University of Michigan's student-led Frankel Fund leads $600,000 investment round
Photo courtesy Samuel Stevenson
As the University of Michigan has increased its focus on the entrepreneurial ecosystem, it has not neglected the funding half of the equation. In January, the Frankel Commercialization Fund invested $80,000 in Fusion Coolant Systems Inc. as part of a $600,000 series A round for the company.
The fund is one of three housed in the Zell Lurie Institute for Entrepreneurial Studies in the Ross School of Business. The aim of the funds is to give students real-world experience in managing early-stage investment opportunities.
“I don’t participate in the interactions, and I try not to be present unless I have to be. Otherwise it would change their experience,” Tom Porter, the fund’s mentor and managing director, said. “They negotiated the deal themselves.”
The deal with Fusion Coolant was the first time that the Frankel Fund had led an investment round. Being the lead investor comes with certain responsibilities including evaluating the net worth of the company in which a fund invests.
“This was a first for us where we set the price,” Porter said.
“So the students estimated what they thought the net value of the company was, and the company had an idea and the students went in and negotiated the transaction. That’s part of what makes this the most extraordinary student learning experience anywhere.”
Fusion Coolant started as research at the University of Michigan and was a spun off through the Office of Technology Transfer. According to a news release, the company has developed a disruptive metal-working innovation that cools and lubricates metals in a way that eliminates the cleaning process.
Fund fellow and MBA candidate Dan Itsara said the team looks to fund companies that have connections to the university.
“We generally want to be one of the earlier investments in a company so that both our investment and the involvement we bring to the company can be of high leveraged value,” he said.
“And we look for companies based on U-M technology or based in Ann Arbor so that we can support the university and the entrepreneurial community here in town.”
The fund currently has seven companies in its portfolio and usually invests in about one new company every year. Different teams within the fund, each with about four members, research investment opportunities throughout the year, which leads to one or two emerging as strong candidates.
The fellows in the fund are all graduate students, mostly MBAs with a smattering of Ph.D. candidates and some medical school students.
“We have four teams. The tech team, a consumer team, a health team, and a cleantech investments team,” Itsara said.
“So we’re all doing our due diligence on companies within our areas and decide whether we think we’ve found something worth investing in. Usually it becomes pretty obvious which companies are stronger and then we pull in people from different teams to help out on a company that is really strong and requires more effort.”
This particular deal required a lot of effort by the tech team and the rest of the fund because the team had to go through multiple rounds of negotiations after additional capital was not immediately available.
“So this gave the students an even better experience, which is ‘if it doesn’t go according to plan, then what?’” Porter said.
“ So they renegotiated not the terms but the governance issues to make it work better, which was another extraordinary experience. As a result we finally closed the deal.”
Itsara said he does not have specific post-graduation plans yet, but he does expect to go into the tech industry, likely in California or elsewhere on the West Coast.
“Anecdotally, I think a lot of Frankel Fund people go on to work in tech-based companies,” he said.
“I can think of one person who’s working for Google in Chicago, another is in Ann Arbor working with a startup company here. A lot of people end up gravitating toward tech-based entrepreneurial ventures no matter where they end up geographically.”
Ben Freed covers business for AnnArbor.com. You can sign up here to receive Business Review updates every week. Reach out to Ben at 734-623-2528 or email him at firstname.lastname@example.org. Follow him on twitter @BFreedinA2