Before Alex Money enrolled in a master’s and later a PhD at Oxford University, he was a fund manager in the City of London, where he spent two decades working in investor relations and as a portfolio manager at Citibank, among other financial services groups.
Now he is a start-up founder, working out of a trendy incubator space at London’s Level 39, Europe’s largest financial technology accelerator surrounded by the skyscrapers of Canary Wharf, where his company ACE Consensus provides investors with predictions of foreign markets.
He launched his start-up in 2013 after becoming frustrated with the inefficient system he was using whilst working in investor relations. ACE uses financial technology – “FinTech” – to run a digital platform that delivers information for publicly traded companies.
Fintech companies are securing record amounts of venture capital funding, but Alex is one of a growing number of entrepreneurs who are tapping into business schools for early-stage investment.
Alex raised £20,000 from the Saïd Business School Seed Fund shortly after launching his venture last year. In November, ACE raised £200,000 in a seed round led by the Jenson Seed EIS Fund. “It was very helpful to be able to say to a perspective investor that we could [already] raise backing,” says Alex, managing director.
“After the university round we had credibility,” he says. “That halo effect of going through the process is important.”
Business schools are investing record amounts to turn corporate workers and nerdy academics into entrepreneurs. The student-run fund at Oxford, part of the business school, invests up to £25,000 in ventures founded by Oxford students and alumni. Since its launch in 2012, the fund has pooled capital into four start-ups including Onfido, a digital referencing system that went on to raise £500,000 from angel investors.
“We are able to contribute with our time, experience, and network – more than a family [member] or friend might,” says Maria Nikolou, senior program manager at Oxford’s entrepreneurship centre, where the fund is based. She adds that these funds allow founders to maintain more independence than some institutional investors allow.
But it is not just credibility that entrepreneurs can reap from business schools’ funding vehicles. Alex says you get valuable insight from bright university minds, which traditional angel investors often lack.
“We did four interview rounds with different people from the seed fund team and they spent time learning about our company and the environment, and asked probing questions,” says Alex. “[In] an angel investor network, there is less of a connection.”
Other UK funds are bigger. The University of Cambridge pooled £2.7 million into early-stage technology start-ups this year, and has produced 14 companies valued at more than $1 billion over the years, including Arm, the microchip designer whose products power Apple devices.
Cambridge’s seed fund typically invests about £300,000 to £400,000 in companies spun out from graduate research. It has made returns of 5.8 times on companies that have achieved exits – including acquisitions and initial public offerings – and 2.8 times across the whole portfolio.
Cambridge’s seed fund adds to the £50 million Cambridge Innovation Capital fund launched last year for later stage start-ups, with successes including Horizon Discovery, a biotech group that that raised £68.6 million after listing on AIM, London’s junior stock market, in March.
Entrepreneurship has been gaining ground at business schools. But British entrepreneurs still lament a lack of access to venture capital – the level of funding available is still short of Silicon Valley’s offering, although London has recently emerged as Europe’s biggest venture capital industry.
According to a study by PitchBook, a VC and private equity research firm, MBA students at US business schools are more likely to receive VC investment than those in Europe, with only INSEAD of France and Spain’s IESE Business School representing Europe in the top-25 list of the best schools for start-up funding.
The European Commission’s annual SMEs Performance Review, released last week, found that accessing funding was one of biggest difficulties facing European start-ups.
Ferdinando Nelli Feroci, the EU’s commissioner for entrepreneurship, says: “The indicators… Make it clear that more needs to be done to address obstacles such as difficulty accessing finance if we are to achieve sustained growth among SMEs all across the EU.”
Business schools have emerged to fill some of that gap in supply. “Oxford and other similar universities are building ecosystems with a long-term sustainability approach,” says Maria.
“These communities of founders and supporters take time to mature, and many of the important pillars are now in place.”
Across the Atlantic, America’s business schools often operate the biggest venture funds. “We are successful because we can bring more human capital and resources than most VC firms of our size,” says Nickhil Bhave, one of two MBA managing director’s of the Wolverine Venture Fund.
Set-up in 1997, Wolverine, which operates out of the Michigan Ross School of Business, has a fund totalling $7 million. It is run by a team of about 25 MBA and dual-degree MBA students, and has a portfolio of 14 companies, says Nickhil.
Wolverine typically co-invests with other VC firms in start-ups that are already revenue generating and are looking for a first round of capital. Investments range from $100,000 to $700,000 and the fund typically takes a sub-5% stake in companies, says Nickhil.
It has invested in MBA-run companies before but most investments pump cash into spin-outs from the wider university. The fund’s successful exits include Intralase, an optical laser company which raised $85.8 million when it listed on the NASDAQ stock exchange in 2004. Advanced Medial Optics later acquired it for $808 million, in 2007.
The benefit to the MBAs that run the fund is practical experience: “The skills we build are extraordinary – instead of sitting in class analysing cases, we are reviewing investments with real dollars,” Nickhil says.
He adds: “Just having 25 very well-qualified venture investors each year as part of business school class is highly [beneficial]. We are educating ourselves and doing right by the university.”
Other funds operate within universities, but as independent investors. Before graduating from Harvard University, Hugo Van Vuuren co-founded Xfund, an independent venture capital firm that is based at the Ivy League institution.
“We work closely with [the] university and venture communities to grow successful companies,” says Hugo, who launched the fund with Harry Weller, Harvard MBA.
Xfund, which is backed Silicon Valley venture capital giant NEA, plans to invest up to $250,000 in seed funding in mostly student-led start-ups in Cambridge over the next two years.
Like Oxford’s fund – which sees 40% of applications come from the business school – Xfund is in high demand among MBA students.
“We have been surprized and honoured at the excitement on campuses nationwide to build a new category of defining companies,” Hugo adds.