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Should faculty invest in their student's start-ups?

  • 1.  Should faculty invest in their student's start-ups?

    Posted 05-12-2022 12:14
    Ahoy friends, I'd appreciate hearing your thoughts about faculty investment in students start-ups.

    Ought we? Ought we not? Does it matter who (part-time, full-time, dept/group); when (before or after graduation), how much, etc? I'm particularly interested in knowing your thoughts about faculty who teach entrepreneurship (and therefore have greatest access to student ventures).

    Sincerely, Kyle

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    Kyle Jensen
    Yale School of Management
    https://som.yale.edu/jensen
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  • 2.  RE: Should faculty invest in their student's start-ups?

    Posted 05-13-2022 15:14
    This is a cool question. Personally, I invested $10k into an alumni venture once. Never saw a return. Oh, I also lent $300 to a student...same end result there. 

    In the bigger picture I think this might be a fun topic for a session at the GCEC conference. Next one is in Vegas in the Fall. Anybody want to submit a proposal?

    Geoff Archer, PhD
    Royal Roads University
    Victoria, BC Canada


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    Geoffrey Archer
    Royal Roads University
    Victoria BC
    (250) 391-2600 x4207
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    Original Message


  • 3.  RE: Should faculty invest in their student's start-ups?

    Posted 05-14-2022 05:08
    Hi Geoff - I would consider organizing a session on this topic. (I am writing a book in which this topic is a chapter.) What format of session do you feel would be most interesting? Sincerely, Kyle

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    Kyle Jensen
    Yale School of Management
    New Haven CT
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    Original Message


  • 4.  RE: Should faculty invest in their student's start-ups?

    Posted 05-14-2022 17:00

    A lot of professors as they get on in years (and amass some retirement funds) qualify as accredited investors, and teaching entrepreneurship we see a lot of prospects. I've invested in several businesses. So far no returns, but all have gone on to raise serious funding in the real world so I remain hopeful. It is a bragging point for the lucky students because saying "my prof invested" gives a lot of other early investors confidence (after all, we're known as a group for being careful with our money).

     

    Someone who has thought about this a lot is my friend Kelly Shaver, who will be presenting on the topic in Seattle at the ENT Division's Late-Career Workshop, Friday, August 5, 2-3:30 pm. His session is: Becoming an angel investor: Many late-career academics have amassed 401K retirement portfolios well above the $1M minimum required to be an "accredited investor." Plus, the analytical and managerial skills possessed by many management scholars transfer very well to the angel investment industry. (BTW, despite the "Late-Career" label, everyone is welcome at the Late-Career Consortium).

     

    -- 

    Jerome A. Katz | Robert H. Brockhaus Chair of Entrepreneurship | Richard A. Chaifetz School of Business, Saint Louis University, 314-302-0641 (cell/text)  |  jerome.katz@slu.edu,  http://www.slu.edu/eweb




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  • 5.  RE: Should faculty invest in their student's start-ups?

    Posted 05-19-2022 06:49
    Thanks Jerome for your thoughtful response. I won't make it to AOM this year, unfortunately. I hope Kelly will organize something online one day. I'm curious to hear his perspective. I have raised angel funding as a founder and invested [once] as an angel, but neither since I started teaching.

    Investing in students seems alluring to me for a few reasons. As you pointed out, we have good deal flow. I can imagine investing would be helpful to the students, both for the capital and for the signaling effect you mentioned. Also, investing has the potential to be lucrative (though, I suspect we're all aware of the empirical distribution of returns to angel investing).

    I'm held back by a few concerns on which I'd appreciate hearing your perspective.

    My first concern is that if students consider me a potential investor, it could pollute our pedagogical relationship. When I meet with student founders now, they show me all their dirty laundry: the co-founder disputes, the experiments in support of the null hypothesis, their angst about committing to the venture. I sometimes sit in with students when they meet with investors and I see what the students show these investors. It's different than what they show me! It is, instead, the rosiest view of their venture. I wonder, if I'm a potential investor, how keen will students be to share with me their bad news? And, if they don't share bad news with me, have I missed an opportunity to better educate them?

    My second concern about investing in students is that the signal it creates, though positive for a student in whom I invest, will have negative externalities for other students. That is, say a local investor Sue knows that Bob took my course. When Bob solicits an investment from Sue, would she ask "did Kyle invest?" and interpret a "no" as a negative signal. It seems similar to the signal sent by a VC firm who leads an A-round but then decides not to participate in a B-round.

    Am I overly anxious about this?

    Sincerely, Kyle

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    Kyle Jensen
    Yale School of Management
    New Haven CT
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    Original Message


  • 6.  RE: Should faculty invest in their student's start-ups?

