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Where Are They Now? Episode 1

Where Are They Now? Episode 1

Episode 1: The Story of NVC

April 15, 2021

When it launched 25 years ago, the University of Chicago’s New Venture Challenge (NVC) was a pioneer in helping business school students get their startups off the ground.

Now the program is consistently ranked as the nation’s top university accelerator, with its alumni companies having raised nearly $2 billion in capital and achieved more than $8.5 billion in mergers and exits. It has expanded to include five separate tracks.

What are the secrets to its success?

Podcast host and Chicago Booth alum Colin Keeley, MBA ’19, interviews three key leaders responsible for the success of the NVC: Steve Kaplan, Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at Booth and Kessenich E.P. Faculty Director at the Polsky Center; Ellen Rudnick, the first executive director of the Polsky Center and currently a professor of entrepreneurship at Booth; and Mark Tebbe, who served as an NVC judge and mentor for years before joining the Booth faculty and Polsky Center as an entrepreneur-in-residence.

Listen now on Apple, Spotify, Overcast, or wherever you get your podcasts.

Transcript

Steve Kaplan:

You get intense criticism and it is so healthy to get that intense criticism early because you find out where your weaknesses are. And then, that happens in April, the teams present, and they’re usually just shell shocked, “Oh my God, I didn’t know that.” And it is hugely beneficial. They pick themselves up, they fix things if they need to be fixed, they explain them better if they need to be explained better. And then when they present in May, they are massively better. It is almost magical how much better they are.

Colin Keeley:

Hello and welcome to the first episode of the Polsky Center’s “Where Are They Now” podcast. I’m Colin Keeley and we catch up with founders from Chicago Booth, New Venture Challenge on the show. We dive into their entrepreneurial journeys and get a look at the stories and struggles behind their success. The New Venture Challenge isn’t just another university startup accelerator. Booth’s NVC is ranked alongside Y Combinator and Techstars is one of the best accelerators in the US. Many household names such as Grubhub, Braintree and Simple Mills have come through the program. We will catch up with these founders and many more over the coming episodes.

Colin Keeley:

The theme of this podcast is that it takes a village. So I’ll be passing the mic over to coaches, investors, and other mentors that have helped these founders along in their journey. This week is an extra special episode. We don’t have founders of a startup this time, we actually have the three folks that have been instrumental in taking NVC from just an idea 25 years ago, to where it is today. It is my pleasure to welcome Steve Kaplan, Ellen Rudnick and Mark Tebbe. Without further ado, here’s the story of the New Venture Challenge.

Colin Keeley:

Hey, this is Colin Keeley here. It’s an honor to interview Ellen, Mark and Steve today. So thanks so much for having me. Just to kick things off and identify everyone’s voice since we have so many people on this call. Do you want to just, well, say your names and what you do.

Ellen Rudnick:

I’m Ellen Rudnick, and I’m a senior advisor to the Polsky Center.

Steve Kaplan:

And you were the first executive director of the Polsky Center. Steve Kaplan, I am the faculty director of the Polsky Center and a professor at Chicago Booth.

Mark Tebbe:

And I’m Mark Tebbe, an entrepreneur-in-residence at the Polsky Center and a Booth professor.

Colin Keeley:

So going way back, way before my time, to 1996 and the beginning of the New Venture Challenge. So Steve, could you set the stage? What was the state of startups in the world back then? The state of Booth pre-NVC?

Steve Kaplan:

So this was early on, this was before Booth had an entrepreneurship concentration, there were, I think, three entrepreneurship courses in Booth, and it was not… Entrepreneurship was not very central. And I had just gotten tenured and I had just started teaching entrepreneurial finance, which the dean had asked me to do because someone who had been teaching had left and he wanted someone to teach it.

Steve Kaplan:

So I was teaching entrepreneurial finance. It was like the first or second time. And one of my students, Jeff Meyer, popped into my office and said, “Well, you’re doing entrepreneurial finance now, we ought to have a business plan competition because one or two other schools were doing it and we should do it too.” And I had just started teaching and I knew nothing. And I said, “Well, I guess, that’s a good idea. We should do that. So I’ll do it as long as you and the students do all the work. So what you need to do is do all the work. I will find you some judges and some money.” And Jeff was like, “Okay, it’s a deal.” And we were off to do it and it was a little bit different.

Steve Kaplan:

Then we decided to do it and I got judges, I got prize money, I think it was $25,000. It was something like that. And we got students to apply and I think something like 30 teams applied and then they went and did their plans. It wasn’t a course. And at the end we had some finalists and we had the judges and, I even forget exactly who won. Well, actually, the third place team included Brian Coe, who went on to start two other companies, one of which he just took public. And at the end of it… So it was kind of put together. It wasn’t so serious and at the end of the competition, I asked the students, “Well, what did you think of it?” And the students said it was a good experience, but they really didn’t have enough time to work on their businesses. And they said, “If it had been a course, it would have been better.”

Steve Kaplan:

And so what I did the next year is I said, “Okay, let’s do it as a course.” And so 1998 or ’97, ’98 was the first year we actually did it as a course.

Mark Tebbe:

And Colin, the team that won that year was called eFx. And Brian Coe was on a team called ScanDX.

Steve Kaplan:

Correct.

Colin Keeley:

What were they doing?

Steve Kaplan:

And eFx actually was not a bad idea. It was like electronic foreign exchange. And it was probably a little bit before its time, but it was a FinTech business.

Colin Keeley:

So Steve, I realized I jumped the gun a little bit here. Everyone knows you as the professor you are today. What was your background before Booth, before the NVC?

Steve Kaplan:

I came to Booth as a finance professor. I’d done my doctoral research and dissertation on leveraged buyouts. So I kind of came from the private equity area. And then I taught corporate finance, I did research, private equity, mergers and acquisitions, corporate governance. And I knew nothing about startups, zero. And, again, I got tenure, I think in ’95, ’96. And at that point the dean said, “Oh, why don’t you teach entrepreneurial finance?” And since I knew nothing, I actually had to learn it. And I went and found some venture capitalists who were willing to give me some training. And there were a couple. There was First Analysis in Chicago and Kathryn Gould at Foundation Capital in California, were helpful in teaching me. And I’ve been learning ever since. Now I know a little bit. I knew nothing when I started.

