disadvantages of student run venture funds

Guri Bee

3 min read

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18-10-2024

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The Double-Edged Sword: Disadvantages of Student-Run Venture Funds

Student-run venture funds (SRVF) are increasingly popular, offering students a hands-on experience in the world of venture capital. However, while providing invaluable learning opportunities, these funds also present unique disadvantages that potential investors and participants should consider.

Limited Experience and Network:

• Q: What are the major disadvantages of student-run venture funds? (Source: https://github.com/The-Open-Source-VC/venture-fund-manual/issues/11)
• A: The biggest disadvantage is the lack of experience and network of the team. (Source: https://github.com/The-Open-Source-VC/venture-fund-manual/issues/11)

Analysis: Students, by nature, have limited experience in the business world, especially in the complex realm of venture capital. Their network is also generally smaller, limiting their access to industry professionals and potential investment opportunities. This lack of experience and network can make it difficult for SRVFs to identify promising startups, assess investment risks, and navigate the complexities of deal-making.

Potential for Bias:

• Q: What are the disadvantages of student-run venture funds? (Source: https://github.com/The-Open-Source-VC/venture-fund-manual/issues/11)
• A: Another disadvantage is the potential for bias towards startups founded by students or those in the same university. (Source: https://github.com/The-Open-Source-VC/venture-fund-manual/issues/11)

Analysis: This bias can lead to investments based on personal connections or shared experiences rather than objective evaluation. It's crucial for SRVFs to establish clear investment criteria and ensure diverse perspectives to minimize bias and maximize the potential for success.

Limited Resources and Operational Capacity:

• Q: What are the challenges faced by student-run venture funds? (Source: https://github.com/The-Open-Source-VC/venture-fund-manual/issues/10)
• A: Student-run venture funds face numerous challenges, including limited resources, operational capacity, and industry expertise. (Source: https://github.com/The-Open-Source-VC/venture-fund-manual/issues/10)

Analysis: SRVFs typically have limited resources, both financial and human. This can restrict their ability to conduct thorough due diligence, provide adequate support to portfolio companies, and handle the administrative demands of running a fund. Students often juggle their studies with fund activities, which can impact their effectiveness and commitment.

Risk of Unrealistic Expectations:

• Q: What are some of the biggest challenges and disadvantages of student-run venture funds? (Source: https://github.com/The-Open-Source-VC/venture-fund-manual/issues/11)
• A: The biggest challenge is unrealistic expectations of both the team and the investors. (Source: https://github.com/The-Open-Source-VC/venture-fund-manual/issues/11)

Analysis: Investors might expect high returns from SRVFs despite their limited experience and resources. Students, in turn, might overestimate their ability to deliver these returns, leading to disappointment for both parties.

Practical Examples:

• University A's SRVF focuses heavily on startups from their own university. This leads to concerns about bias and limited access to diverse investment opportunities.
• University B's SRVF struggles to secure funding due to a lack of experience and proven track record. This limits their ability to invest in promising startups.

Overcoming the Challenges:

While SRVFs face significant disadvantages, there are ways to mitigate these challenges. By partnering with experienced professionals, leveraging university resources, and establishing clear expectations, student-run venture funds can create valuable learning experiences and potentially deliver returns for investors.

In conclusion, student-run venture funds offer students a unique opportunity to gain valuable experience in the venture capital industry. However, it's crucial to acknowledge their limitations and address potential disadvantages to ensure a successful and ethical investment experience.