Monday, April 11, 2011

Sustainable Venture Capital Investment Competition

Late post on this, but better late than never. A couple weeks ago I journeyed down to Chapel Hill, NC with a Darden team to compete in the Sustainable Venture Capital Investment Competition (SVCIC). Our task was to analyze the business plans from three real-life entrepreneurs and make the case to a panel of venture capitalists for which startup we would invest in, then justify why and how. Darden was competing against eight other business schools: Kenan-Flagler (UNC), Saïd (Oxford), Columbia, Stern (NYU), Wharton, Fuqua (Duke), Georgetown, and Ross (Michigan).

I had no experience in the world of startup funding or venture capital (VC), so I was very much looking forward to learning about these in preparation for and by participating in the competition. The Darden core curriculum doesn't make a place for these topics, and I quickly discovered that startup "term sheets" have a different language than what you learn in finance class. Before the competition, my team spent a few weeks learning this new language and the implications of VC terms on how a startup business operates. Soon, phrases such as "liquidity preference", "option pool", and "post-money valuation" became second nature to us.

The first day of the competition started with pitches by each of the entrepreneurs. One business created an online platform for searching through OpenCourseWare materials, one had a product for more efficient power management in laptop computers and servers, and the third created fixtures with superior lighting characteristics for warehouses. After the pitches, teams split up into "due diligence" sessions with the entrepreneurs. We had 15 minutes to grill each entrepreneur with questions we had about his business model. In the evening, our team retreated to our hotel to choose a business to invest in and propose investment terms which would be agreeable to the entrepreneur but also mitigate the downside risk of the investment for our fictional VC fund. On the second day, our team presented our investment proposal to the panel of venture capitalist judges. We were judged on how well we identified and mitigated risk, assessed social and environmental impact, and understood the VC process.

The Darden team didn't win the competition, but the judges told us in our feedback session that our performance fell into the top half of teams participating. Not bad for a group which had no prior VC experience! One thing which really left an impression on me was the importance of the entrepreneur in the success of a new business. Every judge we talked with stressed how the people running the business are more important than the business concept. Our team saw this first-hand -- after reading the three business plans our team was heavily leaning towards one of the businesses, but our judgment quickly shifted when we met the entrepreneurs and saw that a different one had a far better strategic vision for where his startup was headed.

More importantly, I now know something about the wild world of startup financing which may prove valuable if I decide to start my own business after school.

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