Mark Tebbe:

That’s what that Harvard undergrad and doctorate will do for you.

Ellen Rudnick:

And Steve until you have to make payroll, you haven’t run a startup.

Steve Kaplan:

Right. Exactly.

Colin Keeley:

So that takes us to roughly 1998. So what happened in 1998? Next after that first year.

Steve Kaplan:

So the next thing that happened. We were running the New Venture Challenge and the first year we did it as a class, it was unbelievable. I was just shocked. We had the first run through of running it the way we run it today. And it was just amazing how much progress the teams made. And the teams that year, actually, we had MedSpeed, which Jake Crampton, we did a fireside chat with recently. He was just named the Entrepreneurial Alumnus of the Year. Then we had another business that ended up raising venture money and being sold a couple of years later for a hundred million bucks.

Steve Kaplan:

It was pretty amazing. And at the time, Bob Hamada, who was the dean, said, “We need to make entrepreneurship a real thing. If we don’t have entrepreneurship, we’re going to get left behind at the school.” And he asked me, “Would I be faculty director?” So somebody who knew nothing about entrepreneurship and fell into it because I was teaching it. Now, I was the only tenured guy who had anything to do with entrepreneurship. So I was the last man standing or the only person standing. And so he said, “Would I run it?” And I said, “Okay.” And then I started running it and I realized, I can’t do this myself. I have lots of other things to do — research, teaching, whatever. I need to hire someone really good who can really run this and knows what, in Ellen’s case, knows what she’s doing.

Steve Kaplan:

Bob said, “Yes, that’s fine.” And we actually applied for some money from the Kauffman Foundation. And they gave us a very nice grant and we were able to use that grant to hire an executive director. And I actually looked for quite a long time. This is actually an interesting lesson. I kept looking until I found the person who I thought would be really good. There were two or three people I almost hired, and then I said, “Nah, they’re not quite right.” And then Ellen popped up and she was perfect. And we hired Ellen to run everything. And everything that’s good that’s happened since is because of Ellen, and I just said yes to everything Ellen wanted to do.

Colin Keeley:

Ellen, what was your background up until that point?

Ellen Rudnick:

Well, first I must say Steve is over excessive here in his compliments. But it’s true. Everything I told him to do, he did. So prior to coming to Booth, I worked in the healthcare industry primarily and I had spent 15 years in a corporate environment and I actually was an intrapreneur. I built a business within a large healthcare company. And then I had two more entrepreneurial initiatives. I had one where I ran a small venture backed company in the data analytics space. And then I did a startup in the medical diagnostics space.

Ellen Rudnick:

So I had about 10 years of entrepreneurial experience before I came to Booth. And when we were merging my medical diagnostics company with another company, and I was looking around, I got wind that University of Chicago, which was my alma mater, was looking for somebody to help them start an entrepreneurship center, which sounded cool at the time. So that led me to meet with Steve Kaplan, and that was 21, 22 years ago.

Colin Keeley:

What was your first impression when Steve came to you with this proposal?

Ellen Rudnick:

Actually, Steve didn’t come to me with it. I think it was somebody who was on the advisory board to the business school. It was a search consultant and I think who was doing some pro bono work for the university. And so I met Steve a little bit later. I think I actually might’ve met Bob Hamada before I talked to Steve. I’m not exactly sure how that went. But I met Steve and we hit it off. And I really recognized that our skills were quite complimentary.

Ellen Rudnick:

I am not an academic by training. And one of the things that I recognized that they needed an entrepreneurship center is, you can’t necessarily teach entrepreneurship. Entrepreneurship has to be learned, but it can be learned in an academic setting by creating experiential learning programs, and NVC was a perfect example of an experiential learning program. And so by combining the academics with this experiential learning, I really believed that we could create some great programming and some great classes.

Colin Keeley:

What did that look like in your first year there?

Ellen Rudnick:

Well, my first year we had a staff of two and-

Steve Kaplan:

And Susan Tai.

Ellen Rudnick:

Susan Tai. And then we had the New Venture Challenge class and we had launched, I think, somebody before me had launched something called the New Venture Lab, but that was where our students would work with entrepreneurial companies as part of class, but that was kind of floundering. So Steve asked me to take that over and I said, “I don’t know how to teach.” And he said, “Well, you’ll get the hang of it.” So I have to tell you, it was a little rocky the first couple of years. And then I really learned how much I loved being with the students and how I actually did like developing curriculum, developing pedagogy. So I taught this New Venture Lab class, and then I sat through, in the first year, I sat through Steve’s New Venture Challenge class, and that was 1999. And I said, “This is really interesting. I could also do this.”

Ellen Rudnick:

So one of the things that was happening then, if you remember the dotcom era, we were getting 75, 85, 100 applications for New Venture Challenge and Steve could only have 15 teams in the class. And I said, “I think we need to have a second section. And I think that we need to think about doing this so our part-time students could also participate.” Because the part-time students couldn’t come to a class in the middle of the day. And so I think in the year 2000, we actually launched the second class and the first year we did it on campus, but later in the day so part-time students could attend. And then we moved it to Gleacher the following year. And I’ll have the second class at Gleacher ever since. And that’s the class that Mark and I have been teaching the last several years.

Colin Keeley:

So that brings us close to 2002, where you got the first gift from Michael Polsky, the $7 million to name the entrepreneurship center. So how transformative was that to actually have some capital behind you?

Ellen Rudnick:

That was pretty transformative. I have to tell you, when I joined the center, they had this limited grant from the Kauffman Foundation that Steve mentioned earlier. But then I found out that to do any of the things that I wanted to do, I had to have more money. And so, I had been used to going out and raising venture capital money for my startups, and that was pretty difficult. And I’m thinking, how difficult is it going to be to raise money for a not-for-profit, nonprofit organization? And I found it actually wasn’t as difficult as raising money for a startup because people are very loyal to their alma maters.

Ellen Rudnick:

And so what we needed to do was identify the successful entrepreneurs who had graduated Booth and really saw the opportunity to support entrepreneurial initiatives at Booth. And so working with the alumni development, we came up with a prospect list. And one of the names in that list was Michael Polsky.