    Posted 05-19-2022 16:23

    Kyle, great points. For what it's worth, I would never consider investing while the students are in my class (which is at the end of the major and usually the student's academic career). I was trained as a psychologist and that sort of dual relationship would be anathema. Likewise I never ask the student (because of the power differential), but will respond with my personal take to any student if they ask me. Our grading rubric (https://sites.google.com/a/slu.edu/eweb/class-resources/judging-forms) actually has an "A" grade as a plan being "investment-ready" so students, so most students know when they are positioned to ask for funding.

     

    Your second point is valid. It has come up and the student who told me about this handled it by saying "I got a B for my plan in Katz's class, but I reworked the plan based on their feedback and I want to get some other investors before I got back to him with the revised and invested plan." I think the student will go far in real life! I retell the story at the end of the semester when talking about next steps.

     

    Your question has generated all sorts of great responses. Thank you and all our fellow responders!

    -- 

    Jerome A. Katz | Robert H. Brockhaus Chair of Entrepreneurship | Richard A. Chaifetz School of Business, Saint Louis University, 314-302-0641 (cell/text)  |  jerome.katz@slu.edu,  http://www.slu.edu/eweb




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  • 7.  RE: Should faculty invest in their student's start-ups?

    Posted 05-22-2022 08:56
    Thanks Jerome - this is helpful and interesting. Your decision to avoid investing in current students sounds astute to me. I feel like I need to think through the "signaling issue" more.

    I'm glad this posted generated so much interest. It interests me! As Geoff suggested, I submitted a workshop/discussion proposal for GCEC. (That is, discussion format: not a presentation.) I might think about doing the same for AOM some day.

    Sincerely, Kyle

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    Kyle Jensen
    Yale School of Management
    New Haven CT
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    Original Message


  • 8.  RE: Should faculty invest in their student's start-ups?

    Posted 05-14-2022 09:12
    Great question Kyle! I am very interested in hearing thoughts and participating in discussion on the topic. Keep me posted if there is ever something organized around this. 

    Best, 
    Ryan Coles
    ryan.coles@uconn.edu

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    Ryan Coles
    Assistant Professor
    University of Connecticut
    Storrs CT
    (949) 613-6126
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    Original Message


  • 9.  RE: Should faculty invest in their student's start-ups?

    Posted 05-14-2022 17:00
    Hi Kyle, very good question.
    I always considered the possibility of investing in my students' startups, but eventually I never did so. Now, at least two startups created during my entrepreneurship labs are worth more than 10 ml euros and received VC investment (in Italy is a very rare thing). Since they have been created by undergraduate students, I preferred to let them to find their way to investment, instead of participating directly. In particular, I always stress that THEY should be the first investors, even if with few capital, because sometimes young students imagine to create startups...without investing their own money! Different thing about PhDs or young researchers: in that case I almost arrived to invest directly, but eventually I did not because I was not convinced of the governance structure. I know many colleagues who invested in startups managed by junior researchers involved in their teams.
    With my group we are creating an extensive analysis of these issues thanks to this program https://eit-hei.eu/.
    If you are interested I would like to keep in touch. 
    Regards

    Dario

    Unito Personal Page

    Linkedin Profile

    Twitter Profile




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    Dario Peirone
    University of Turin
    Turin
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    Original Message


  • 10.  RE: Should faculty invest in their student's start-ups?

    Posted 05-14-2022 17:00

    Hi Kyle,

    Important question indeed. I never felt an obligation to invest in my students' start-ups, I always pushed them to invest their own money, even very small amounts, to start their businesses. At least in Europe, students often think that they can create start-ups without investing anything from their pocket. I try to encourage them to find their own way to investors, and now I have at least a couple if very good success stories. Different situation about PhDs or young researchers, in that case I see also many colleagues more favourable to be involved and to invest.

    With my research group, we are making an extensive analysis around European universities on the various mode of students' entrepreneurship with this program https://eit-hei.eu/

    If you are interested, I would like to keep in touch.

    Regards



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    Dario Peirone (MSc, PhD)

    Associate Professor of Entrepreneurship and Innovation Strategy

    Department of Law, University of Turin

    Lungo Dora Siena 100, 10153 Torino

    Italy
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    Original Message


  • 11.  RE: Should faculty invest in their student's start-ups?

    Posted 05-15-2022 15:30
    This is an interesting question. I have 2 experiences with undergraduate students where I became concerned about the optics and ethics of the situation. Once, a student's class project received a $20,000 grant and I became aware that I had some professional interest in a student launching a business. Once I realized that her starting the business might reflect well on me and our program, I felt I had lost the objectivity to properly advise her, which was my primary obligation. Later, a colleague and I wanted to help a student pursue an interesting project by providing them with $6,000 so they could work on their project rather than a summer job. As we negotiated for a very small equity position, we again became concerned about a power imbalance with the student. Neither project proceeded and we remain on good terms with the students.

