It takes steady nerves, risk taking and a willingness to cut through the hype when deciding that an unproven company has a product worth investing in.
Fifteen students in a business school class at the University of Missouri in Columbia displayed all those traits in the past school year while running a venture capital fund with a $600,000 pot of money. The purpose of the fund, which is completely student-run, is to identify and invest in potential high-growth startup companies in Missouri.
The Student Angel Capital Program completed its first deal in April, investing $30,000 in a company called EternoGen. That made the venture fund one of the largest equity investors in the Columbia company and gave it a seat on the board.
EternoGen has a product called Dermelle, a human tissue filter used in cosmetic, cardiovascular and orthopedic procedures.
The obligatory oversized check was handed to an EternoGen director last month after more than a year of reviewing funding proposals and interviewing the key players from EternoGen and about a dozen other promising companies with little or no track record.
“It was risky but very exciting,” said Katie Chitwood, an accounting major and co-president of the angel fund.
Striking pay dirt can be fun, but one of the goals of the program is to identify companies with products that can make a mark on society.
That’s what drew the students to unanimously approve the investment in EternoGen, even though a hoped-for double-digit return could be two to four years away.
Missouri’s Student Angel program is among a handful of venture capital funds run by students. Two others are at the University of Michigan and Washington University in St. Louis.
Missouri’s venture capital program was launched in late 2010, thanks to a $50,000 grant from the Ewing Marion Kauffman Foundation in Kansas City.
Money to seed the program also came from the Shelter Insurance Foundation and from university alumni donations.
Right now, the fund is too small to handle the $200,000-and-up deals that many new ventures need, said William Allen, the angel program faculty adviser and an assistant professor of finance.
“We’d like to see a couple of million dollars in the fund,” said Allen.
Over the school year, the mix of undergraduate and graduate students met twice a week in Allen’s classroom, where they learned investment strategies and got familiar with contracts, balance sheets and due diligence procedures.
But much of the learning came outside the classroom in meetings with entrepreneurs pitching ideas and with professional investors, said John Field, a graduate student and the other co-president of the fund.
The students focused on evaluating products and financials, but their formula relied on teamwork.
The team included students from the law school, a couple of master’s of business administration candidates, a journalism student, a biology major and even a student from the psychology department.
“We value diverse perspectives,” said Field. “That’s our secret sauce.”