Steve Kaplan:

I should add too, before that, Ed Kaplan, who it’s the Ed Kaplan New Venture Challenge. Ed had been one of the people that I had talked to and then Ellen had ended up talking to him a lot as well in terms of figuring out what to do with entrepreneurship. And then in terms of the New Venture Challenge. Ed was one of the people who has been generous over the years, and then Mac McCormack, Bob ‘Mac’ McCormack gave a gift for, I think our second professorship in entrepreneurship. Joe Neubauer was somebody who was pushing. So you had Ed, Joe, Bob or Mac were all pushing us to do things. And Michael sort of came out of nowhere. I think Ted Snyder must have met him and introduced him to us. And that really was huge because Michael not only gave us money but he’s been very involved and he’s pushed us and really helped us move things forward.

Ellen Rudnick:

I’d like to add a couple of things here to Steve’s comments. The first money that Steve got, the first prize money did come from Ed Kaplan and he agreed to continue giving money the next couple of years. And I came on board and I realized that we needed to increase the prize money. So I spent a lot of time nurturing Ed Kaplan and we got it to 50,000 a year for probably the next 10 years until I finally got him to commit to creating an endowment for this money. I think after about your annual gifts over about 12 plus years, he finally decided it was institutionalized enough that he could commit to endowment.

Ellen Rudnick:

And regarding Michael, there’s a woman in our alumni development office who actually did the first call on Michael Polsky and she was thinking somewhere, she did not have a clue what his net worth was and she was thinking between maybe half a million and a million dollars. And he actually was the one who said, “Well, how much would it cost to name the whole center?” And she came to me and to Ted Snyder and said, “How much should we ask for?” And we came up with this number of $8 million thinking this was totally out of the realm of possibility. And then Michael said, “That sounds good. I want to meet Steve and Ellen.” And I think that’s how that evolved.

Colin Keeley:

And then what was next after you got the money?

Ellen Rudnick:

So what you have to understand is, the way endowments work, you don’t just get the money. The money comes in over time, sometimes six, seven years. And so we had a little bit more money to work with and it allowed us to bring on more staff, it allowed us to really broaden the New Venture Challenge program. One of the things that’s been really important in the New Venture Challenge is having these, I call them paid coaches, people who are supplementing the faculty members and working with the various teams and providing guidance and mentoring to the teams.

Colin Keeley:

Was that always a piece of the New Venture Challenge, the coaches component?

Steve Kaplan:

No, it wasn’t. When we started it, the first couple years that we ran it as a course, there were no coaches. It was just me initially, and then it was Ellen and me. And we had the classroom judges. So we did bring people in from the get go. But my network certainly wasn’t anywhere near what it is today. So we had fewer judges and I don’t think they were as high quality. And over time they got better and better. We brought Mark in, we hit pay dirt on that when we brought him in. So over time it got better. And I’m trying to think when did we first start using actual coaches?

Ellen Rudnick:

I think the first coach we brought on was Waverly.

Steve Kaplan:

Was Waverly. Yeah.

Ellen Rudnick:

We brought her on as a faculty member to actually teach the New Venture Lab class, which I decided I didn’t want to teach anymore because I was focusing on developing a cases and entrepreneurship class and a private equity class and the New Venture Challenge class. And so I felt that I just couldn’t have four classes. So she came in to do that, and we discovered what a great coach she is for presentation skills. She’d actually been a PhD in drama. She actually had worked for a consulting firm where she actually had to help people give presentations. So she was our first coach and she still remains today as our uber presentation coach.

Mark Tebbe:

That was like 2003 I think, she came on board.

Ellen Rudnick:

Yeah. I think it was around then, Mark. She just helps everybody learn how to tell their stories better. And so she was our first paid coach. And then, we started saying, “We need some more talent in marketing, we need some more talent in healthcare, we need some more talent in technology.” And so, over the years we’ve added a judge here, a judge there. And I think now we on average have about-

Steve Kaplan:

We have six coaches. Six or seven.

Ellen Rudnick:

Six coaches. Yeah, six coaches a year.

Colin Keeley:

Yeah. We’re recording all these other stories, all these other podcast stories and everyone has a Waverly story. She works her way into every story. Her feedback has been invaluable.

Mark Tebbe:

And Waverly has an amazing ability to take someone’s message and distill it down to the essence of what needs to be told. And she does it in a very memorable way.

Steve Kaplan:

Indeed.

Mark Tebbe:

Hey Colin, I believe when you were student you went through a few Waverly sessions.

Colin Keeley:

Oh, yeah. Definitely. She called me and my whole team “dumbasses” multiple times in our private meetings.

Mark Tebbe:

But people remember her and she is very, very effective at helping the team distill the differentiation to them, and what makes them the essence of them.

Colin Keeley:

The next thing I have on my list here is 2006, that’s the year of Grubhub and Matt Maloney. So how did Matt get into the class? I think it was Steve’s class at the time.

Ellen Rudnick:

It’s a great story. And I’m going to let Steve tell it.

Steve Kaplan:

He applied and I read the plan. I didn’t read it too carefully because there were a lot of delivery businesses back then that were web delivery businesses. And I read it and I said, “Oh, this is just another web delivery business, nothing new here.” And we did not let him in. And so when he didn’t get in, he was very unhappy and he emailed me and he said, “Can I come talk to you?” And I said, “Sure.” And he came to my office and he said, “You have to let us in.” And I said, “But what’s new? There’s nothing new here.”

Steve Kaplan:

And then he explained to me exactly what they were doing. And it turned out it was new, it was a different model from what other people were using. And he actually had some traction and I said, “Matt, you’re in, but would you please explain it better? Because I couldn’t figure that out from your preliminary business plan.” And he got in and he and his co-founder Mike, figured out how to describe the business, what they were doing. It was a very clever model and had big first mover advantages. They were first movers and they ended up winning after having almost not gotten in, they ended up winning that year and going on to be a national brand and national success.

Ellen Rudnick:

I’d like to just go on the record to say that I did initially want them to be a New Venture Challenge, but I defer to Steve’s on this one.

