Five tips for raising capital for startups through MBA programs
The primary question that arises when you get an MBA in the U.S. with a startup is: Why did you come to study an MBA if you’ve already established or are in the process of establishing a company? I was asked this question a countless number of times during interviews for the business school I would later attend, MIT Sloan School of Management, as well as during the process of raising the initial capital for my startup company.
My first investor asked whether I plan to drop out of school to focus on my company. This is a legitimate question as he wanted to bet on someone (in this case, me) that would dedicate all his time and energy on building a successful company and not spend time in classes earning a useless degree. As it turned out, the value I received as an MBA candidate at MIT increased his investment in my company.
If you find yourself in the same boat – particularly if you are a foreign student enrolling in a U.S.-based MBA program – I suggest adopting these five tips for raising capital for startups through MBA programs in the United States:
1. When choosing your MBA program, focus on entrepreneurship and innovation: For whoever wants to be an entrepreneur, it is very important to choose a business school that focuses on entrepreneurship and innovation. You can test this by the size of the school’s investment in entrepreneurship according to the volume of resources allocated to the program, the number of students in programs that focus on the field, and entrepreneurial experience of professors.
At MIT Sloan School of Management, for example, there is an Entrepreneurship Center (Martin Trust Center for MIT Entrepreneurship), which is open 24 hours 7 days a week and employs 10-15 staff members, professors and renowned entrepreneurs, who provide advice and coaching to students, helping story building, the company strategy, marketing and more. One hundred and twenty students out of 400 accepted end up specializing in entrepreneurship at MIT, and many of them come with an active or a proven entrepreneurial experience. Stanford is also known for entrepreneurial investment and the proximity to Silicon Valley, and Harvard invests heavily in the area.
2. Leverage your school network: Relationships that are created with the professors who teach in the program may be one of the best – and most unrealized – places to raise capital for your company. In most cases, professors are entrepreneurs with ties to many venture capital industries. Entrepreneurship courses during an MBA program provide a great platform and an opportunity to hone and demonstrate entrepreneurial skills in a safe environment. Your professors and classmates are not investors and thus not judging based on a 15-30 minute pitch, but rather engage in a process of execution that you can get better in and prove your skills. Further, professors and classmates are a great resource in helping in the development of the company. The professors are committed to helping students focus on entrepreneurship to make students’ dreams a reality by making introductions to help raise capital.
3. Participate in startup competitions as much as possible: These competitions are held during the school year for startup companies, mainly aimed at helping students think about the elements of their company’s business and present a long-term vision with high commercial potential. Ranging from small competitions such as the MIT 100K and MassChallenge, to the big ones such as the Global Founders Skills Accelerator (GFSA), each can be the make or break moment for your idea. Most competitions are judged by investors and venture capital partners, exposing young entrepreneurs and company to the venture capital community and help focus the company’s story, vision and its value.
As an entrepreneur starting out, I arrived with my original vision being just one application that helps people study for the GMAT. Now, after three years and quite a few iterations, the company’s vision evolved to building a platform for mobile and adaptive learning tests and learning applications for GMAT and SAT. The competitions helped us hone our vision. In addition, winning such competitions provides free money to your company, with no commitment on the part of the entrepreneur.
4. Understand stakeholders’ interests: MBA studies prepare students for their future life in the fields of entrepreneurship, management and fundraising. Courses focused on the field of raising capital teach the terminology of a term sheet for companies in every stage: Early stage startups raising seed round, late stage companies raising series C/D/E rounds, and private companies going public. You learn to understand the different interests of stakeholders during investment processes – investors, lawyers, entrepreneurs, and others. Many entrepreneurs make mistakes simply by not being aware of these. An MBA, on the other hand, teaches you the theory and allows for practice simulations that provide practical experience to avoid those mistakes in the real world. As an entrepreneur, you come to the process of raising capital prepared with experience and knowledge of the various interests that drive the process.
5. You never know where you’re going to meet your next investor: Exposure to high profile people during business school is invaluable. My first investor was a result of a relationship developed during an MIT course that connects MIT grad students with companies founded by MIT students to do an internship and get startup experience. LTG recruited 4 PhD students, one of which was researching the size of the Chinese GMAT test takers market. At the end of his research, the PhD joined as our first employee, and he later connected us with a Chinese investor that eventually became LTG’s first investor and opened great opportunities for our future rounds.
If you are lucky enough to have been accepted to an MBA program, kudos to you. However, I sincerely believe that you will not get as much out of your experience if you don’t follow these tips. Best of luck!