This weekend I spent a day with Rebecca Lovell (on right in photo) and a group of 60+ University of Washington Technology Management MBA students who were doing their final project prior to graduating – a venture capital investment competition. The Tech Management MBA is designed specifically for technology industry professionals and the venture capital competition (with Rebecca teaching) was a component added recently to give them some exposure to entrepreneurs in fund-raising mode and to give them a better understanding of the issues early stage tech investors consider. Although the students were only playing at being VCs, they did so with four real startups, giving the entrepreneurs a half day of practice pitching their companies and answering questions a potential investor might ask.
The four companies that took time out of their busy startup schedules to present to the students were:
- Relaborate, makers of software to simplify the process of creating quality content for business blogs;
- SkyFu, with tools and data to assist a business with online reputation management;
- Saltbox, creators of a sales force communication and learning application; and
- Booktrope, with a book publishing model that offers more support than self-publishing.
The student teams hit most, if not all, of the subject areas a typical VC might want to explore in an initial interview with an entrepreneur. With a small amount of information, the teams then had to prepare and present an investment decision, choosing between the two companies each student team had interviewed. The toughest aspect for the students was setting a valuation for the selected company, or more accurately, justifying the valuation they had set. In this sense, the process reflected the real-world challenge of setting a valuation for an early stage company.
The area where the students differed most from what you would typically see with real VCs was that nearly all of the teams wanted to give the companies significantly more money than the company requested in its pitch. The students realized that the requested amounts would be adequate only to get the company to a certain stage of development or revenue, and were trying to extend the company’s runway by giving it additional funding (triple the requested amount in one case). An experienced VC might first ask the company about ways it could maintain a lower burn rate, dig further into whether the company’s plans could be staged in a way to make better use of the funding, and/or anticipate the seed funding would take the company only to a certain stage at which point it would seek additional investment.
In addition to myself, serving as judges for the competition were:
- Yongbai (“YB”) Choi, of venture capital fund Vulcan Capital;
- Ed Hansen, of Sharebuilder;
- Jon Jacobson, of IBM;
- Harry Lee, of Keiretsu Forum;
- Diane Renihan of Ballantrae, LLC;
- Dave Scheyer of Atlas Accelerator; and
- Dan Turner, Associate Dean of the Masters Programs at the UW Foster School of Business (see Dan talking about leadership and strategic thinking on video here).