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    Richard Gottschall
    Assistant Professor
    SUNY Plattsburgh
    Plattsburgh NY
    (518) 564-3159
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    Original Message


  • 12.  RE: Should faculty invest in their student's start-ups?

    Posted 05-18-2022 10:27
    Kyle hi,

    thanks for posting. At Brown, our COI (conflict of interest) policy addresses this explicitly (in section 3.8): https://policy.brown.edu/policy/coic
    The section excerpt is below -- the folks at the Nelson Center for Entrepreneurship take this to mean all students who come through their doors by virtue of what the center does (i.e., mentoring, resourcing, connecting, etc.)

    Does Yale have a COI that includes such a statement, very curious?

    best,
    Banu
    3.8 Investing in Business Ventures of Subordinates or Students
    Members of the Brown Community may not invest personally or own stock in privately held business ventures of subordinates or students and trainees under their direct supervision and mentorship.



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    Banu Ozkazanc-Pan, Ph.D.
    Professor of Practice, School of Engineering
    Academic Director, IE Brown Executive MBA
    Director, Venture Capital Inclusion Lab
    Brown University
    Co Editor-in-Chief, Gender, Work & Organization
    Ozkazanc-Pan, B. and Clark Muntean, S. (2021) Entrepreneurial Ecosystems: A Gender Perspective, Cambridge University Press
    Forthcoming (2022): A Transnational Approach to Entrepreneurial Ecosystems, Cambridge University Press
    ------------------------------

    Original Message


  • 13.  RE: Should faculty invest in their student's start-ups?

    Posted 05-19-2022 06:49
    HI Banu - thank you for sharing the Brown COI policy. That is interesting. Can I pester you with a few questions.

    * What is the rationale for this prohibition on investing in student ventures?

    * What presaged the addition of this component of the COI policy?

    * How would that policy apply to the following situations? A) Faculty is part-time practitioner. B) Student is in the faculty's dept but not class. C) Student is not in department or class. D) Faculty invests one day/month/year after graduation. E) Faculty is a co-founder with a student, together in a STEM department (i.e. classic tech transfer venture).

    Sincerely, Kyle

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    Kyle Jensen
    Yale School of Management
    New Haven CT
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    Original Message


  • 14.  RE: Should faculty invest in their student's start-ups?

    Posted 05-19-2022 19:35

    Kyle, hi.

    Lots of great discussions here, I'm now curious if other institutions in the US or elsewhere have specific COIs that address this issue. Per my discussion of the questions with Jonas and another colleague, here are some answers:

    What is the rationale for this prohibition on investing in student ventures? I believe the rationale is to prevent any Brown- community member (which means faculty and staff) from benefiting in an unfair manner from a particular relationship with a student(s). It also can lead to potential ethical lapses and the creation of inequities around opportunity for certain students over others.

    * What presaged the addition of this component of the COI policy? Some of this was in response to queries from colleagues to university COI/leadership around these issues as entrepreneurship activities grew on campus.

    * How would that policy apply to the following situations? A) Faculty is part-time practitioner. B) Student is in the faculty's dept but not class. C) Student is not in department or class. D) Faculty invests one day/month/year after graduation. E) Faculty is a co-founder with a student, together in a STEM department (i.e. classic tech transfer venture). A, B and C should be avoided as our policy covers all Brown-community members regardless of status (A) and the student could eventually end up taking your class, working with you on other projects, become a mentee, etc. (B and C). D is fine. E happens often as this relationship is different than investor/investee.

    In general, we try to be quite broad in how we think about our relationship as educators, administrators/staff with students in order to support them, which means that we interpret most of our engagement as falling under the purview of the COI policy.

    best,

    Banu



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    Banu Ozkazanc-Pan, Ph.D.
    Professor of Practice, School of Engineering
    Academic Director, IE Brown Executive MBA
    Director, Venture Capital Inclusion Lab
    Brown University
    Co Editor-in-Chief, Gender, Work & Organization
    Ozkazanc-Pan, B. and Clark Muntean, S. (2021) Entrepreneurial Ecosystems: A Gender Perspective, Cambridge University Press
    Forthcoming (2022): A Transnational Approach to Entrepreneurial Ecosystems, Cambridge University Press
    ------------------------------

    Original Message


  • 15.  RE: Should faculty invest in their student's start-ups?

    Posted 05-22-2022 08:56
    Thanks Banu - that is interesting. It seems to me like (E) is also prohibited by Brown's COI. That is, a faculty PI and student co-founding a company will each own equity in that company. The COI says "Members of the Brown Community may not invest personally or own stock in privately held business ventures of subordinates or students and trainees under their direct supervision and mentorship." Do I understand that correctly?

    Sincerely, Kyle

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    Kyle Jensen
    Yale School of Management
    New Haven CT
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    Original Message