Student-Led Wolverine Venture Fund Achieves Record $2 Million Return on HandyLab Acquisition
Transaction delivers Ross students their third successful portfolio-company exit since venture fundís inception in 1998.
ANN ARBOR, Mich. — A series of strategic venture capital investments in University of Michigan technology spin-out HandyLab Inc. has paid off handsomely for the University-based, student-led Wolverine Venture Fund (WVF), part of the Samuel Zell & Robert H. Lurie Institute for Entrepreneurial Studies (ZLI) at the Ross School of Business.
HandyLab, an Ann Arbor-based developer and manufacturer of molecular diagnostic products, entered into an agreement earlier this fall to be acquired by Becton, Dickinson, and Co., which is based in Franklin Lakes, N.J. The transaction closed on Nov. 19, 2009, returning a record-setting $2 million to the WVF and handing Michigan business students their third successful portfolio-company exit since the fund's inception in 1998.
"This clearly demonstrates that great things can be accomplished when hard-working entrepreneurs and innovative technology are matched up with senior leadership of the quality of HandyLab President and CEO Jeffrey Williams [MBA '92] and forward-looking investors in the venture community, including the Wolverine Venture Fund," says Thomas C. Kinnear, PhD '72, ZLI's executive director.
The institute oversees the WVF, which teaches first- and second-year MBA candidates the fundamentals of the venture capital business. Students invest in early-stage companies under faculty and adviser supervision with the objective of earning venture rates of return. Michigan's prominence as a leading research university with outstanding schools of engineering, medicine, and business has created a rich student entrepreneurship environment on campus.
"Our students have an opportunity to work with company founders and co-investors from established venture funds in making critical judgments about whether to invest and re-invest," Kinnear says. "The greatest benefit is that students get practical experience by using real money to make real investments in real companies in real time."
Emerging high-potential companies, such as HandyLab, receive investment dollars from the WVF at critical times during their seed and early-stage phases. In addition, students provide input by developing and revising business plans, conducting market and product research, and writing case studies. "The WVF fills an important gap in the venture funding cycle. In addition, our students are able to take a fresh look at the business and offer some guidance, especially in the early stages," Kinnear says.
HandyLab was added to the WVF portfolio in 2000 when the fund participated in the company's Series A round. Between 2000 and 2005, the WVF invested $350,000 over six rounds and, upon exit, earned a six-fold, cash-on-cash return. Approximately 100 Ross students participated in the fund's investment activities over that time span. Overall, HandyLab raised a total of $47 million in seed and early-stage financing from a pool of investors, including Ann Arbor, Mich.-based EDF Ventures, which helped found the company and provided the seed round, and Ardesta and Arboretum Ventures, which have strong alumni ties to the University and the Ross School.
"A Great Idea for a Large Market Need"
This is not the first "home run" for the WVF. Students also directed the WVF's total investment of $250,000 over four rounds in IntraLase, an ophthalmic medical-device company, which became the first firm in the fund's portfolio to go public. In 2004, the WVF sold its shares in the initial offering, returning more than $1 million in proceeds and effectively expanding the overall size of the fund to $3.5 million. Prior to that, the WVF achieved their first investment milestone when portfolio company Versity.com was acquired in 1999. Over its 11-year history, the pioneering student-managed fund has invested in more than 18 companies across a wide range of innovative industries.
Tom Porter, MBA '67, former general partner at EDF Ventures, and Mike Partsch, who served his Kauffman fellowship at EDF under Porter's mentorship from 1998 to 2000, were key players in the formation of HandyLab nine years ago. After reading a report about the groundbreaking automated diagnostic testing technology, they tracked down the inventors, two U-M professors, David T. Burke and Mark Burns. Over several months, they negotiated an exclusive licensing deal with the University, and partnered with two U-M chemical-engineering doctoral students, Kalyan "Handy" Handique and Sundaresh Brahmasandra, students of Burke and Burns, to co-found the company in June 2000.
