University Venture Fund June 25, 2006Posted by rajAT in DFJ, entrepreneur, startup, tim draper, vc, venture capital.
The University Venture Fund (UVF) announced today it has achieved a final closing of $18 million in funding, an unprecedented amount of capital for a student-run education-based business program. UVF is one of only a few business school venture capital funds, which teach students entrepreneurship by investing in risky — yet potentially rewarding — startup companies rather than in safer stocks of public corporations.
UVF is collaboration between students, the University of Utah's David Eccles School of Business and the professional investment community. Created in 2001, UVF broke new ground by modeling an aggressive, real-world approach to business education with a self-sustaining private equity fund in which students raise the capital, research the investments and pitch the deals. It is also the first fund to have a traditional limited partner relationship with investors who anticipate reasonable payback.
One of Silicon Valley's highest-profile venture capitalists praised the UVF concept. "I love the idea of the next generation of entrepreneurs being energized and educated by operating a true private equity fund," said Tim Draper, who was an early investor in Hotmail and was at the center of several record-breaking venture capital deals this past year, including the lucrative initial public offering of Baidu, dubbed "the Google of China," and the purchase of Skype by eBay for $4.1 billion. "I'd like to see this kind of education in entrepreneurship spread everywhere," he said. Draper put $1 million in UVF and is its largest private investor.
The student-run fund has other prestigious backers. UVF's largest institutional investor is UBS Bank USA, a subsidiary of UBS AG, one of the world's largest private banking institutions and one of the largest asset managers globally. This final closing of UVF added CapitalSource of Chevy Chase, Md., to UVF's group of investors. CapitalSource is a commercial finance company with offices in major cities across the United States.
The Salt Lake family of two successful entrepreneurs, billionaire medical device inventor James LeVoy Sorenson and son James Lee Sorenson, CEO of Sorenson Media and Sorenson Medical, contributed the founding $500,000 to UVF in 2001 and challenged students to create a self-sustaining investment fund.
Few such higher education programs exist today. Stock clubs and student-led investment funds of public corporate stocks are common, but the educational benefits of UVF derive from the big risks and rewards of investing in little-known, innovative private enterprises for which there are no public market valuations and so are tricky to bet on, even for seasoned professionals.
Twenty-five students commit 20 hours per week to performing due diligence on venture capital investments for professional private equity companies participating in the UVF program. Startup businesses the students find potentially lucrative are then pitched to volunteer investment professionals who oversee which ones are included in the UVF portfolio. A wide range of graduates and undergraduates are enrolled, including engineering students and medical students, and the program has expanded to include students from Westminster College in Salt Lake City and Brigham Young University in Provo. The University of Michigan and Cornell offer similar, student-involved private equity funds that are smaller, with $3 million and $500,000 invested respectively.
A recent graduate credits his current business success to the learning experience provided by UVF. "Everything I needed to get our new-concept business going, I learned from working with UVF," said Nate Thurgood, who graduated in 2003 and recently played a lead role in developing BelleHavens, a high-end equity destination club. Launched in 2004, BelleHavens already has properties in three countries with 11 destinations and has a member satisfaction rating of 97 percent. "From business valuation to deal-structuring to due diligence, I really couldn't have done it without participating in UVF. It's not just the entrepreneurial experience that was so helpful, but working with sophisticated investors for the first time was very important for me," he said.
Undergrads gain real-world experience through the risky business of seeding startups with money from limited investors who expect a satisfactory return on their investment.