At Michigan’s Wolverine Venture Fund, Students Learn Via Reality VC

6/9/10

Tom Kinnear says he is a great “theoretical golfer.” It is the implementation that is lacking.

In the same way, business students who learn how venture capital works without ever investing real money in real companies may be at a disadvantage, Kinnear says. That’s why, 11 years ago, Kinnear and colleagues at the University of Michigan’s business school launched the Wolverine Venture Fund, what he calls the country’s first student-led venture capital initiative.

“The way I look at it is you can theoretically teach how to do this, which is interesting, but it’s like an athlete being theoretically taught how to play a sport. You’ve really got to play the sport. So, this is the playing of the sport,” says Kinnear, who is executive director of the Zell Lurie Institute for Entrepreneurial Studies at the University of Michigan’s Ross School of Business and managing director of the Wolverine Venture Fund.

The fund’s latest investment was in Delphinus Medical Technologies last month, when Wolverine contributed $100,000 to an all-Michigan VC round of $8 million for the Detroit-based breast cancer imaging company.

Wolverine was launched in 1999 with about $2 million. Since then, the fund has grown organically to $5.2 million, with currently about 14 active investments. Overall, the company has invested in 22 companies, of which four have had successful exits and another four written off. All in all, “classic venture capital,” Kinnear says.

It’s all “under adult supervision,” Kinnear says, tongue slightly in cheek, since the average age of fund participants is 28 years old. The students first have to be admitted to the MBA program at the Ross School, then go through a series of interviews and case studies during a vetting process that eventually picks about one in 10 applicants to join the fund as students.

They are coached by Kinnear and another faculty member and are guided by an advisory board of venture capitalists who don’t tell them what to do, but help them along the way. The decision on whether to look at a firm in detail and whether to invest is all theirs, Kinnear says.

One of the “spectacular exits” Kinnear talks about includes the molecular diagnostics company, and U-M spinout, HandyLab, which was acquired by New Jersey-based Becton Dickinson for $275 million in 2009. Wolverine invested $350,000 over six rounds. The student VCs would have invested more, but their fund was so small at the time, that was the maximum they could have invested in any one company. Still they realized just past $2 million on the investment—about 6.2 times their money. Not too shabby for a bunch of “college kids.”

For each potential investment, Wolverine’s VCs first tackle the basics in class, then they do preliminary due diligence to determine whether to do a deeper dive. If they think it’s worth it, then they split into teams. There are students who specialize in areas like medical devices, medical software, material sciences, cleantech, and, increasingly these days, cloud computing and software-as-a-service.

The teams come back and present their findings to students, faculty, and supervisors.

“All along the way, they’re being pressed for, ‘Did you look at this? Did you look at that? Double-check that. Did you believe what he said,?’” Kinnear says.

The whole exercise in reality investing fits the philosphy of the Zell Lurie Institute at U-M, where “we try and get the students’ hands dirty, meaning [dealing with] real problems,” Kinnear says.

Kinnear has been on the U-M faculty for 35 years. He started to get involved in entrepreneurship training about 20 years ago and has been leading the Wolverine program for 11 years. Kinnear also has “real-world” VC experience. He is on the Michigan Venture Capital Association’s board and is chairman of the board of the Venture Michigan Fund, the state’s $250 million pool that invests in other venture funds.

So, Kinnear knows what he’s talking about when he says he finds the students to be exceptionally good at what they’re doing—and that they behave incredibly responsibly because they know it is not all an academic exercise. “Their raw talent is very high,” Kinnear says, “and their work ethic is extremely good.”

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