Mark Tebbe:

What people don’t realize is Matt had started the business before he’d actually come to Booth. He had already gotten his master’s degree in computer science from the university and was working as a program when he came up with this side hustle about what became Grubhub. And as he started to build the business, he realized he didn’t know really how to build a business or run a business and convinced himself he should go get an MBA. So this all occurred in his first year as an MBA. He was a part-time student at that time because he was working a day job while also doing this business at night. And basically convinced himself he needed to go to get his MBA to learn how to run this business. And he’s quick to remind Steve that he wasn’t first accepted and he had to basically camp at Steve’s office to get in. And then he’s also quick to remind that he didn’t win, he was a co-winner. He actually split the prize with someone else.

Steve Kaplan:

Yeah. But that’s winning. Again, we tell our students, we basically want everybody to win. And I mean, the nice thing about the New Venture Challenge is, all the teams can be a success. Nothing would make us happier than to have 10, 20 Grubhubs in a year. I’m not expecting that but I’m hoping for it. There are two other things that are worth mentioning. First of all, looking at a deal early stage, it is really hard to figure out what’s going to succeed. And so in this case, we got it right, that Matt won. But the other first place team, it was not a big success. And some years the big winner, the most successful team is not the winner of the New Venture Challenge. Sometimes the most successful team doesn’t get into the finals, that’s happened once or twice.

Steve Kaplan:

Number one, it’s just really hard to figure out. I messed up with Matt initially, but it’s not so unusual. And number two, it also tells you though it is really important if you’re running a company, you’ve got to be able to explain what you’re doing and sell it. And so part of what we do in the New Venture Challenge, among all of us is we help the students figure out, okay, what do you have? And how do you actually sell it to investors, but also to customers?

Colin Keeley:

Even after Matt won, did anyone have any idea how big Grubhub could become? Was it clear that this one was special at all?

Steve Kaplan:

Mark, you invested, right? You figured that out.

Mark Tebbe:

Actually, I met Matt through the class because it was a technology thing and he was doing a lot of internet work. I had just sold my first business, which was in internet consulting, which became in the end, was an internet consulting firm although we did technology over the 20 years I ran it. And so I met him in this process and I thought it was special and I did invest early in his process. But the interesting thing is when he first came out of the NVC, he couldn’t get any investors. He couldn’t get any investment and he hustled around. He met with hundreds of investors trying to sell that idea.

Mark Tebbe:

And then he slowly but surely started building up the traction because he would find his model, as time went on, but he never changed the focus of his business. And it is impressive how it continued to grow, while still staying core to his principles of what the original business was. But even then, it’s hard to say what took off. It did really well because it was maniacal focus and his tenacity of what he originally went and premised himself on. Being able to deliver food from any type of restaurant you want on a centralized ordering system.

Steve Kaplan:

But I will say, here’s where I will give myself some credit. So I messed up on letting him in. But then when he was raising money, I believe it was a Series A. I got a call from a venture investor and this was like a year or two after he’d won the New Venture Challenge. And the venture investor said, he wasn’t a good friend. He was someone I knew a little bit. And he said, “Should I invest in this?” And this is where I said, “Absolutely.” And I couldn’t invest because Matt was still a student and I don’t invest in current students regrettably.

Steve Kaplan:

So what I said to him is I said, “Look, I don’t know if they’re going to win or not, but it is a great venture investment. Because if they win and are really successful as they were, you’ll make a lot of money. And if they don’t win, they have won Chicago.” So they had a lot of restaurants in Chicago, they had a lot of users in Chicago and it was very sticky. People at that time were not putting their credit card information into lots of different sites. They would pick one or two and then they’d order from it. And it was it. And so Grubhub had won Chicago. And I said, “Look, if they don’t win the other cities, they have won Chicago, someone’s got to buy them, you’re going to make money. And then if they win the other cities, you’ll make a lot of money.”

Steve Kaplan:

And literally after the IPO, this guy called me up and he said, “You may not remember.” And I said, “No, unfortunately, I remember.” And he said, “But I want to thank you for telling me to invest. I invested because of you.” And he made 60 times his money. So I got it wrong initially but then I learned my lesson.

Ellen Rudnick:

Another thing that was interesting about Grubhub, I remember their presentation and they felt that if they were really, really, really, really successful in five years, they could be a $50 million company.

Steve Kaplan:

Right. Correct.

Mark Tebbe:

They also said they only needed to raise 1.7 million and they were going to be profitable. And they ended up raising $84 million before their IPO. And their hope was to sell for seven times revenue.

Steve Kaplan:

Now, I don’t know that anyone knew mobile was going to scale the way it did, but they did ride the tailwind of mobile.

Mark Tebbe:

But to your question, Colin, I think one of the things was, in looking at how the stickiness of the business was, when Matt did his cohort analysis and first started going out and explaining it to a lot of West Coast venture firms, they didn’t really believe that his numbers could be that sticky. And once they figured out his numbers were that sticky, it really worked out well. Because once someone ordered, if they placed a second order, they were just as likely to place an 11th or 15th order.

Colin Keeley:

Wow. And then it was just the following year with Braintree and Bryan Johnson. So what’s Bryan’s story? How did he get in?

Steve Kaplan:

So that was Ellen because I had Matt in my section and Ellen had Bryan in hers.

Ellen Rudnick:

Bryan, he was applying with Braintree. Bryan had experience in the financial payments’ industry. I think was he was selling services to various customers. And you have to think back to 2007 and he was coming in with an idea for a payment platform, which would be used for e-commerce and mobile payments. Now, the iPhone wasn’t released until late June, the first iPhone wasn’t released until late June 2007. And so we’re looking at this plan and thinking, “Who’s going to buy product on their phone?” Was sitting there with my little flip phone saying, “No way.” But he did have… He, as we all know even subsequent to this is, Bryan’s a visionary and he really had this insight. He knew that these smartphones were going to be coming out and he wanted to be the person who could dominate the mobile payment platform, which none of us really had a clue how that was going to work.

Ellen Rudnick:

So we let him into the class and he stumbled at first. I had high expectations for him because I was pretty excited by what his vision was, but he did not know how to tell his story. And so, Bryan also has some wonderful Waverly stories because she really got on his case and after the first presentation totally tore him apart, but helped him dramatically figure out how to tell his story so people understood what it was he was doing. And he won that year and it coincided of course with the launch of the iPhone. And he actually did start out with e-commerce on the computer on websites, but it morphed into the mobile area.

