By Peter Loftus
Of DOW JONES NEWSWIRES
26 January 2005
PHILADELPHIA (Dow Jones)--Veteran venture capitalist Timothy Draper has turned to some young acquaintances for help in sizing up two potential deals in the past year. Draper, a partner with Draper Fisher Jurvetson in Menlo Park, Calif., sought advice from a group of college students in Utah who run their own VC fund. After putting in hours of research, the students recommended against investing in both companies, which made software. Draper agreed with them on one deal but disagreed on the other. But in both cases, Draper was impressed enough by the students'research that he agreed to invest in their VC fund, the University Venture Fund. "I think they did a really nice job, and it was due diligence you wouldn't necessarily immediately find anywhere else," Draper said. His $1 million contribution - a combined donation and investment - went a long way toward helping the students raise $5 million before the fund closed earlier this month. That may seem like small change in the world of private equity. But it's been no small feat for a group of mostly undergraduate students juggling full course loads at the same time.
And it's not a classroom exercise. The University Venture Fund lined up real institutional investors, and plans to invest the money in actual startups. The 25 students who work for the fund don't get paid, but they earn valuable experience that can pay off in the form of a good job after college. "The value is, it takes what you learn in the classroom and it makes it concrete," said Mike Firmage, who graduated from the University of Utah in December and already has a job with a Silicon Valley private-equity firm. "No longer are the financial theories you learn merely abstract ideas, and we're not sitting miles away from using them in our everyday life." The fund traces its roots to a visit to the University of Utah in 2000 by Geoff Woolley, a venture capitalist who got his M.B.A. from Utah's David Eccles School of Business. He suggested the students start their own venture fund, and several students began raising the seed money. Woolley, who founded Dominion Ventures, is chairman of the University Venture Fund. The effort got a big boost in 2001 with the help of a $500,000 donation from Sorenson Development Inc., a Salt Lake City umbrella company for businesses owned by the wealthy Sorenson family. James Lee Sorenson, vice chairman of Sorenson Development and an alumnus of the University of Utah, challenged the students to raise money from actual institutional investors rather than just rely on charitable donations. "I like philanthropy that has the ability to continue to grow and ultimately become self-sufficient, and return greater benefits to the community and the recipients," Sorenson said. About 25 students participate at any given time, with each student staying an average of two years with the fund, said Jared Hutchings, who graduated from the University of Utah in 2002 and is now managing director of the fund (a paid position, by the way).
Each student is expected to work about 20 hours a week, said Hutchings. To help raise money from investors, they have volunteered to perform due diligence on prospective deals for established VC firms, such as Draper's. Not all the students are Utah business students. Some are medical or law students, and the fund now includes students from other schools such as Brigham Young University. Besides landing Draper as an investor, the students signed up UBS Bank USA, a Salt Lake City unit of Swiss financial-services firm UBS (UBS), which contributed $2 million to the fund. Raymond Dardano, chief executive of UBS Bank USA, said he was impressed by the students' level of preparation. "They are taking a very prudent approach," he said. "They've not rushed into anything. They've done their homework. They also had the advantaged of working with an advisory group of well-known VC's."
The fund isn't focused on any single industry, Hutchings said, though he envisions a lot of biotechnology and information-technology deals, traditional VC fare. He sees the fund investing $100,000 to $250,000 per deal, typically alongside established VC's leading the round, and doing seven to 10 deals a year.
The fund's first deal was a $100,000 investment in BaroSense Inc., a Menlo Park, Calif., life-sciences company, in a round led by RWI Group, a Palo Alto, Calif., VC firm. Before the fund can close a deal, it must get the approval of twothirds of the students. The students then have to pitch the deal to a committee of volunteer professional investors, including Woolley and Sorenson, who must sign off on it. After distributing returns to limited partners, any leftover profits will be donated to scholarships and other nonprofit causes. "There's nothing like actually making the decision to invest and to place the money, to then watch something take off and grow," said Sorenson. "This has really provided a unique laboratory environment in the venture world, that these students could take with them."
(Peter Loftus, based in Philadelphia, is a special writer at Dow Jones
-By Peter Loftus, Dow Jones Newswires; 215-656-8289;
email@example.com [ 01-26-05 1100ET ]