Why We’re Launching SoCal’s First Student-Run VC Fund
The Student-Run VC Model
The world’s top companies have emerged from college campuses. Everyone’s heard the stories of Facebook and Google, but the list doesn’t stop there.
Take companies like Squarespace, Snapchat, Dropbox, Reddit, Warby Parker, Fedex, Insomnia Cookies, Dell, and Rent The Runway — all of them were started at various universities while the founders were students.
Student entrepreneurship is very much alive in schools across the map. It’s fueled by strong ecosystems where capital, culture, and resources are abundant and synchronized.
The Student-Run VC Model
There have been a number of venture funds launched in the last decade that invest exclusively in student startups. The success of these startups has been nothing short of remarkable.
In the last few years, student-founded companies have gone on to raise over $1 billion in follow-on capital from the likes of Sequoia, a16z, and Bessemer. Many have already had successful exits.
These funds have established an amazing precedent for the student startup ecosystem.
They run on a student-run fund model, where everything from sourcing to diligence to investment decisions is spearheaded by student partners. This is innovative and effective.
Student partners are the closest to the startup ecosystem of their universities. They understand the ins and outs of campus entrepreneurial activity better than any outside investor and they‘re able to cultivate closer relationships with student founders. They also identify millennial and Gen-Z trends better than anyone else, naturally, as they‘re part of the demographic (see 👁️👄👁️)
An Untapped Geographical Opportunity
Despite this rise in student-run funds, there are still major gaps in the existing system.
While many of these funds claim to invest agnostically to location or university, there’s a disproportionate amount of focus on East Coast and Bay Area schools. This is observed not only in their investments, but also in the location of their student partners and overall investment force.
Most of the investment force is located on the East Coast (Boston, New York, Philadelphia) or the Bay Area. While there’s no denying the high concentration of student entrepreneurial activity in those regions, we strongly feel there’s one region that’s remarkably undervalued.
The Southern California Advantage
Sunny Southern California is the one major untapped market for student-run funds to invest in student entrepreneurs. And no, we’re not talking about the small strip of startups in Santa Monica known as “Silicon Beach”.
We shouldn’t be comparing ourselves to Silicon Valley. Instead we’re focusing on the stretch of land from Santa Barbara to San Diego. We believe that it holds many of the characteristics shared by the other top student-startup-producing geographies. These characteristics are:
- Concentration of Top Universities
Southern California has one of the strongest concentrations of top universities in the world like Caltech, UCLA, USC, UCSD, and UCI. Although rankings aren’t always the best metric, great universities do tend to attract sharp, highly-motivated students. Top liberal arts colleges like Pomona College and Harvey Mudd also span the region. This has created a large, diverse, and highly-qualified cluster of student entrepreneurship potential in SoCal.
- Sheer Volume of Qualified Students
The universities mentioned above enroll over 200,000 total students — highly-motivated and talented students for that matter (see Point 1). This creates a massive opportunity pool of student entrepreneurship. Even if only 0.5% of the total pool are targetable student founders, that’s over 1,000 student-founders that are on their way to building the next big thing. We need to do everything to support them.
- A Vibrant Surrounding Tech Scene
Southern California is a booming tech hub. From Los Angeles consumer tech, to Hollywood’s media tech, to San Diego’s bio tech, SoCal is home to thousands of hot startups. Companies like Snapchat, Hulu, Tinder, Honey (PayPal), SpaceX, and Bird are all proudly headquartered in Southern California. Existing giants like Google, Qualcomm, and Sony have multiple offices across the region. The tech scene is only growing as Bay Area natives relocate and Southern California becomes a hot new home for many.
- Existing Track Record
If you’re not convinced yet, take a look at the track record. Here are some of the largest companies launched by SoCal university students in the last 15 years:
- Box (NYSE: BOX) was founded in 2005 at USC and is a cloud file sharing company. Its market cap sits at $3.1 billion as of August 2020.
- Magento is an e-commerce platform started at UCLA by two students. It was eventually acquired by eBay for over $100 million and later sold to Adobe for over $1.68 billion.
- Riot Games, founded in 2006, is the developer behind video games like League of Legends and Valorant. It was acquired for more than $400 million in 2015.
- EnvoyNow was founded in 2014 at USC and solved last-mile delivery logistics on college campuses. It was acquired in 2017.
These are just a few examples out of the thousands of companies that were started by SoCal students. If all this was done in the last fifteen years with limited resources, imagine what we can build in the next fifteen with the right resources and infrastructure.
Introducing California Crescent Fund
Our mission is to progress the rate of innovation and the access to capital across student startups, with a focus on Southern California.
How Student Entrepreneurship Currently Exists on Campuses
The current student startup ecosystems at universities are inefficient and fragmented. Campus initiatives like “new venture competitions” or “business plan contests” are operated top-down (faculty and administration driven) and not bottom-up (student driven).
This becomes a culture problem between the university faculty who run these programs and the student founders who participate in them.
Simply put, incentives are misaligned, authentic connection is limited, and the generation gap is evident. In the startup world where good culture can be the driving force behind extraordinary success, the university ecosystem falls short.
We’re Doing It Differently
We are student-led and student-operated. Everything from sourcing, to check-writing, to advising is done by students. At the end of the day, we invest in student founders — nobody understands them better than other students like us.
Our approach is high-touch and connected. California Crescent Fund has student partners across 7 major Southern California universities: USC, UCLA, UCSB, UCSD, UCI, Caltech, and Harvey Mudd. Our student partners are the backbone of CCF and the experts of all startup activity at their respective campuses.
We have a small, fast growing team of talented individuals. Our partners include founders, product managers, software engineers, and consultants with previous roles at Google, Facebook, Coinbase, Cisco, Morgan Stanley, and more.
What’s Next for CCF?
Over the next several weeks, we’re going to bring on more student partners across our campuses, expand to additional SoCal universities, and kick off conversations with student founders for the 2020–2021 season.
Co-Founder & Partner at California Crescent Fund.