Ellen Rudnick:

Bryan, unlike Matt Maloney, the company was still a concept when he went through the class and he spent the first couple of years really bootstrapping it. He did not take any outside money, he did not want any outside money. He was extremely careful about having investors in his business and going out for funding until he got far enough along that he knew he could maintain control of the equity in the company. And so I remember bringing investors to him in those first couple of years saying, “I have somebody that might be interested in investing.” He said, “I’m not ready for investors yet.” Which I thought was a very different strategy. And as we know, I’m not sure, Mark, do you know what year?

Mark Tebbe:

Yeah. He won in 2007. I think it was late 2010.

Steve Kaplan:

No, it was 2012 before he did an institutional round because we had a five-year limit and he waited five years and five months.

Mark Tebbe:

Okay. I thought it was a three-year limit and three and a half years.

Colin Keeley:

Limit of what?

Steve Kaplan:

So we learned over time, initially, the prize money was just cash. And then after we’d done it a few years, we went to the students and said, “How would you feel if we turned the prize money into a note for equity.” And oh, they said, “That’d be fine. We’d love to have University of Chicago as an investor.” So then we turned it into what’s effectively a SAFE that we use today. But we put a five-year time limit on it so that if they didn’t raise money for five years, then it expired. And in Bryan’s case, he waited five and a half years, which is unfortunate because that would have paid off quite well. And then after that happened, we said, “Why did we put a time limit on it?” So now there’s no time limit.

Colin Keeley:

And just to clarify the facts, Bryan Johnson was in 2007, June 2007, when he won the NVC. He took on his first funding in December of 2010.

Steve Kaplan:

So was it three years? Okay.

Colin Keeley:

And he had a series A for $34 million in June of 2011.

Steve Kaplan:

Okay. So it must’ve been three years then.

Mark Tebbe:

Right.

Ellen Rudnick:

I’m sure that the original SAFE notes for three years Steve.

Steve Kaplan:

Yeah.

Mark Tebbe:

The notes read that here Bryan Johnson, “Here’s $25,000 for your new business Braintree. If after three years you don’t haven’t made it a business, you can just keep the money.” And so it triggered whenever he raised more than a million dollars of outside capital. And so he ended up not raising $3 million of outside capital before it expired. And so it expired, he got it as a grant, no equity tied to it. And then six months, eight months after that, he ended up raising his seed round. And then he went out six months after that for series A.

Steve Kaplan:

Yeah. Because I guess, we made I think 80 times our money on the Grubhub $25,000, and we probably would’ve done the same on Bryan’s. So that’s why we got rid of the limit.

Mark Tebbe:

Yeah. Now it’s basically, it’s SAFE now.

Steve Kaplan:

It’s evergreen.

Ellen Rudnick:

And when speaking of the evolution of NVC, the SAFE note concept is an evolution too. As Steve said, we would just give the cash away. And then we started looking at this and saying, “We need to make this an evergreen program. We need to continue to have money to continue to invest in these businesses and we should create a fund with the winnings or the investments that we’re making in these businesses.” And it was controversial. When we approached the university about creating this, it was quite controversial because the university thought, perhaps this is a conflict of interest. However, we got certain people in leadership to support us when we went forward with it. And now the university itself in some of their other initiative, like the innovation fund and so forth, are doing something very, very similar. And that has become, it has helped us become an evergreen program because the money we’ve gotten back from these investments are now funding other programs for startups like our summer accelerator program, some of our NVC coaches and so forth.

Colin Keeley:

Similar question on Bryan, was there any inkling after that year of what it could become?

Ellen Rudnick:

Not right away. As I said, I kept in touch with him the first couple of years. We would do check-in meetings and he was making progress, but I think he was still figuring out his business model and still developing the product. But it was about, I don’t know, about two or three years afterwards that we felt it really start. At least I recognized that it was really going to take off. And I think it was coincident with the takeoff of the iPhone, the quick adoption of that. And then it took businesses a long time before they could start building their mobile platforms as well for purchasing.

Mark Tebbe:

Because I was sporadically involved in NVC at the time, I did not cross paths with Bryan. But the fact that he was one of the first Chicago-based companies to gain an investment director from Excel, a big West Coast fund, was a big wake up call to a lot of people. Wow. This is some serious stuff here. I mean, he had Excel invest in his first round, which was unheard of for a Chicago company. We’ve had a few since then, but it was a big wake-up call that Braintree was doing something right.

Colin Keeley:

So 2008 was the launch of GNVC for EMBA students. Why was that launch? What drove the need there?

Ellen Rudnick:

Given the increase or the increased visibility of NVC across the university, if it was just really a natural thing that our executive program students would be interested in having a similar program. But it couldn’t be done similarly because of the different way in which the executive program has helped. Students don’t meet on a weekly basis, they have very intense two week sessions. And so the program there had to evolve differently. And I think Rob Gertner was the first — if I remember correctly and Steve, I may be wrong on this.

Steve Kaplan:

Did he run? I don’t remember whether he did it. That’s right. I think he was running the executive programs and he decided to do it, I think that’s right.

Ellen Rudnick:

Yeah. I think he did it the first year or so and it has evolved. At one point in time, it was more like Steve’s original NVC where the students would pitch their ideas and then somebody would be selected as a winner. But there was not a course that necessarily went with it. Over time, the course developed. Today, Waverly actually teaches that course and it’s become much more disciplined. They didn’t have any prize money. So what we would do is take the winner of the GNVC and let the winner of the GNVC compete as a finalist in the NVC if they met certain criteria.

Ellen Rudnick:

In the early years of GNVC, we would have the winners of that track compete in the finals of the New Venture Challenge. And we have had a couple success stories out of that, but then, as it continued to grow and they have GNVC on all the campuses, the Hong Kong campus, the Chicago campus, the London campus, and they have three cohorts going and now they have prize money and they have a more extended curriculum around it and they continue to have coaching sessions and finals and it’s a totally separate track now.

Colin Keeley:

Then 2011 the SNVC launch. What was the thinking behind that one?

