- Stanford’s endowment would benefit directly investing in students’ startups, a new analysis shows.
- Stanford could have made over $1.3 billion by investing $125,000 in every student’s startup.
- Over the past decade, startups founded by Stanford MBAs have generated $200 billion in value.
A group of Stanford MBA students think their university’s giant endowment is potentially leaving billions on the table by not directly investing in startups founded by the school’s students and alumni.
The students calculated startups founded by Stanford MBAs over the past decade such as Doordash and Nubank have generated over $200 billion in market value.
If Stanford’s endowment had followed a Y Combinator model and blindly invested $125,000 in every MBA’s venture-backed startup’s institutional seed round over the past decade, it would have generated $1.3 billion, according to the analysis.
“For the largest endowments of educational institutions with strong entrepreneurial programs (e.g. Stanford, Harvard, MIT, Penn, etc.), we have a simple yet needle-moving recommendation: directly and unreluctantly invest small dollars in institutional seed rounds of companies founded by alumni,” one of the students, Brent Westbrook, wrote in a Medium post.
In an interview with Insider, Westbrook explained he got the idea for conducting the study by seeing so many of his classmates start their own companies.
“They raised a bunch of money and I was like, ‘wait a minute,'” Westbrook said. “We haven’t heard of an endowment investment model where the investment team was allocating meaningful capital to direct investments in seed stage companies started by alumni or students of their universities.”
Westbrook declined to say if he has gotten any response from Stanford Management Company, the group that invests the school’s endowment, or its CIO, Robert Wallace. Wallace did not respond to a request for comment.
Westbrook is advocating an index-style approach to investing because he says the endowment’s staff of around 50 people should not try to serve as a venture firm and attempt to pick winners and losers.
“A lot of these endowments don’t have the time, the energy or the resources to spend time going through every seed stage company,” he said.
And he says Stanford has already done much of the leg work of screening students.
“They’ve been in the classroom, learning from the professors that have been vetted by the universities and ultimately they were also admitted to the school,” Westbrook said. “There’s a filter mechanism there already and you can kind of think about it like an accelerator.”
Westbrook and his peers only analyzed the 687 companies started by Stanford GSB students since 2010, which leaves out companies founded by students at other Stanford schools that have produced founders of household names from previous years like Instagram, Yahoo, and Google.
Doordash, started by Stanford GSB 2013 graduate Jerry Xu, is by far the most successful Stanford MBA startup in the last decade with a market cap of around $64 billion.
Nubank, started by Stanford GSB 2012 graduate David Velez, comes in second with a valuation currently being discussed as high as $55 billion.
Overall, Westbrook found 14% of companies started by Stanford GSB students in the last decade are worth over $100 million.
“I think there’s a sentiment in the valley that if you go get an MBA, you may not be so entrepreneurial and so I think I was personally surprised by just the volume of companies that have gone on to achieve success,” he said.
Westbrook is currently a scout for Accel, and before Stanford, he spent nearly three years as an associate at TrueBridge Capital Partners, an alternative asset investment firm focused on venture funds and direct investments.
Westbrook says he has no idea what he wants to do after graduating next year.
“I’m going to use the next year to figure that out,” he said.
Perhaps Stanford Management Company will offer him a job.