Talk about the current state of venture capital in North America and states like California and Massachusetts are immediately invoked. Have a conversation about building the venture capital communities of tomorrow, and you might be surprised to hear Michigan's name surface.
The University of Michigan's Ross School of Business is a pioneer is creating student-run venture capital funds that specialize in everything from commercializing U-M-developed technology to providing capital for social entrepreneurial ventures. Leading the way is the
Wolverine Venture Fund, one of the first student-run investment funds in the nation.
The 11-year-old fund got its start with money donated by university alumni and has doubled its investment value to $5 million within the last couple of years. It specializes in early-stage investments ($150,000-$250,000) in tech-based start-ups. It now boasts a portfolio of 16 companies, two thirds of which are Michigan-based. Some of those companies are locally known names like
NanoBio and
Lycera. The Wolverine Venture Fund also scored big with its investment in HandyLab, which was recently acquired for $275 million.
This sort of capital infusion has not only helped grow the local start-up scene but also the venture capital community as a whole. Numerous new local venture capital funds have sprouted in Ann Arbor and Metro Detroit in recent years, a number of which are employing Wolverine Venture Fund graduates.
Detroit Venture Partners is one such example. Even local name-brand funds have strong ties to the Wolverine Venture Fund, such as
EDF Ventures and
Arboretum Ventures.
"The local venture capital community is getting bigger and more experienced," says Erik Gordon, faculty managing director of the Wolverine Venture Fund and a professor of entrepreneurship at the University of Michigan Ross School of Business. "You have funds that didn't exist four years ago that are starting up. You have funds like Arboretum Ventures that have enjoyed a lot of success and are known nationally."
Resonating influence
Michael Godwin and Jason Townsend launched
Resonant Venture Partners in 2010, thanks largely to the two recent MBA graduates experience managing the Wolverine Venture Fund. The downtown Ann Arbor-based, multi-million-dollar fund has made a couple of early stage investments in the darlings of the local start-up scene, including alternative energy firm
Accio Energy and Internet-security company
Duo Security. Godwin quickly points out that Resonant Venture Partners wouldn't exist today without the Wolverine Venture Fund.
"We got to meet all of the venture capitalists in the state of Michigan," Godwin says. "That was great. It allowed us to jump start our contact list."
That enabled Godwin and Townsend to line up the support of a number of prominent local angel investors, such as U-M business professor Tom Kinear and Mary Campbell, managing director of EDF Ventures. It also gave them an inside track for local investments. Resonant Venture Partners' first portfolio company, Duo Security, attracted an investment from Google Ventures (Google's venture capital arm) earlier this year.
More importantly, the Wolverine Venture Fund gave Godwin and Townsend direction. While helping manage the student-led fund, the pair noticed a void in the local investment scene for technology investors. Shortly after, the pair launched Resonant Venture Partners with focus on technology and IT investments.
"There were more IT deals than investors to do deals," Godwin says. "That's where Jason and I saw our niche."
All-inclusive investing
There aren't a lot of student-led venture capital funds in North America. Godwin says that a few years ago MIT reached out to the University of Michigan about the Wolverine Venture Fund because the renowned Boston-based university wanted to start its own fund. A few other name-brand universities, like Stanford, boast their own funds but such large pools of money geared toward providing students with hands-on investment experience is much more the exception than the rule in higher education.
Part of what makes the Wolverine Fund so unique is that the students have almost complete control of the money and where it goes. "At the Wolverine Fund, the students make the decision," Godwin says. "The staff could veto it, but for the most part the decisions come from the student body."
Another advantage is the size of its staff and the broad range of experience they bring to the table. The Wolverine Venture Fund is run by a 24 students each year. Those students come from various corners of the university. Most of them are pursuing MBAs but there is a sizable representation of students from the engineering and medical schools, along with other PhD programs. The underlying motivation is to encourage more entrepreneurial thinking among university students.
"It's a big door opener," says Ashish Kumar, part-time MBA student at the University of Michigan and a member of the Wolverine Venture Fund. "I didn't think I would work with real funds as a first-year, part-time student."
Kumar aspires to become a venture capitalist one day soon and is pursuing his MBA to accomplish that goal. He expects his MBA and experience at the Wolverine Venture Fund will work well with his PhD in molecular cellular & development biology. The Wolverine Venture Fund routinely taps the outside-business knowledge of its other members, such as doctors and engineers.
"They don't just bring in critical knowledge from their MBA course but also critical knowledge from the outside world," Kumar says.
Most venture capital firms have a narrow focus because there are only so many partners with only so much expertise. Godwin points out that if the venture capital firm doesn't have the expertise in-house it has to hire it in or get out of the sector all-together. That's not the case with the Wolverine Venture Fund.
"To have this many partners you would need to be a huge firm," Gordon says. "Not even a $2 billion fund has 24 partners."
Future investment funds
While many universities are struggling to set up their own student-led investment funds, the Ross School of Business has three. Besides the Wolverine Venture Fund, the business school has launched the
Frankel Commercialization Fund (focused on commercializing U-M technology) and the
Social Venture Fund, which specializes in investing in start-ups with a social entrepreneurship angle.
"I strongly believe business is the only way the world can sustain itself," says Gautam Kaul, a finance professor at U-M who also oversees the Social Venture Fund. "It has not done a very good job of taking care of itself. There is a dearth of capital for people who are trying to solve social problems."
Kaul says the Social Venture Fund is the first such student-run investment vehicle he is aware of in higher education. The 3-year-old fund focuses on making early stage investments (about $50,000 each) in start-ups that are trying to solve societal problems through entrepreneurship.
Kaul and his fellow business professors often expect the former participants in these funds to go onto great things in entrepreneurship and investing. The hope is they will apply these new skills where they learned them, in Michigan.
"If they would have had this in my college days it would have saved me some mistakes," Gordon says. "It's helping the students to be much better equipped when they leave the university to do what I did."
Jon Zemke is the Innovation and Job News Editor for Concentrate and the Managing Editor for SEMichiganStartup.com. He continues to be impressed with what is coming from the University of Michigan's Ross School of Business and how it's helping transform Michigan's economy.
All photos except Gautam Kaul by Doug Coombe