Give Gary Williams ten minutes to explain Cougar Capital and you’ll be sold. Give him an hour and you’ll not only want to invest but you’ll wonder why more universities aren’t doing the same thing with their business programs. And if you give him two years as an MBA student at the Marriott School you’ll develop such a diverse portfolio of knowledge and skills in venture capital and private equity you might just make a career of it.
“Cougar Capital opened my eyes to a whole new world and ultimately changed my career path,” says BYU MBA grad Rachael Hawkins Walker. “It was one of the best experiences of my education.”
Cash in the Classroom
Founded in 2005, Cougar Capital is a venture capital/private equity fund run entirely by a team of Marriott School MBA students. During their two years in the program, MBA students learn how to analyze and execute investments in live deals.
In year one, MBA students study the ways of the VC/PE investing world with a rigorous primer course. In year two, those who make their mark in the first class join the elite student team that uses donated funds to invest carefully alongside real industry partners.
And, if all goes well, they make $262,405 in returns on their initial $45,000 investment. That just happened to be the exit result in 2007, when Riverbed Technologies, the first company funded by Cougar Capital, made its initial public offering.
“We run Cougar Capital like a real firm,” says Williams, faculty advisor and the group’s founder. “Someone has to run the finance side; someone has to run the legal side, the engineering, the marketing, the communications—everything.”
Even though Cougar Capital is a student experience set largely in the classroom, every deal is a bona fide investment using real cash. The aforementioned Riverbed IPO proceeds were not paid in Monopoly money but in genuine greenbacks that replenished Cougar Capital coffers. A subsequent liquidation from the merger of Ribbit Corporation resulted in $96,189 in proceeds from Cougar Capital’s initial $25,000 investment.
Students don’t pocket any of the cash earned on successful investments, and neither do donors, faculty, or any other involved individuals. Instead, the liquidation returns go into an evergreen fund made available for future student funding opportunities.
The weight of legal tender forces students to perform at the highest level, says Jared Crocker, a recent MBA grad and former Cougar Capital member.
“Risk stares you right in the face; you don’t have to try to envision it,” Crocker describes. “We felt plenty of pressure to perform, but it was always clear that both students and capital contributors were building BYU and the Marriott School.”
The revolving evergreen fund is one aspect that differentiates Cougar Capital from the few other institutions ambitious enough to run classroom VC/pe programs. (At international competitions, Cougar Capital has gone head-to-head and placed well against teams from Harvard, INSEAD, Columbia, MIT, Wharton, Stanford, UCLA, Michigan, Cornell, and Duke.) Some programs return money to donors or earn cash for a partnering firm, but rarely do they use a fund that pools for future investments.
With a self-sustaining system and such initial success, Cougar Capital has already expanded the number of investments in their portfolio. The 2009 team funded five companies: Solera Networks, IDC Westinghouse, M-Factor, Allegiance, and Fusion-io. The five investments, which totaled $217,400, are the most ever made by a single Cougar Capital class. Another three companies and a follow on financing were added to the portfolio by the 2010 team.
And all of this has been executed while the economy writhes in one of the most miserable financial stretches of recent history.
“We will not invest unless we have a supermajority approval of the deal by the student team,” Williams says. “It’s real money, and it’s money that the students treat just as seriously as if they were investing $5 million.”
Search and Research
There are a few key components to Cougar Capital’s year-in and year-out success: expert advice and direction from Williams and other advisors, excellent industry VC/PE partners with proven track records, and, perhaps most important, the carefully assembled team of MBA students.
Following the first-year industry primer, students intern during the summer at industry firms, many of which partner with the program.
Around the same time they’re getting workplace experience, students apply for the privilege of being a part of Cougar Capital. Faculty members narrow the list and eventually extend an offer to ten to twelve students. Since Cougar Capital is run like a real-world VC/PE firm, each student is chosen for a specific position.
“The MBA experience for most is to seek education,” says student Kyle Lemmon, Cougar Capital’s 2010 associate director of external affairs. “Cougar Capital goes beyond knowing; it focuses on doing and becoming.”
Once the team is in place, the members start the search in earnest for investing opportunities. But they don’t look for deals on their own. Rather, Cougar Capital joins with “lead partners,” outside VC/PE firms with demonstrated success and, usually, connections to BYU.
The student team’s primary value to the industry partner comes from due diligence: Cougar Capital dedicates its varied and relevant backgrounds to researching any aspect of a deal needed by partners.