Ellen Rudnick:

We were getting a lot of applications in New Venture Challenge for companies that would be nonprofits or for-profits, but with a real social mission. So they not necessarily optimizing profits, but optimizing the mission. And it was decided that these could be good companies, but they didn’t necessarily fit and would not necessarily be as competitive with some of the New Venture Challenge companies. At the same time Rob Gertner was working on developing what would eventually become the Rustandy Center. And so we actually had another employee at the university at the time, Linda Darragh and she and Rob Gertner worked together. And I believe they created the first SNVC event.

Ellen Rudnick:

Again, these things evolve. I don’t remember if it was a formal class or not, but it started pretty limited. And then again, they have evolved to have a very similar program like New Venture Challenge with the same timeframe, the same coaches, prize money and so forth.

Steve Kaplan:

That is correct. That is how it evolved. And I think it turned into a course pretty quickly. I think it was pretty quick.

Ellen Rudnick:

Yeah.

Mark Tebbe:

In its second year, it was a course. And that was right when I was coming into the university and I sat on as a coach and a mentor for the first three years.

Colin Keeley:

When do you enter the picture here, Mark? When do you want to?

Steve Kaplan:

I mean, I get you. He was an in-class-

Mark Tebbe:

I’ll tell you what. I know exactly how I got into the picture.

Steve Kaplan:

Okay. Go ahead.

Mark Tebbe:

I had started my business very early in ’84 and ran it for 20-some years through the dot-com and everything. We took it public and sold it and everything. Then I was doing another business from 2004 to 2011 and that business we were selling it. What happened was Google had offered to license some of our content, but when we learned what Google was going to do, we decided to sell the business. And so there was a company that was based in New York, then I was in Chicago, but the majority of our employees came from a merger from a company in Israel. Basically, we announced the sale on a Friday night, it got picked up Sunday morning in The Jerusalem Post because it was an Israeli company. Then The Wall Street Journal picked it up on a Sunday and ran it in the Monday paper.

Mark Tebbe:

I was coming into Steve’s class to be a judge for his class. And he said, “Hey, I saw the announcement in the paper this morning about your business being sold. What are you doing?” I said, “I just sold the business on Friday night. It’s a public company. It’s going to take us at least 90 days to close it. I’m not doing anything other than getting this business closed. I want to sell this thing.” And he was jokingly making a comment saying, “You should come teach. You do a really good job in there. People like interacting with you, you should think about teaching.”

Mark Tebbe:

I was never in my wildest dreams thinking about being in academic in any way, shape or form. But it was intriguing to me. A few weeks later, I ran into Linda Darragh who was at Booth, but now at this point was back running entrepreneurship at Kellogg, who said, “Hey, I saw the paper that you’re selling your business. Have you thought about teaching? Love to have you come up here and teach because we’re putting together all these adjunct positions of really practical experience, people who are not academics to talk about and teach entrepreneurship, you should think about it.”

Mark Tebbe:

Now, I had an offer from two of the top business schools in the country to do something in entrepreneurship. And what I discovered is what elements Steve already knew. Teaching is a lot of fun, but it also gives you a certain amount of flexibility. Although I’m retired, I’m a little bit more flexible than they are. I decided I wanted to teach for a quarter, take off a quarter, teach for another quarter, take off another quarter. Kind of like a flexible lifestyle kind of play. And so that’s what I now do.

Mark Tebbe:

And so with Steve’s encouragement and then thinking about, do I want to go to Northwestern or go to Booth? There’s the world of difference between… While the schools are very similar in the ratings, I find the Booth students far more quant oriented. Being an engineer, that hit me better than the more qualitative kind of touchy feely you just get a lot at Kellogg. Booth was a natural for me. And so I came in and started teaching. When I sit down with Steve, he says, “What do you want to do?” And I identified an issue that I saw in the New Venture Challenge at the time, which was as soon to get about halfway through the class and say, “Okay, now we’re going to start selling our solution.” And finding out the customers weren’t really liking what they were selling.

Mark Tebbe:

And so we came up with the idea of, before you build it, why don’t you ask customers what their problem is, get to understand the problem from the customer’s point of view and how to understand the pain that they’re facing and then build a solution to solve that problem. And so we created a class which was originally called D4. Then we renamed it to Entrepreneurial Discovery and that’s what I’ve been teaching for the last nine years, along with the opportunity to do the NVC with Ellen and Steve.

Ellen Rudnick:

The other thing that I think is really important about the course that Mark has developed in his teaching is that, oftentimes it’s the pre-NVC course that a lot of these NVC teams have taken. In the fall quarter, they’ll do the customer discovery class. And as they go through that process, they’ll realize whether they have a business opportunity or not. So oftentimes many of the NVC teams that apply will have taken Mark’s course in the spring. It’s sort of like a pre-NVC class.

Mark Tebbe:

Well, what’s interesting though is, the classes become very aimed towards first years. And what now is happening is everyone thinks the NVC is so successful because we have an amazing class. And the process is amazing in itself, but what’s more amazing is it’s a combination of their entire Booth career. And so what you’ll see a lot of, Colin, you’re an example of this, where basically they would come in and then their first quarter of their first year, they would take Entrepreneurial Discovery. It’s a very competitive class and very lucky that a lot of students like it. But they’ll take that and then they’ll come up with a rough idea of what they may or may not be wanting to do. And some of them take the class project, but the majority of them already have an idea of what they’re going to do.

Mark Tebbe:

And they’ll then take other courses — Entrepreneurial Selling, Building New Venture, Entrepreneurial Strategy, Commercializing Innovation, which will give them new skills. And a lot of times they will take and apply it within their same business, refining and enhancing their business. So they’ve got the snowball effect from all these courses that they took at Booth, going through their two years of taking the example of full-time students, through their two years of Booth. And then they’ll culminate with the NVC at the final quarter of their second year. I mean, no one perfected that more than Dave Rabie did with Tovala.

