COLUMBIA — In spring 2010, undergraduates Kyle Cleeton and Ryan Wenk were told that their idea to start the Student Angel Capital Program at MU would not likely receive grant money.
That didn't matter, the program's faculty adviser, W.D. Allen, told them; the process would still be a good lesson in applying for a grant.
So when Allen got a call that summer saying they had won one from the Ewing Marion Kauffman Foundation, it caught all three by surprise.
After that, the angel investment program took flight.
"Everyone on campus has been amazed with the speed at which all of this has taken place," said Allen, an assistant professor of finance.
The Student Angel Capital Program is a student-managed angel investment fund designed to teach undergraduate and graduate students from a variety of programs at MU about venture capital investments.
The interdisciplinary program housed in the Trulaske College of Business is one of a number of university initiatives focused on innovation and experiential learning.
Allen said one of the key components of the class is having students with knowledge in several disciplines, which helps the group tackle problems from all sides. Last semester, the class included students in engineering, psychology, journalism and agriculture.
This past semester, for the first time, the class invested $30,000 in a medical startup company in Columbia.
The class takes off
Cleeton and Wenk got the idea for the program after a trip to Wall Street in 2008 through the Cornell Leadership Program. They met with several investors in New York City and were inspired to try their own hand at angel investing.
The term refers to an individual or entity that invests money in business startups typically in exchange for convertible debt or an equity stake in the company.
After a year of conversations with private investors from around Missouri, Cleeton and Wenk formed the venture capital investment club at MU with Allen as a faculty adviser.
"The first question out of my mouth was, 'How much time will this take?'" Allen said jokingly. "'Oh nothing. Don’t worry about it,’ they said."
Cleeton recalled the scene the same way: "And we told him, 'You won’t have to do a thing.'"
They began applying for grant money so they could do more than evaluate startup proposals; they wanted to invest.
"The intent was to create an organization where students could come out of the classroom and actually apply what they’re learning and see if this is what they want to do as their career," Cleeton said.
Eventually, a private donation and the Kauffman Foundation grant in spring 2010 lifted the angel investment program up off the ground.
In fall 2010, before the program became an official MU class, five students met in Allen’s office on the third floor of Cornell Hall. Three folding chairs still sit in the corner of his office as a reminder of those early efforts.
"At that point, we were behaving just like entrepreneurs," Allen recalled.
The students spent the majority of their time finding funding and navigating through university hoops to make the investment program into an official class. It began in the spring of 2011, minus Wenk and Cleeton, who had both graduated.
“When we started looking into the program, we were told there would be a four to five year timeline,” Cleeton said. “Given the support from the business school and various members of the university and the business community, we were able to pull the program together in two to three years.”
The quick turnaround is a testament to the dedication of the students involved, said Ben Carrier, a former student president of the Student Angel Capital Program.
In early 2011, the class became a full member of Centennial Investors, an angel-investing network started by Columbia Chamber of Commerce. Before that, they worked to build up credibility by researching companies and meeting investors.
"It really helped us get into the whole entrepreneurial community within Columbia," said John Field, one of the program's current co-presidents.
Students become investors
Usually an angel investor is an individual, Carrier said. In this case, the class as a whole performs as one investor in the angel network.
Students collaborate to perform due diligence on a number of potential investment deals with local startups, spending months researching each candidate’s possible impact including its potential market, finances and technology, Field said.
Each company is weighed independently.
After a prescreening process, the businesses make a short presentation to the class with time for questions afterward to make sure both parties are on the same page. Twelve businesses presented this year. The students then vote to perform due diligence on some companies, and a back-and-forth follow-up process typically takes a few months.
No investment was made in the first two semesters of the class.
This year, in considering the medical startup, EternoGen, the students consulted plastic surgeons, venture capitalists and research labs to gain third-party perspectives on the company's viability. The medical research and development company is creating soft-tissue filler for cosmetic, orthopedic and cardiovascular medical procedures.
It was ultimately a unanimous decision among the 15 classmates to purchase the $30,000 equity stake.
"Overall, we were pleased with their responses to our questions and decided the market was right for this technology," Field said.
In all, EternoGen has received roughly $500,000 from investors to get started, including $200,000 from the University of Missouri System’s Enterprise Investment Program. The student fund’s $30,000 investment was part of $200,000 invested overall by Centennial Investors.
For its contribution, the Student Angel Capital Program is now an equity partner in EternoGen. Class members will continue to attend company meetings each month.
Field said he and his classmates would like to see 20-to-40-times return on their investment in five to seven years. That's a range of about $600,000 to $1.2 million.
Setting up for long-term investments
From here on out, Allen said, the class would like to invest in roughly one new company each semester from a list of 30 to 40 potential deals. EternoGen was among 20 or so startups being considered.
The overall goal is to create a self-sustaining fund for the class to continue investing for years to come. The class is sitting on a $600,000 venture capital fund, a modest size for an angel investor but enough to make a start. Any profits earned will go back into the fund to be used for future investments.
Cleeton said he expects the successes and failures to balance out.
Allen said he has "drawn some lines in the sand" for the class: It is intended to be entirely educational; the money should only be utilized for funding high-growth entrepreneurial efforts; and Allen will not accept money with strings attached. The key to the class is student-driven learning, not making a profit.
"Everyone knows up front this isn’t about a grade," Allen said. "It’s about building a better person out of yourself."
Students can and have taken the class multiple times, sometimes for credit and sometimes not, just to remain involved with the fund and gain more real-world experience. Members such as Cleeton and Wenk remain tied to the fund, offering advice from time to time.
This carryover is important to Allen, who said he doesn't want to be the sole source of continuity in the class. Cleeton estimated investments might not see any significant results for three to seven years.
Now a research analyst in New York City, Cleeton said his experiences founding the investment fund and working with professionals gave him more opportunities after graduation than students with only theoretical knowledge and a grade point average to discuss in job interviews.
"That’s a very different conversation you can have with recruiters, and it opens up doors that would not normally be opened," Cleeton said.
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