BR Venture Fund Looks to Expand Investments
The pitch from the startup’s CEO was firm and direct. “We want to be to the apartment market what Bloomberg is to finance,” said John Njoku, founder of a Kwelia, a Philadelphia-based market research firm for the multifamily property industry.
For the seven MBA students listening in the Sage Hall
conference room, the presentation was the fourth they had heard
from entrepreneurs in a single week. Yet the request for seed-stage
financing from Njoku and his cofounder, Cornell alumnus Greg
Phillips ’08, seemed to energize the students who manage Johnson’s
BR Venture Fund (BRV).
“Nobody is doing what they’re doing with the multifamily housing market,” Aaron Walls, MBA ’14, a BRV fund manager, said after the presentation. “If they can execute and pull together this new company, then they will have something special.”
Over the next year, Walls and his fellow venture capitalists will hear pitches from more than 100 startups that want a slice of BRV’s $1.6 million. Only one or two will pass the due diligence the students carry out with each startup and be awarded with an investment, which can range from $20,000 to $100,000 of seed or Series A financing per company. Since it was launched in 2001, BRV has provided financing to 13 startups. Now BRV is launching a campaign to increase the size of its fund to $5 million through alumni donations so it can have a greater impact on the venture capital market.
“When you invest early on in a company, you get a certain ownership percentage, but as the company raises more and more capital, your ownership will get diluted unless you participate in the additional rounds of investing,” says fund manager Emily Walsh, MBA ’14. “Right now, we are limited in our ability to do that.”
In the venture capital world, where millions are invested in startups that show promise of becoming the next Google or Netflix, it can be difficult for BRV to compete with much larger firms, says Eric Young ’78, a cofounder of Canaan Partners, a venture capital firm based in Menlo Park, Calif. What makes BRV unique, however, is its access to Cornell faculty developing new technology and alumni working in startups across the country.
“BRV has a huge network that is available to its calling, and if it’s wise about how it uses that network, it will have a significant advantage there just in terms of knowledge and wherewithal,” says Young, who has been advising the fund for the past two years.
Take BRV’s most recent investment with Venga, a Washington, D.C.-based company that has developed a guest management system for restaurants that can track diners’ purchases and preferences. The company came to the attention of BRV when its cofounder, Winston Lord, became an entrepreneur-in-residence at Cornell’s School of Hotel Administration. Last spring, BRV made a $50,000 investment in Venga, which was followed up by an additional $12,500 in financing in September.
“Startups are very risky compared to more mature companies,” says Chris Lesmes, MBA ’14, a BRV fund manager who also serves as chief operating officer. “But this management team in particular exceeded the goals they set out to accomplish, and we liked what they were doing.”
BRV invests in companies that meet several key criteria, including a strong management team, a viable business plan, a potential for growth, and a disruptive technology — “something that’s going to change the landscape of how things are typically done,” as BRV Fund President Pete Cassara, MBA ’14, describes it.
To find such enterprises, the fund managers scour the Ithaca campus, visiting entrepreneurial hubs such as the PopShop, a new storefront in Collegetown where students from different majors design startups, and the eLab, the four-year-old incubator run by Entrepreneurship@Cornell. The student investors also regularly travel across the state to meet with startups seeking financing.
Another source of potential deals is the annual Cornell Venture Challenge, which attracted 75 entries from Cornell-related companies competing for a $25,000 first prize last spring. “It’s something that we use not only to expand our footprint at Cornell and in the upstate area but also to funnel deals for the fund,” says Emily Forsythe ’09, MBA ’14, a BRV fund manager. Since the 2013 competition, BRV is considering investing with two of the finalists, including the winner, Cognical, which builds algorithm-based underwriting engines for lenders.
As with any venture capital investment, the goal is to earn a return, either through a company acquisition or an initial public offering (IPO) filing. In the past five years, BRV has had two successful exits: It made 1.5 times its investment in SightSpeed, a video conferencing company that was sold to Logitech in 2008, and it earned 5.4 times its investment with Pacific Biosciences, which designs machines to accelerate DNA sequencing, after its IPO in 2010. The profit on Pacific Biosciences resulted in a six-figure payout that was returned to the fund for future investments.
Aaron Holiday, MBA ’12, an entrepreneurial program manager at Cornell NYC Tech, still remembers the heady days of running BRV when Pacific Biosciences went public. Taking the advice of BRV’s advisor, David J. BenDaniel, the Don and Margi Berens Professor of Entrepreneurship, to “always sell too soon,” the fund managers exited from the company just before the U.S. credit rating was downgraded in August 2011, causing stocks to plunge.
“We got lucky because we sold too soon, and after we sold the market shifted,” says Holiday, who is also working on a “stealthmode” company in New York City. Beyond its profits, the prime benefit of BRV is ultimately the experience it provides to the students. Lesmes, for example, arrived at Johnson after serving in the U.S. Air Force for eight years, including tours in Iraq and Afghanistan, with no business experience under his belt. But that all changed once he joined BRV.
Beyond its profits, the prime benefit of BRV is ultimately the experience it provides to the students. Lesmes, for example, arrived at Johnson after serving in the U.S. Air Force for eight years, including tours in Iraq and Afghanistan, with no business experience under his belt. But that all changed once he joined BRV.
“As a second-year student, I get to make investment decisions on real companies,” he says. “It’s really an unparalleled experience that I don’t think I could find at any other school. BRV has been an amazing experience that I would recommend to any business student who wants to become an investor.”
Reprinted with permission, and with modifications, from stories published in the Cornell Chronicle