Mark Tebbe:

I think he took his, what was called Maestro at the time through six classes within Booth and basically getting a rallying. So when he came into the NVC, he was just a natural. The snowball was already rolling. Everything he had already thought through, he had worked out in other classes of Booth. But we get that all the time. People are like, “Wow, the NVC is so amazing.” It’s amazing because it’s a combination of all that they learn at Booth, coming into one big spearhead. And it’s funny because, Kaplan would get up at the beginning of the quarter and say, “We’ll teach you nothing, but you will learn a lot.” And the reason that that’s the case is because they will be pulling practical experience out of all their other classes and applying it in the NVC to make that difference.

Colin Keeley:

So 2012, the College New Venture Challenge launched. What was the thinking behind that?

Mark Tebbe:

Let me say I was just new at Booth and the NVC was doing really, really well. And they obviously already at that point, had 15 years under its belt, the reputation was already being built, Grubhub was already becoming our poster child. And it was very well known for us being a program. But there were other parts of the university that said, “We want to be able to do something as well.” And we had seen how it expanded from the NVC to the GNVC, to the SNVC, college was a natural.

Mark Tebbe:

And so we basically put together what started as a program and eventually became a class, taking our learnings that class is important. And we launched the College New Venture Challenge, which is focused on primarily undergrads and that has developed, we’ve done it now for nine years. It’s developed into its own program. A couple of years ago, we actually found the need. Well, it’s seems like every NVC team always says, “I wish I could have more tech people.”

Mark Tebbe:

And so one of the things which, I went to school in the University of Illinois, and I’m very aware of the strength of the engineering school down there. And I saw an opportunity because the engineering school would always try to work with the business school down at U of I, and it didn’t quite gel. But we were able to get an introduction between the dean of the engineering school and the dean of Booth school back when I was first starting at 2011 or so, 2012, because the dean of the Booth school had actually gone to U of I and got his PhD there. And so they knew each other a little bit. And so it became clear that we could figure out a way to get them to work together.

Mark Tebbe:

When the College New Venture Challenge came along, it was natural to let some of the undergrad kids reach across to their peer students at the university. So much so, in the last few years now we have a class where it’s an engineering class from the University of Illinois. The students will take an honors class in Chicago, and they will actually participate in the College New Venture Challenge, side-by-side with the college Booth students and now that it’s been there for a little bit, integrate it together.

Mark Tebbe:

So we’ll have teams in the CNVC that are two U of I students and a U of C student or two U of C students and U of I student. Two and two. I mean, and it’s the combination because one of the things that really is so helpful is to figure out how to put together these cross-school teams. And it’s a powerful combination.

Steve Kaplan:

This year in fact, the College New Venture Challenge teams, a couple of them would have been competitive in the real New Venture Challenge. It has been, I think, a big success. And I think, over time, we’re likely to have some big wins. And I guess we did, we had Cubii from early on just was sold for alleged-

Mark Tebbe:

$100 million.

Steve Kaplan:

$100 million.

Ellen Rudnick:

And Quevos is doing well too.

Steve Kaplan:

Quevos is doing well too. Quevos was on Shark Tank, right?

Mark Tebbe:

Right.

Steve Kaplan:

On the real Shark Tank and they actually got investment.

Mark Tebbe:

We’ve actually had quite a few teams, both from the SNVC, NVC and GNVC, I’m sorry, and the CNVC all be on Shark Tank. I mean, we’ve had a few alumni that have been able to be on the show. So the ANVC is a new addition, is the newest addition to our family. And the founding of it is interesting and funny. We had a judge who sat in the NVC many times as a judge both in class and also finals judge by the name of Alex Meyer, who said, “I really love this process. I like it so much. I’m going to create a process for Harvard.” And they ended up creating the alumni version of the Harvard Business mind competition and, coincidentally and I had been a judge on it a few times. So I watched it as it matured and developed.

Mark Tebbe:

And it started to do real well. They had some real companies that were Harvard alumni basically being entrepreneurial, coming out and building great businesses. And we’re looking at it and saying, “That’s a really good idea.” And Ellen said, “Wow, we should be doing it here.” So we went out and took an approach similar to what they took, which they actually got the idea by taking what we had. So it comes back full circle.

Ellen Rudnick:

It also, was combined with the fact that I had been going out and talking to alumni all over the country and I would get these alumni come up to me and say, “I’ve just left my corporate job and I’m starting a company. I wish I had been exposed to New Venture Challenge and the entrepreneurship courses when I was at Booth.” And I would get this over and over and over again, after people were out two, three, four years from school. And so, when I heard what the HBS angels were doing, I said, “There must be something in here that we could do for our alumni.” And one of the things we realize is that the Polsky Center just didn’t have the resources to sponsor a full-scale New Venture Challenge. So we needed to get our alumni involved.

Ellen Rudnick:

So we said, we’re going to create cohorts, geographic cohorts. And we’re going to get alumni in those locations to co-chair the events, and to volunteer to work with teams in both application and selection, and then coaching the teams through the process. And so that’s what we’ve done. We have a cohorts in London-

Mark Tebbe:

New York, Chicago, San Francisco and Hong Kong.

Ellen Rudnick:

…New York, Chicago, San Francisco, Latin America and Asia. Is that three or?

Mark Tebbe:

Yeah.

Ellen Rudnick:

I think that’s six actually. I think we’re now in the third year of doing that. And we get about 50 to 60 applications a year from those cohorts. We accept somewhere between 25 to 30 of them. And it varies by region, based on what that region wants to do in terms of supporting these teams. And it’s been almost an all-volunteer effort. There’s a lot of effort the Polsky Center does put into coordinating it and also to running these. We have semifinal events in each region, and then the people who win the regional events will be part of a finals event in Chicago or via Zoom. And there’ll be prize money associated with that too.

Ellen Rudnick:

And so we actually have raised a fair amount of money from sponsors for that too. And it’s really been great because this tells our alumni that even if you haven’t had a chance to participate in entrepreneurship while you were at Booth, once you’ve graduated, you still have an opportunity. And by the way, the other thing about ANVC is, it’s not just for Booth students, the entire university, any graduate at the university can apply. So we’ve had a number of teams that applied from other graduate schools, alumni, and other college student alumnus.

Mark Tebbe:

That’s also the secret about NVC. NVC no longer is just for Booth students. Anyone can apply to the NVC class. But that said, if they don’t have a Booth student, they’re going to be severely challenged to being successful.

