VC Fund Turns Good Ideas Into Big Red Bucks
Brian Silver '02
Issue date: 10/5/00 Section: Johnson News
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A mere two years ago, the Big Red Venture Capital Fund was nothing more than a good idea. Back then, Park Fellows Alex Ivanov and John Kyles recognized that many Cornellians had viable ideas for a product or service but lacked the necessary skills to bring them to market. Driven by this need in the Cornell community and a shared interest in venture capital, the two focused their Service Leadership Project on the creation of a venture capital fund and incubator. Due to their effort and the help of alumni, faculty, and classmates, the Fund is now an operating, student-run corporation with a capitalization of two million dollars. The best way to learn about the Fund is to understand how the nine student managers, called Partners, play the roles of both startup artists and fund managers.
One responsibility of the Partners is to work with the University to identify alumni with both substantive experience within the venture capital or startup communities and experience with investment of their own money as seed capital. According to Partner Bill Weld '01, "Preferred donors will have name recognition within the industry since association of a respected name with a startup has a positive effect on the liquidity of the Fund's investment." Each interested alumnus or alumna fitting such criteria will contribute toward the Fund's capitalization target of ten million dollars. Unlike most funds, each contributor will not receive investment dividends or a refund of the initial stake. Cornell structured the Fund such that the initial contribution and the future appreciation of capital (usually distributed as dividends) are donations. Thus, each donor receives tax deductions in the year of the donation and each year the Fund turns a profit.
Alumni involvement does not, however, end with the donation. Each donor is a member of the Advisory Board. As members, donors interact frequently with Partners to assess investment opportunities, exchange information, and dispense advice. Thus, donors stay informed about the companies in which the Fund invests and can actively consider providing capital as an angel investor in subsequent rounds of financing.
One responsibility of the Partners is to work with the University to identify alumni with both substantive experience within the venture capital or startup communities and experience with investment of their own money as seed capital. According to Partner Bill Weld '01, "Preferred donors will have name recognition within the industry since association of a respected name with a startup has a positive effect on the liquidity of the Fund's investment." Each interested alumnus or alumna fitting such criteria will contribute toward the Fund's capitalization target of ten million dollars. Unlike most funds, each contributor will not receive investment dividends or a refund of the initial stake. Cornell structured the Fund such that the initial contribution and the future appreciation of capital (usually distributed as dividends) are donations. Thus, each donor receives tax deductions in the year of the donation and each year the Fund turns a profit.
Alumni involvement does not, however, end with the donation. Each donor is a member of the Advisory Board. As members, donors interact frequently with Partners to assess investment opportunities, exchange information, and dispense advice. Thus, donors stay informed about the companies in which the Fund invests and can actively consider providing capital as an angel investor in subsequent rounds of financing.