"It's a fascinating story, and I'm grateful to all the people who backed us in the early days and had faith in our concept," says Partsch, who conducted due diligence on the venture and served briefly as CEO of the new company. He is now the founder of AcceleMed Management, a California-based medical device incubator.
Porter saw the start-up venture as a prime investment candidate for the WVF. He contacted Tim Petersen, MBA '98, who was then ZLI's managing director. "This was a classic case of old-fashioned venture capital where there was no product, no company structure, and no management team — just a great idea for a large market need," says Porter, who is executive-in-residence of ZLI and fund director of the Ross School's Frankel Commercialization Fund, another student-managed fund. "At the time, the Human Genome Project was wrapping up and there was a lot of excitement about genomics and proteomics in the health-care industry. We perceived HandyLab's technology as key to personalized medicine."
Mary Campbell, MBA '79, is a founding WVF advisory board member and founding member and managing director of EDF Ventures. Investing in HandyLab fit hand-in-glove with the mission of the Wolverine Venture Fund, she says. "It was an opportunity to reap financial rewards that would continue to fund the WVF," she says. "It also enabled students to deepen their knowledge and advance their understanding of venture capital and entrepreneurship." Campbell has served on HandyLab's board of directors since 2004.
"In many ways, this was a 'normal' WVF investment," adds Petersen. "It involved exciting new technology from the University, two friendly venture-capital funds, EDF Ventures and Ardesta, and two University doctoral students with the right amount of interest and commitment to the company and to being entrepreneurs. It was a tremendous experience for students, who had an opportunity to watch the company's evolution, track its progress and make investment decisions over time that yielded great results." Petersen is now managing director of Arboretum Ventures, which became an investor in HandyLab in 2004.
Students Net a Different Kind of Return
Adam Orlov, MBA '01, served as WVF student chair during the fall 2000 term. He participated in the due diligence on the project and oversaw the student team assigned to vetting HandyLab.
"We learned to source deals, conduct due diligence, value opportunities and gauge what investors are looking for," Orlov says. "It was a prestigious experience to have within the U-M business community and presented an educational opportunity to work with full-time, professional venture-capital investors. Outside companies and employers also value the fact that you have actually 'lived' this venture-investing role, which lends credibility to your resume." Orlov put his investment know-how to work when he formed Chicago-based Hill Partners with three Ross classmates in 2002. Today, he is a managing member of Anthem Capital.
"The investment process that the WVF established is solid," says David T. Shelby, MBA '64, who was the WVF alumni fund manager in 2000 and currently is founder of Illinois-based Northport Private Equity. "Students are not led down the path by advisers. Essentially, it is up to the students to dig in, analyze data, look at risk and reward, and make an investment recommendation. This model gives them the experience they need to get a job in the field and also makes money for the fund."
Other ZLI programs, such as the Marcel Gani internship program, have contributed to HandyLab's advancement over the years while affording hands-on learning for Ross students, such as Ranjit Patnaik, MBA, '02. He interned at the startup in the spring of 2001 and now works at a financial-service firm in India. Simone Horneye, MBA '01, says her student days on the WVF piqued her interest in venture investing, helped refine her career pathway, and impressed potential employers. She is a regional marketing leader for medical-device maker Medtronic. HandyLab also hosted a team of MBA students as part of a business-development class project.
HandyLab's Williams, who joined the company as president and chief executive in 2004, says the startup has shown it is possible to bring technology out of the University, infuse seed money from investors, and create a new business. "The willingness we've seen by U-M President Mary Sue Coleman, Tom Kinnear, Ken Nisbet of the Office of Technology Transfer, and others to encourage and promote technology moving from the University into the community can have a major economic benefit," says Williams. He plans to stay on at the Ann Arbor facility, which will still be used for research and development and manufacturing operations. "But we need a whole bunch of little companies" to create new jobs and drive economic recovery in the state of Michigan.
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