April 18, 2005
McCombs MBAs Win Entrepreneur's Choice Award at National Venture Capital Investment Competition
by Erica Grieder

It’s a common scenario at MBA case competitions: having presented their entrepreneurial venture or marketing plan to a panel of judges, students steel themselves for a round of questions. The annual Venture Capital Investment Competition (VCIC), hosted by the University of North Carolina’s Kenan-Flagler School of Business, however, turns the tables. Instead of being put through their paces by industry executives, students ask the questions. The judges sit quietly in the background.

“It’s one of the best learning experiences I’ve ever had,” said Dave Kuhlken, MBA ’05. “It forces you to understand things from both sides of the table.”

Kuhlken, along with with fellow McCombs MBAs Marc Scheinrock, MBA ‘05, and Denton Newham, John Reed and Spencer Swayze, all MBA ’06, competed in this year’s VCIC Apr. 7-9 in Chapel Hill, North Carolina. The team from the University of California at Berkeley’s Haas School of Business won the national contest and the McCombs team received the “Entrepreneur’s Choice” award.

“The theory is, you’re part of a fictitious venture capital fund,” explains Scheinrock.

Competition judges furnished teams with a profile of their hypothetical fund and the business plans of five real start-ups. After hearing presentations from the entrepreneurs the next day, each team had a fifteen minute question-and-answer session with the presenting company, observed by judges. Based on their fund profile and venture philosophy, teams presented judges with a term sheet, valuation and executive summary outlining how they would invest their money as venture capitalists.

According to team members, the contest was a test of their strategic acumen—what strategy they adopted, and how well they carried it off. “We went in with what you’d call the classic venture capitalist mindset,” said Kuhlken: “You’re willing, perhaps, to take some more risks, but only because you think there’s a really big upside potential.”

Outside the realm of MBA case competitions, classic venture capitalists pursue the big game: a Google, for example, or an eBay. In this year’s VCIC, the McCombs team decided to invest $5 million hypothetical dollars in the company that they thought had the most potential for explosive success.

“We picked a biotechnology company that was trying to find a new way to screen drugs,” explained Scheinrock. “This guy’s technology was out of a national lab, and is apparently going to revolutionize the way drugs are tested, if it works.”

That caveat—if it works—is what makes venture capital exciting.

“We figured the technology was uncertain in all of the companies,” Scheinrock explained, “but the market for this company is gigantic, if it works.”

This strategy contrasts with a more cautious approach. “Sometimes the simpler strategy,” Kuhlken added, “is to say, ‘I’m just going to look at the investment with the best balance between risk and reward.’”

That must take some of the fun out of the process.

The winning Berkeley team came in second to McCombs during the regional VCIC competition in February. The Berkeley team also embraced a classic venture capitalist mentality, looking for a big hit or none at all—and eventually took the latter course, deciding not to invest in any of the start-ups who presented to them. Fittingly, said Kuhlken, this was a risky strategy on their part, which might have resulted in a last-place finish as well as a first.

As for their own performance, said Kuhlken, “I was really happy with the choices we made. I think we were on the right track.”

Noting that all of the members of the McCombs team were recruited from the school’s Venture Fellows Program, Kuhlken reflected that “perhaps the downside of that is that we don’t necessarily look for someone with a real strong technical background, which can be a key differentiator.” The Berkeley team, for example, included a biogenetics Ph.D., which must have come in useful in valuating the biotech company.

On the other hand, Kuhlken added, you can’t go tinkering with the structure of your team or basis of your strategy just to chase the latest opportunity.

“You really have to go into the competition with a strategy in mind and try to be as consistent as you can with that strategy,” he said. “If you muddle that, it can be very hard. If you’re consistent, you get better at doing certain kinds of investments and you’ll attract the companies that fit your profile. You’ll find a niche for yourself.”