Due diligence requested by partners can include analysis on markets, competition, financial models, business models, legal issues, and management issues surrounding a potential deal with a company. Of course, the lead VC/PE firm does the lion’s share of the due diligence, but the work Cougar Capital students are doing is a legitimate part of the research process. In return, the students receive professional mentoring and clinical learning opportunities.
“It is an incredible experience that is also very unique,” says 2010 team member Julie Kellett. “Very few MBA programs provide their students with the opportunity to run their own venture fund.”
When the time comes, the MBA students present their research to the firm and give a final yea or nay to an investment opportunity. Sometimes a nay from the students tips the vote just enough to persuade the firm not to invest. Sometimes they invest anyway. And sometimes, if everything looks good enough, Cougar Capital will choose to invest alongside that company.
In fall 2009 the student team looked at nine potential deals, voting yes on three from the group.
“Cougar Capital gives them a chance to invest like real-world investors,” says Spencer Tall, managing director of Palo Alto, California, VC firm Allegis Capital. “There have been times when they’ve rejected an opportunity to invest alongside us. I don’t view them as your typical finance students.”
If after weeks of research the students decide it’s a go, they then decide how much money they want to commit. Generally it is somewhere between $25,000 and $100,000—relative mouse crumbs in the VC/PE world but big enough for students to feel serious responsibility.
There is, however, one small but significant lightening of the yoke for students before they go in on a deal: everything must get final approval from an advisory board of faculty and industry professionals.
“We act as a sounding board for Cougar Capital to help them think through things strategically on all deals,” says board member Blake Modersitzki, managing director of VC firm UV Partners. “We have the fiduciary responsibility to approve all investments.”
It’s Bonding Time
The process is grueling for students. “It’s only a three-credit class, but often it feels like a nine-credit class,” Lemmon says.
The intense work tends to bring the best out of the elite BYU MBA students, who often end up bonding both inside and outside the classroom.
The 2010 team, for example, spent an entire day last fall wakeboarding, waterskiing, picnicking, and wave running. Students also form intramural sports teams, share couches for BYU football games, and jam together on Rock Band.
Walker says her team was so close they finished one another’s sentences.
“Once I was introducing myself in class to a guest speaker when one of my teammates interrupted and accurately completed my introduction,” Walker recalls. “We started to laugh, but it didn’t stop there. Someone else piped up on behalf of the next person.”
Quality and Quantity
Even before they complete their MBAs, the members of Cougar Capital boast impressive résumés, work experience, and sterling academic marks.
Tall, from Allegis Capital, hired one of the Cougar Capital MBA students as an intern last summer even though his firm wasn’t structured to support one. He was so impressed with the intern he hired him for an extra two projects after the student went back to school. Now Tall is planning on bringing in another intern this summer.
“The caliber of students at the Y is high and the eagerness to learn is even higher,” says Tall, a BYU alum. “Overall the BYU program compares very well with the elite schools in the nation. I appreciate the students because they’re making my original degree more valuable every day.”
Adds Modersitzki: “BYU students have got intellectual horsepower; they’re intelligent, and they’re a joy to have around. We continue to go back to the well because of the experience we’ve had with the students.”
Count Fraser Bullock, Sorenson Capital managing director, as another industry professional impressed with the crew.
Bullock was the first donor to help start Cougar Capital in 2005, and now his private equity firm regularly partners with the program for due diligence.
“We’ve hired three MBA graduates from BYU over time, and all three of them have worked with Cougar Capital,” Bullock says. “Cougar Capital is a wonderful opportunity to train business school students for the private equity industry. It’s an excellent career, and this gives students a leg up in entering the industry.”
Industry professionals, such as Bullock, Tall, and Modersitzki, have different reasons for praising Cougar Capital than former students such as Crocker and Walker. But one thing they all acknowledge: Williams deserves the credit for making the program what it is today.
For Williams, he’s just trying to make good on a promise to churn out industry-ready graduates.
“Great CEOs learn how to synthesize data and information and utilize critical thinking skills to make good decisions and then execute those decisions,” Williams says. “I fully believe Cougar Capital has been able to deliver on that promise.”
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Article written by Todd Hollingshead
Illustrations by David Plunkert
About the Author
Todd Hollingshead is a media relations manager for BYU’s University Communications. He graduated from BYU in 2004 with a BA in communications and worked as a journalist for the Salt Lake Tribune before returning to BYU. He and his wife, Natalie, live in Orem with their two children.
