Why Business Schools are Investing in Students’ Start-Ups

One of the more interesting trends in recent years is the push to commercialize technology. And business schools are investing in their students’ start-up ideas like never before. In particular, top MBA programs in the United States have provided funding or support in the form of incubators, faculty advisers, and access to funding to those who want to advance technology.

“We have many people who want to change things, disrupt industries,” says Jodi Gernon, director of the Arthur Rock Center for Entrepreneurship at Harvard Business School.

Indeed, business schools have good reason to invest in student start-ups:

To better the world

While HBS encourages students with big ideas to wait until after graduation to launch a business, it provides a number of resources for the planning stages. The New Venture Competition allows students with a business plan to potentially win a prize and get feedback on their idea.

In addition, HBS has an accelerator program for those who are further along in the start-up process. These students are raising funds, or have already raised a couple of million dollars. HBS students working on commercializing science and technology are starting businesses that include a wearable device to analyze hydration levels and another to better forecast weather.

Sometimes, the school’s culture contributes to the excitement over start-ups. Massachusetts Institute of Technology has long been known for its engineers and the dynamic technology they develop. (It’s in the school’s name, after all.) The president of MIT has said that the university should be an “innovation orchard,” says Trish Cotter, associate managing director of the Martin Trust Center for Entrepreneurship.

At the center, students from different parts of the campus are brought together. Cotter describes student teams as needing a hacker (who develops the innovation or technology), a hipster (who specializes in the user experience and branding), and a hustler (who is an MBA with business skills).

To better the school’s brand

Jon Bloom has a medical degree and worked as an anesthesiologist and in medical devices before entering the Sloan School of Management. While at school, he met five other people with start-up aspirations. Podimetrics, the team’s business, sells a device that provides early detection of foot ulcers, related to diabetes.

During the year Bloom was in business school, 2011-2012, the team participated in a number of business plan competitions as a means of fundraising. They found some success. A year ago, Podimetrics went to market. The device can detect 97% of foot ulcers, five weeks before they surface, says Bloom.

However, one of the downsides for business schools that invest in student entrepreneurs is the risk of losing them before graduation. Bloom only completed one year of the program, and remains on a leave of absence from Sloan. He left because the business showed so much promise.

Still, he credits Sloan with making this start-up possible. “Sloan is an unbelievable place,” says Bloom. “It’s the student next to you who inspires you.”

Sloan is not the only school with students dropping out in favor of pursuing a start-up dream. Ryan McQuaid left the MBA program at University of California Berkeley Haas School of Business to pursue PlushCare. The company has physicians from 50 medical institutions prescribing medication and making diagnoses via smartphone or video calls. While McQuaid says completing the degree would be nice, he’s not so sure it’s necessary.

“The degree is important. I got a lot out of business school,” he adds. “The diploma is only a piece of paper.”

To take advantage of the start-up breeding ground

Once upon a time, business schools operated in a silo when it came to entrepreneurship programming. But now US business schools have joined forces with other schools on their campuses. For example, at New York University, business students have access to incubators, maker spaces, prototyping labs, and funding from NYU’s Innovation Venture Fund, says Cynthia Franklin, director of Entrepreneurship at NYU Stern W.R. Berkley Innovation Labs.  

Part of the reason institutions of higher learning are providing such investments in students and recent graduates is because it’s easier than ever to start a business. “The entrepreneurship process has been demystified. Never before has there been such broad and easy access to the critical resources needed to start a venture—whether technology, capital—both cash and human, support networks, know-how, etc.,” says Franklin. “While still risky, the amount of time and resources needed to start a high-value venture has gone down precipitously.”

To provide value to students and alumni

Even when the business school does not end up making a financial contribution to a business, it makes other investments that help the student entrepreneur save money. Essentially, it gives the student an edge over those starting a venture without the help of a business school.

Allie Esslinger, a Stern MBA student with an expected graduation date of May 2018, is a co-founder of LGBTQueue, a platform and hub for the LGBTQ+ community that spreads related pop culture information across the digital landscape. This business was a result of Esslinger spending her first year founding a previous business that was meant to be like Netflix for lesbians.

“LGBTQueue is a more interactive company that allows creators to talk to fans, and fans to talk to each other, about culture and content,” says Esslinger. “Although in some ways, we are at square one with LGBTQueue, the founding team is excited to have the benefit of having come together under a different umbrella, use those metrics to guide our first decisions about product and branding, and work together more collaboratively to build something from the ground up.” 

What schools can provide to entrepreneurs is access to potential partners and investors. One of Esslinger’s fellow founders of the new company is a Stern alum she met through the school.

While attending UCLA Anderson School of Business, Leo Petrossian met another MBA student and an engineering PhD student at an event geared toward bringing together aspiring entrepreneurs from different parts of campus. The three launched Neural Analytics in 2013.  The business, which supports a medical technology designed to help monitor brain conditions, relied heavily on the Price Center for Entrepreneurship & Innovation at Anderson.

Petrossian says he saw the school as a partner in the business. Staff at the Price Center helped connect the team with people who could give them a hand. The school also helped pay for business plan competitions all over the country. The school and professors invested in the business, says Petrossian. They also put them in touch with those who could help in the wider university, such as a law student who went over contracts, medical students who could weigh in on the technology, and engineering students who worked on small projects.

Northwestern University Kellogg School of Management provides anywhere from $5,000 to $10,000 to student ventures through offerings, such as the Zell Fellows Program. “We’re trying to do more around commercialization of existing technology on campus,” says Linda Darragh, the Larry Levy Executive Director and clinical professor of the Kellogg Innovation and Entrepreneurship Initiative at Kellogg. “We have an experiential course where students make market assessments of existing technology on campus.”

Schools also provide grants to businesses with potential. At University of Michigan Ross School of Business, the Zell Lurie Institute provides resources for those planning new ventures. It too offers between $500 to $10,000 grants, depending on the various stage and promise of a business plan. Graduates can apply for the school to invest in their ideas, too. Like many schools, Ross also provides a stipend to students who plan to work on their own start-up instead of having a traditional internship during the summer.

To drive innovation

Business schools want to bring the future to the world. They want to help shape future leaders and give them the tools they need to change things for the better. “At their core, the most successful entrepreneurs are naturally curious and innovative thinkers,” says Franklin. “They challenge the status quo. They don’t adhere to established mental models. They aren’t constrained by what is. However, driving that innovation requires an understanding of how to create significant new value—for customers, society, investors, employees, etc. These are skills taught in business school.”