Diploma Deals: The Rise in University-Centric Affinity Investing

February 19, 2015

7:00 am

At first glance, there would seem to be a natural, almost inevitable, link between the close-knit networks of elite universities and the close-knit networks of early-stage investing. But, until recently, there was a black hole sitting between active, involved alumni and mentoring networks and professional investors. University-centric affinity investing has bridged that gap over the past several years: connecting savvy professional investors interested in investing to grow the talent pools and success stories of their respective schools, without sacrificing the desire for financial returns.

The Oregon Trail pioneers in university-based affinity investing are HBS Alumni Angels, founded in 2007, and Stanford Angels and Entrepreneurs (SAE), founded in 2010. Both organizations were founded primarily to bring successful alumni in contact with rising entrepreneurs from their respective schools But, particularly in HBS’ case as they have invested in over 100 companies since 2007, they differ from traditional mentorship networks in that there is a clearly defined diligence process and members have a clear goal to invest in strong businesses and make money.

“One feels more of a social aspect to the investing, due to common bonds. As much as investors want to make a solid return, we also value the friendships that develop from such affinity clubs,” said Jim Sherman, a member of HBS Alumni Angels and the Founder of Sherman’s Travel Media.

Where Harvard and Stanford alums, respectively representing traditional hubs Boston and Silicon Valley, have long been at the forefront of startup investing, what is particularly interesting is that university-based affinity investing as a trend now extends far beyond those two Ivy-clad, ancient monoliths. In just the past couple years, Dartmouth, Cornell, Johns Hopkins, and others have all created their own versions of HBS and SAE; and they have done so using diverse methodologies.

In one example, Cornell alumni banded together to create their own loose angel network.  In a somewhat different approach, Johns Hopkins alumni, myself included, banded together to form a formal Angellist syndicate, Blue Jay, which evaluates companies offline – like a traditional angel fund – but then uses the Angellist platform to execute the deal.

In a final example, Launch Angels, a network for raising affinity funds, partnered with Dartmouth alumni to create the Green D Founders Fund, which had its first close in January 2015. This represented a much different methodology; one where alums partnered with outside specialists to run the fund, passing on many of the administrative and performance functions to Launch Angels for optimization while maintaining the focus on Dartmouth entrepreneurs.

“Funds like the Green D Fund are important, because they will eventually allow entrepreneurs from all parts of the country (and not in the Ivy League) better access to capital,” said Shereen Shermak, the longtime CEO of Launch Angels.

Each approach – direct angel group investing, modified angel syndicate funds, and outside partner-based funds – has its respective merits. Together, these new funds are changing the early-stage university ecosystem and providing a new, formal funnel for great alumni investors to back the rising startup founders of their respective schools. In time, this channel may grow to rival, and perhaps exceed, the traditional funding paths of early stage startups.

 

 

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I am an entrepreneur, angel investor, and early-stage VC living and working in New York City.

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