In Pioneering Venture, Michigan MBA Students Lead Climate Investment Fund

Climate change-related curricula have been increasingly central to MBA programs in recent years, rising in prominence at the leading business schools in the United States and Europe in concert with growing global awareness of a need to act, and a recognition that business — and therefore business schools — must play a leading role in solutions to what many consider the most important issue of our time. Some schools, led by faculty that study and teach the crisis, are even going beyond the assortment of electives on offer since the middle of the last decade, moving toward a “climate change core.”

Well before the coronavirus pandemic muscled its way to the fore of worldwide concerns — sucking all the oxygen out of the room, so to speak — the need to address climate change, and B-schools’ uniquely strong position to do so, had increasingly spurred top schools to direct major resources toward the issue, whether in the form of endowed think tanks and institutes, high-profile faculty research, the launch of new programs and degrees, or the creation of experiential and other additions to MBA curricula.

Some schools have been at it longer than others. At the University of Michigan, efforts to harness student brainpower in the fight to mitigate climate change date back to the 1990s with the founding of the Erb Institute, a dual-degree program that confers an MBA from the Ross School of Business — long known for its action-based learning — and an MS from the School for Environment and Sustainability (SEAS). Following on the success of other enterprises like the Zell Lurie Institute’s Social Venture and International Investment funds, the university has now launched the Michigan Climate Venture, a group that will seek to invest in early-stage climate tech companies with potential to make a real difference on what faculty director Gautam Kaul calls “the most pressing and challenging global societal issue we face.”

‘A SIGNATURE EDUCATIONAL EXPERIENCE’

Housed in SEAS, the MCV fund is open to full-time graduate students from schools across the Michigan campus. It’s a key element in leveraging the university’s greatest strength as a repository of cross-disciplinary expertise.

The key: Students will manage the fund, deciding where and when to invest. Around 20 have been accepted into the fund from the Michigan Ross full-time MBA program, SEAS, and the university’s College of Engineering; they will meet and collaborate throughout the year to source, vet, and invest in deals aligned with the fund’s mission to combat climate degradation, with an initial primary focus on companies tackling challenges in agriculture, mobility, and materials in the Great Lakes Region. As the fund’s site explains, “MCV invests in early-stage, pre-seed through series A, ClimateTech startups with moonshot potential to decarbonize the economy.”

“MCV,” says Kaul, professor of finance and Robert G. Rodkey collegiate professor of business administration at Michigan Ross, “seeks to be a signature educational experience at a top public research university: issue- and action-based, rigorous and data-driven, multidisciplinary, technology-enhanced, and co-created and managed by students.” He says the notion of learning by doing, ingrained in the school, is in the DNA of the new program.

“You learn by doing, and by being confronted with the problem, rather than learning in silos, and then looking for a problem to solve,” Gautam tells Poets&Quants. “And that started, at the university, in the ’90s. We started MAP, and then we have done a bunch of action-based funds in Ross.”

Gautam has been closely involved in several of those funds. But MCV, he says, “is just awesome. You can say it’s just the most fascinating learning experience I hope we have created.”

MORE COMPLEX THAN A TYPICAL VC FUND

One of MCV’s most distinguishing features is its ambition to be university-wide. This is essential to be effective, Kaul says.

“The climate change problem is inherently very complex,” he says. “So the educational mission is to be action-based, which is the fund, but to be the educational place where everybody — at least at Michigan, if not the globe — seeks to look for actionable, rigorous solutions.”

He points to the Social Venture Fund, of which he served as founding managing director when it was launched more than 10 years ago, as a model — at least to start.

“SVF has raised money on its own, showing the success of this educational model,” Kaul says. “I think we’ll be even more successful raising money for this issue, because the level of interest is much higher. But we also have to prove that this model works — both the education and the investment model. And it’s fair. The good news is, alums support us, so these are evergreen funds. And it’s not like typical funds, which exist for 10 years, and you’ve got to make the investment and exit. We may even investigate whether the VC model is the best model.

“That’s what I love about this initiative: It’s not going to take anything for granted. We may even innovate on the financing side. It’s far more complex than a typical VC model. I’m very confident we’ll be able to replicate what the Social Venture Fund has done — it has raised money from alums, and we now have a runway for about 10 years. I think we’ll reach that point faster with MCV.”

TANGIBLE SKILLS

How did MCV find its inaugural team? It was a highly selective process, Kaul says.

“It’s like finding the owners of a company startup,” Kaul says. “It happened at a very intimate interview process — it was a two-week process, which I hope I never have to go through again. I’m not kidding you. They’re already at University of Michigan, which is a huge, high hurdle. And then the people in the room were quite rigorous in the selection process. So imagine you are applying to the MBA program and have to go through a written application process, an interview for which you’d better be prepared with a case. And then you are selected among many who are also rejected, because a fund can’t be large, it can’t have a hundred people.”

Laura Dyer, a second-year dual-degree MBA/MS student at Michigan’s Erb Institute, was one of the successful applicants. A CPA in the investment management industry, she’s now MCV’s co-director of education.

“I think one of the main things that excites me about MCV is the opportunity for real action-based learning in this growing field,” Dyer tells P&Q. “One of the main reasons why I came to the University of Michigan was for action-based learning, like the MAP Project and the funds. And there’s just so many opportunities to do that, but there wasn’t anything specific to climate at the University of Michigan before.”

Dyer wants to pursue climate tech venture capital as a career after school, “so this really is the absolute best place to learn from peers, learn with peers, get really involved with the ecosystem, start talking to startups, and just really be able to have tangible skills to bring to future employers.”