – the top 10 global metros for venture investments now include major Chinese cities like Beijing, Shanghai and Hangzhou, as well as Bangalore, India’s Silicon Valley.
And with the internet revolution entering its third genesis, this isn’t likely to slow.
The types of companies that powered the first and second wave of the revolution may be declining in growth but new sub-sectors are emerging in once-nascent areas such as artificial intelligence, blockchain and robotics. The next few years will see the meteoric rise of startups harnessing these technologies to build innovations that transform entire industries and sectors.
To accommodate this shift, venture funding will remain the finance strategy du jour for these capital-hungry startups. Suffice to say, it’s a ripe time for aspiring VCs to get into the game.
Great, you say, so where do I start? That’s a hard question to answer for anyone, even the investor with 20 years of VC experience. The problem (probably) lies in how little we know about the VC world.
Why haven’t jobs in VC become more popular?
In popular culture, the little that we know about the investment world comes from unflattering portrayals of real-life financial professionals – from The Big Short to the Wolf of Wall Street, it’s a world characterised by greed and excess.
It’s also interesting that Hollywood never thought to make biopics of world-famous investors like Benjamin Graham or Warren Buffett, even when they recognised the cinematographic appeal of scrappy former upstarts Mark Zuckerberg and Steve Jobs.
Now we look at the educators. Not surprisingly, the push for inclusion of financial literacy education in the school curriculum doesn’t get as much support or attention as campaigns lobbying sex education. Sex sells, after all. Money management, not so much.
It’s probably a big reason why ‘becoming an investor’ hardly ever appears on childhood ambition lists. Why would it, when schools don’t teach them the benefits of spending wisely and saving up for a rainy day?
Naturally, it’s not often a kid enters college with the aim to graduate with a job in a VC firm. Even if you wanted to, you’d be hard-pressed to find a college offering a major in venture capital or angel investment.
What should aspiring VCs study?
You could take up a business degree and study entrepreneurship, perhaps get an MBA, or if you could afford it, enrol in an Ivy League where many of the world’s most powerful investors studied.
But it’s important to note that there isn’t a guaranteed method or educational pathway to land you that coveted VC job. Today’s VC investors mostly chanced upon the role; their progression into it was more circumstantial than deliberate.
TechCrunch recently trawled the educational histories of some 5,000 VC American and Canadian investment partners and nearly 8,5000 angel investors listed on Crunchbase and confirmed that they came from a variety of educational backgrounds, with just 18 percent having majored in business, accounting & finance. Most took up engineering & technology-related courses (makes sense as startup investors are primarily focused on technology companies) and many angel investors studied entrepreneurship as undergrads but by and large, they were a mixed bag.
According to Sarah Downey, former lawyer-turned-startup operator-turned VC, becoming a VC, “kind of… happens. You don’t pick venture; venture picks you.”
It doesn’t help that VCs don’t hire regularly and when they do, they don’t go for junior talent. Downey confirms this, saying, “I’m not hiring you, not because you did anything wrong, but because VCs virtually never hire junior talent.”
“Venture capitalists, in general, aren’t great developers of junior talent,” she adds. “It’s not like a normal job function where there’s an ascending ladder of neat titles and constructed programs where you move up, like with investment banks of private equity firms that siphon up MBA students.”
Connecting VCs with universities
Fortunately, more and more, higher education players are recognising the growing need to groom tomorrow’s venture capitalists.
From the growing popularity of university-backed venture funds to the emergence of new education models like the VC University, a recently launched joint effort by the UC Berkeley School of Law and the National Venture Capital Association through the Startup@BerkeleyLawinitiative, barriers to entry into the VC world are slowly coming down, taking with it its reputation of being an elite, all-boys club.
Over at the Stanford Graduate School of Business, finance professor Ilya Strebulaev through the Stanford Venture Capital Initiative has been leading groundbreaking studies on the VC world. Strebulaev and his co-researchers have been mining data on VC deals to produce insights that would help entrepreneurs, policymakers and other researchers understand the sometimes opaque nature of VC operations.
How San Jose State University does it
In Silicon Valley, the beating heart of the US venture and startup ecosystem, the San Jose State University has a different model for promoting access to the VC ecosystem.
The public comprehensive university has a running partnership with VC company Vonzos Partners, whereby a group of nine to 14 SJSU students would engage with the firm every semester. Vonzos provides bridge funding and hands-on business coaching through V-Scale to distressed companies (firms that are stalled but not stuck) in health and wellness markets.
Last fall, a handful of students with their academic heads leading the charge worked on several projects for Vonzos and portfolio companies, from handling their communications and public relations to developing the firm’s business plan.
According to Timothy Hendrick, Associate Professor of Advertising in the School of Journalism and Mass Communications, Vonzos ended up using “at least 75 percent of all work” prepared by the students.
“The branding/logos, PR, promotion are all being used by Vonzos. The business plan materials are also being incorporated by Vonzos,” he told U2B in an interview.
Hendrick serves as entrepreneur-in-residence with Vonzos, which means he sits in on startup pitches and offers advice and critique. When companies are deemed investable, some of the advertising and public relations work are then given to DBH Communications, an on-campus agency he founded.
‘Learn by doing’
“Our whole premise is based on ‘learn by doing’,” he tells U2B. Hendrick’s students don’t get paid but they earn up to six academic units working with companies like Vonzos. And it’s a formula that works all around.
“They (the students) love being pushed and are different people at the and of the year,” he says. “The companies that come to us and that we work with are always pleased with the work that we do and come back year after year.”
Finance senior Arjun Mathur was one of the four students from the Gary J. Sbona Honors Program who worked on refining Vonzos’ business plan during the fall. Always passionate about money and strategy, the opportunity to work on a real-world project for Vonzos offered him and his teammates a peek into the VC world.
His only brush with the industry prior to Vonzos was a stint he had with a startup in the summer of 2017.
“But the team had money troubles well before I joined. While I was there, the process of fundraising was never brought up, and I had no idea how we were being funded. As a result, I never had any practical knowledge of venture capital – nor academic,” he tells U2B.
Even at SJSU, information about the industry is minimal, with just one class being taught by a finance professor.
“Vonzos was really my first exposure to the world of VC, angel investing, and startup fundings,” he says.
A win-win partnership
Although the stint ran for just for a single project, Mathur says it’s hard to quantify how much he gained from the experience. Apart from picking up crucial communication skills, he also gained insight on the cutthroat nature of the VC funding world and exactly what makes a successful pitch.
Most impressive, he says, was Vonzos’ willingness to engage with students.
“Venture capital is known to exclude university students (and recent grads) from their ranks, citing lack of industry experience. Vonzos was completely different, welcoming university students, while also challenging us to get ourselves up to speed and understanding of the overall trends in the VC industry,” he says.
Mathur is keen on working in finance in a tech and medical services company and believes his work with Vonzos helped lay the groundwork for such a career.
“I understand how those industries’ startups tend to operate, and I believe that such an understanding will help me in my career. Maybe someday, if I ever work in a corporation’s venture capital arm, I may be able to apply these learnings to that work,” he says.
Meanwhile, Vonzos hopes to expand its partnerships with the school.
“We’d like to build a network where we could engage along with some of our startup companies that often need help. This might include engineering, computer science, the research department. We think it would make sense to build some interdisciplinary teams and our aspiration is to deepen the network,” says Darci Arnold, an SJSU graduate school alumna and associate partner at Vonzos.