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Something is Missing In The Student Entrepreneurship Ecosystem

Frederick Daso (MBA ’25) proposes a new model for student-run funds and venture fellows programs.

Go to any elite college and one will find a consortium of student-run venture capital funds or VC-sponsored venture fellow programs. Any of these investment groups hope to find the next Mark Zuckerberg or Evan Spiegel.

Unfortunately, we haven’t seen a college dropout reach or exceed the stature of Facebook and Snapchat founders yet. But this doesn't mean we should lose hope. I can’t help but wonder if there is something missing in the student entrepreneurship ecosystem in colleges and universities across the country that would help create and support the next billionaire dropout.

Before the mass proliferation of VCs setting up shop at college campuses, the three most well-known student-run VC firms in the early-to-mid 2010s were Dorm Room Fund (DRF, parent firm First Round Capital), Rough Draft Ventures (RDV, parent firm General Catalyst, now known as General Catalyst Venture Fellows), and Contrary Capital. These “Big 3” student-run funds paved the way for today’s ubiquitous venture fellow programs nationwide. Since their genesis, I’ve identified two schools of thought that represent the spectrum of student-run VC firm operations. On one side is the perspective that student-run funds should invest with the primary purpose of promoting student entrepreneurship, and be less concerned with pure financial returns. On the other side, student-run VC funds should only invest in student founders who can go on to raise funds from the parent firm.

Over time, the overwhelming majority of student-run VC funds and campus venture fellow programs have come to focus on founders who fit the latter. While working on your startup after school has become a more established, predictable path for a more significant number of students, I can’t help but think there’s still something missing in the college founder ecosystem.

How do we promote the general state of entrepreneurship on campuses within Boston and beyond to help more student founders become backed by top venture capital funds?

If firms focus on cultivating student entrepreneurship, more promising student founders will emerge, creating broader opportunities for VCs to invest, rather than backing the same handful of individuals who fit a specific profile.

Take DRF and First Round Capital, for example. The student-run fund has invested in 387 student-run startups since its launch in 2012. Out of those nearly 400 startups, First Round Capital has invested in only 11, according to Pitchbook. This “follow-on investment rate,” a metric that measures the percentage of startups that receive additional funding from the parent firm, is roughly 3% for DRF and First Round Capital.

How about GCVF (formerly known as RDV) and General Catalyst? Since 2012, GCVF has invested in 195 companies, and General Catalyst backed eight of them. That's a follow-on investment rate of 4%.

How do these values compare to the median VC firm? The average VC firm makes four investments a year and backs 1% of the business plans it considers (Gompers, Gornall, Kaplan, and Strebulaev, 2020). Marc Andreessen of a16z states that his firm, on average, looks at 3,000 startups per year. Two hundred of them are considered seriously, and the firm invests in 20 of them. That sourcing-to-funding conversion rate is 0.7%, comparable to the average VC firm at 1%.

This isn’t exactly an apples-to-apples comparison, as the follow-on investment rate calculated above from child to parent firm reflects investment activity over the past twelve years, while the traditional VC firm investment rate cited is only for one year. In addition, the criteria for an investment from a student fund will differ from an institutional fund. Nevertheless, the comparison offers a directional insight to evaluate follow-on investment in student founders.

While the student fund to parent firm follow-on investment rate is similar to the average and top-tier VC investment rate, the former has room for improvement. Student founders have significant advantages while enrolled in higher education, and the structured environment can help budding entrepreneurs learn how to take risks intelligently. Going from 0 to 1 is a skill, just like fundraising. There is room for student VC fellows to help founders ideate, refine their pitching, assist in customer discovery, and build their network, especially before said founders consider raising venture capital. On a structural level, a counterintuitive strategy could be giving out grants (non-dilutive funding) on the order of $1,000 to founding teams that can build and sell exploring startup ideas. Some teams may not be venture-backable immediately and thus need time to experiment. In addition, there’s the potential risk of adverse selection, where founders consciously self-select to fit a VC’s pattern-matching heuristic to maximize their chances of getting venture funding. The issue is that at the earliest stages VCs overlook founders who don’t fit said pattern, despite demonstrating tangible promise and traction.

There’s a massive untapped opportunity for a disruptive student-run fund or venture fellow program. They can play a crucial role in promoting the general state of entrepreneurship in a scalable manner. They may find the next big idea to invest in before everyone else, demonstrating their vital contribution to the entrepreneurship ecosystem.

Prior to coming to HBS, Frederick Daso (MBA ’25) was a Senior Contributor to Forbes for five years covering early-stage startups from pre-seed to Series B, and a product manager at an early-stage tech startup. Currently, he serves as a Venture Fellow in General Catalyst’s Venture Fellow program, and hopes to become a VC after HBS.

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