Venture Capital has over the course of the last decade become a much better understood source of funding for entrepreneurs across all stages of the venture lifecycle. While the Venture bandwagon has not yet tipped into high schools (this may well happen given the average age of those setting up innovative startup studios on Roblox), University has certainly become a battleground for talent and dealflow. A cursory glance at some of today’s trillion dollar giants and their origins all point to University. Facebook came from the crimson dorm rooms of Harvard and Google from Stanford. The innovation cycle seems to be firmly in place at Universities, some of whom are now getting smarter about commercialising the technologies and ventures coming out of their programmes. It was not uncommon previously for students to have considered the Intellectual Property for their body of work to belong to the University, but this too is changing. Students today have a greater understanding than ever before of the immense power of value creation that can stem from entrepreneurship and in particular high growth technology companies. While the career of choice in the 1990’s may have been joining a top tier consulting company or investment bank, big technology (FAANG) is in pole position for the best talent, neck to neck at some schools with Venture Capital and starting up a business. All this has led to funds taking a bet on the ability to do more than set up insipid ambassador programmes and instead empower students with the ability to ‘write cheques’ and back companies at this nascent stage.
Students today have a greater understanding than ever before of the immense power of value creation that can stem from entrepreneurship and in particular high growth technology companies
Rather unsurprisingly, the United States retains its lead in the student venture space also. Over in California, which has the world’s sixth largest GDP (if compared to countries) the student venture space is flourishing. The California Crescent Fund, founded in 2020, is a coalition of students who are focused on growing the student startup environment in Southern California, by helping startups innovate faster and have greater access to capital. The Fund recognises the potential that comes out of the best engineering colleges in Southern California and is on a mission to provide students with the resources they need, in order to make their startup dreams a reality. This is why they have created a fund, set up by students, for students, after noticing the lack of student led funds in California, when compared to the East Coast and Silicon Bay. The CSF fund has recently invested in ‘Lolly,’ an app that can be described as a cross between TikTok and Tinder. With a catchy slogan that describes the app as ‘Gen Z’s Social Dating Community,’ Lolly allows users to match with others, as one would on a dating app, whilst also swiping through interesting videos. The concept seems simple and when considering the success of both TikTok and dating apps individually, putting the two together sounds genius. The app also goes further than current dating apps, delivering an experience that lets users connect with each other through common interests, humour and talent, as opposed to judging a person based on a few pictures and a couple of responses to prompts. CCF partners include a number of colleges in the state, such as UCLA, USC and Caltech. With an impressive team of students, who are interns at companies such as Facebook, Morgan Stanley and Cisco, the fund works to assist fellow students as they begin their journeys and give them a head start to pursue their careers alongside college.
The Dorm Room Fund (DRF) is a notable student led fund that emerged when established VC firm, First Round Capital had the idea of bringing together aspiring student VCs and entrepreneurs, who could help them find and connect them to fellow students wanting to build their own companies. Established in 2012, the Dorm Room Fund was a first of its kind, has now helped 300 student run companies, whose teams have raised over $1b and created more than $3b in value. DRF maintains a focus on student entrepreneurs in the US and Canada and invests in companies through a $20,000 SAFE agreement (this stands for Simple Agreement for Future Equity and takes the form of a convertible security, which converts into shares at a later stage). Along with capital, startups that are accepted by DRF also have access to the fund’s community and its network. Alumni of DRF have gone on to work at top VC funds and lead teams at companies like Google and Amazon. The funds activities are now expanding and the DRF has recently also set up the Graduate Fund, which empowers recent college graduates to set up their own businesses. DRF boasts a long list of portfolio companies and in 2018, analytics firm Zodiac, which emerged out of DRF, was acquired by Nike. The acquisition was made due to Zodiac’s ability to ‘accelerate digital transformation’ and enhance the giant shoe retailer’s data and analytics capabilities.
On the other side of the coast, Rough Draft, backed by General Catalyst, is based in Cambridge, Massachusetts, and has companies born out of Boston, New York and San Francisco with founders coming out of Yale, MIT, Brown and NYU among many others campuses. The fund provides upto $25k in seed funding, with access to mentors and investors to help startups progress. Rough Draft has backed over 150 startups, played a role in creating over 550 jobs and its portfolio companies have raised over $230m in follow on capital. Their portfolio companies have been acquired by businesses such as Hubspot, RobinHood and Apple.
Trade sales and exits for startups coming out of these programmes provide the bedrock for further innovation in the student led fund space. There are early signs that the students are successful in identifying and supporting the ideas of their peers and can be entrusted with cutting cheques out of a more formal fund. This could have significant ramifications on the creation of future Venture Capital talent as well, with some of the best likely to be picked up by global funds hungry for those with experience and a track record. There is a need to also cast an eye on the diversity of those teams and ensure that minorities across all spectrums are also able to break into these initiatives.
However, there is more impetus required over in Europe. Student funds are not as common in the UK, despite universities such as Imperial College London, University College London, London School of Economics, Kings College London, Cambridge University and Oxford University housing a lot of talent and fostering a startup culture amongst its student body. Breaking the void is the Creator Fund, backed by Founders Factory and Eric Schmidt. Set up under Founders Factory, the programme trains Phd students to hunt down talent across universities in Europe and the UK to provide them with early access, funding and mentorship in the technology venture space. The model for the Creator Fund appears to be based on the DRF model and even features Stanford Business School as an investor. Thus far, it has invested in startups out of Imperial, Cambridge and Edinburgh. The programme helps students raise funding for their seed round, prepare pitch decks, develop a market strategy and even help with marketing and growth. The fund also provides up to £150,000 to student and academic led businesses and graduates. CEO of Creator Fund, Oxford and Stanford Business School Graduate, Jamie MacFarlane, was working as an investor at DRF whilst completing his MBA.
Although the movement around student led VC funds is in its infancy, the setup of the Creator Fund is encouraging. Cities in the UK, such as London, Manchester and Dublin have long been touted as the startup capitals of the UK and have the potential to grow even more. Whilst investment and support for startups have grown over the last few years as the UK realises the value of startups to the country, support for earlier stage startups has been overlooked in most cases. As we see a new generation of students come out of college, supporting student run enterprises will help mitigate the issue of a lack of jobs for graduates that has been heightened over the last year and will give young people the resources they need to become successful entrepreneurs.