Student angel investment group spreads its wings
An enterprising idea hatched by two recent graduates of the University of Missouri to start a student angel investment group gained a toehold at MU with the aid of W.D. Allen, assistant teaching professor in the Trulaske College of Business. Initiated by accounting major Ryan Wenk and business administration major Kyle Cleeton, Allen taught an interdisciplinary class on the subject in the fall of 2010. Ray Troy, a 2006 mechanical engineering student currently working on a master’s in nuclear engineering, participated in this inaugural effort. He heard about the class as a member of a campus entrepreneur club.
Troy, who operates an Internet business that sells sunglasses and is a partner in two other online ventures, said his motivation for getting involved was the possibility that someday he might need to propose a business plan to an angel investment group. “With this class, I’ll know it from both sides,” he said.
In late October 2010, the Student Angel Capital Program (SACP) rocketed into angel investment reality after a successful proposal for a “Kauffman Commercialization Leaders Grant.” The Ewing Marion Kauffman Foundation provided $50,000 to the group.
“The fact that MU students can own their own intellectual property (IP) was a development that helped convince the Kauffman Foundation to fund us,” said Allen. “The $50,000 is going 100 percent toward investing in intellectual property endeavors of students and faculty.”
Allen predicted the group might look at as many as 100 deals and whittle them down to a handful that meets the criteria of the diverse group — which includes engineering, ag, journalism, law, veterinary, medical and business students. Troy and Allen both said the multidisciplinary make-up of the group will play a key role in every step of the process from performing prescreening and completing due diligence activities as the group looks at its options, through the contracting phase.
“The diversity will really pay off,” said Allen. “We can go to an engineer for help drafting a prototype; law students can help with contracting elements.” The potential entrepreneurs will then make formal presentations.
“There will be someone in the group who understands the need and someone who can actually analyze the product,” Troy said. “For instance, what if a business like Newsy came along? We’d want someone who knows about media for due diligence on the project — like a J-school student.” This fall, another nuclear engineering graduate student, John-David Seelig will join the group.
“The bottom line is that students may decide to invest in two or three of the groups, or maybe none,” Allen said. “When we do decide, we’ll go through the negotiation phase, investment contracting and will monitor our investments.”
No deal flow will be considered without potential returns of 15 to 20 times the group’s investment.
In addition to the class, Allen said an angel investors club has been formed that will function like a “farm team” for the actual investment group.
“Everybody who has participated in the class will be on our advisory board,” Allen added. “When you’re dealing with projects from investment to harvest, this could involve a four- or five-year time horizon. We don’t want to lose track of any historical information.”
Troy said he liked the class’s “out of the box” model. “You’re a real investor and you have all this money to spend. It involves real critical thinking,” he said. “Ryan and Kyle noticed that when you talk to recruiters about investing real money, they get excited.”
Last semester the group worked to establish a presence in the community through outreach to middle school students, among other activities.
Allen said that after meetings hosted by Rob Duncan, MU’s vice-chancellor of research, several people approached the students to express their approval including board members, and a patent attorney from Kansas City who has agreed to help. He also said the network includes Silicon Valley contacts who will be good resources.
“We’re just getting our name out there and establishing our reputation,” said Allen. “Entrepreneurial efforts are exploding all over campus.”