Steve Kaplan:

History is not very good if you don’t have a Booth student.

Mark Tebbe:

Correct. But if you are from another part of the university, let’s say from the med school, and you can find a Booth student that will basically be a business partner in this new venture, it’s a magical combination. And we’ve seen some really strong teams coming out of that. And as we look to the future of the NVC, I anticipate seeing more and more of that as the university continues to gear up in its biome capabilities, in its medical capabilities, leveraging the med school. In its quantum capabilities with quantum computing, with the crossover that we have to Argonne and Fermi.

Mark Tebbe:

I think we’re going to see a track or an ability to have more science oriented teams that will really rock our socks and what we’ve been able to think about coming out of the NVC. I mean, take the power of the NVC process and the intellectual depth of that capital, that intellectual capital. It really opens up a whole new way to look at this business.

Colin Keeley:

Everyone thinks it’s just a class, it’s very much not a class. It’s a much longer period of time. What is the average NVC timeline look like for a team?

Steve Kaplan:

The timeline, like Mark said, could actually start in their first year and end in their second year. But for a given year in the fall, we have various events where we try to put students together with each other and with technology and the students do it themselves. And so in fall, they’re putting together the businesses they want to build. In some cases, Matt, he, and that’d be true of Kaitlin Smith, they came to school with their businesses and then found other people to work with them.

Steve Kaplan:

In some cases, they get the idea in the fall or late in the fall and develop it. But think of the fall as the time to develop and work on ideas. And then at the end of January, they submit a preliminary business plan or feasibility summary. And that is what they submit, and that’s what we select on. That’s what I read of Matt Maloney’s and didn’t select him. But that’s that’s what we do. And then we run it by the coaches and faculty, we run it by our finals judges and we make a decision in toward the end of February, who’s going to get in. And typically, that means about 30 teams and the applications have been running 60 to 90 and of those 60 or 90, we generally let in 30.

Steve Kaplan:

And the very important thing about the New Venture Challenge, and this was not true in the early days, but has been true I think since we started getting really successful is, we only let in teams that have a chance. So every team we let in, there’s something real there where they could become a real business. And that is really important because in the early days we let in some teams in order to fill the class that really were kind of dead on arrival. And it is problematic when you do that because it’s de-motivating. It’s de-motivating for the students who don’t really have a business because they figure it out pretty quickly. And it’s de-motivating to the mentors and to the judges. And that’s why it is super important, and we’re at the point where we can do that, you only take in businesses that are real because that is super motivating.

Steve Kaplan:

Again, it’s motivating, the mentors say, “Gee, this is kind of interesting, this is fun.” It’s motivating to the judges, motivating to us as faculty members. And it’s motivating to the students. They’re motivated to do it and they motivate each other. So that is super important to the New Venture Challenge to have really good teams. And then once we have teams, once they’re in at the end of February, then we get going. Ellen or Mark, you can pick it up from there.

Ellen Rudnick:

Yeah. Once they’re in. And even sometimes before they’re in, we start pairing them up with potential mentors or people that can help them. We tell them that you can’t wait until it’s spring quarter in order to start working on your business. I mean, if you’re not working on it, now you have no chance when you get to the spring quarter. And so we really push them to do a lot once they get selected to New Venture Challenge, to meet with the coaches, to meet with some external people. And I know just from this past spring break, all the students who reached out to me to meet via Zoom before they started class to start getting contacts and so forth. But, picking up what Steve said, it’s really a yearlong process. And even for some companies like Katlin Smith or Matt Maloney, they come here to school specifically because they want to work on their businesses, and because of our reputation, they believe there’s a rigorous process here to help them with their businesses.

Ellen Rudnick:

And so they will come and they will take courses like Entrepreneurial Discovery and Building the New Venture before they go into New Venture Challenge and start building connections that way too. But I like to think of it as a yearlong process. And the first phase as Steve said, is building your ideas, building your team in the first part of the year. The second part is, flushing out your business model and putting together your feasibility summary and getting accepted. And then it’s really going gung-ho once you’ve been selected to take advantage of all the contacts and networks that we have at our disposal. And that they have at their disposal.

Ellen Rudnick:

Because the other thing we tell them is, the New Venture Challenge now has a reputation and if you reach out to people and say, “Hi, I’ve been selected to Booth’s New Venture Challenge and I’d love to talk to you about my business.” People will answer their phone calls. Amazing people will answer the phone call. We had a company called Ezza Nails in the competition a few years ago. And I was connected to Mary-

Mark Tebbe:

Mary Dillon.

Ellen Rudnick:

Mary Dillon at Ulta. And I asked Mary, would you meet with my students? I mean, how often does a student team gets to meet with the CEO of Ulta and she was willing to meet with them. And many, many other similar contexts like that.

Mark Tebbe:

When you think about it, I mean, we actually kick off, we at the end of February decide which teams are going to make the class. They spend the entire month of March, which is before the actual quarter starts, meeting with the outside judges, getting feedback on their feedback. Meeting with the professors, meeting with all the coaches. So they will have already had half dozen, 10 meetings before this quarter even starts. And what we remind them is, the NVC class is a class unlike most classes at Booth. A lot of classes at Booth, the professor, well, is a world expert in their area. They get up and they talk at a whiteboard and they teach a lot of material and you as a student copiously taking notes. And at some point throughout this quarter, they’re going to say, “Okay, close your books, here’s a quiz, here’s a test. And you’re going to regurgitate what I taught you, and I’m going to be able to judge how well you absorb what I have explained to you. And if you do really well, I’m going to give you an A, and if you don’t do really well, I’m going to give you a B or C.”

Mark Tebbe:

And the NVC is not like that at all. We basically want to see all 30 teams be hugely successful because they become marketing to future students that say, “Hey, if you want to do entrepreneurship, you go to Booth or you can go to someone else.” Because we want all 30 to be successful to let future students know, no matter what your business is, if you come to Booth, we have the methodology, we have the classes, we have to professors that will help you take our business idea and make it an amazing business idea and help you as an entrepreneur, become a more amazing entrepreneur. And we basically have that way of doing it. And that NVC is a way to do that.

Mark Tebbe:

So we’re rolling out everything we have. We will reach out to our contacts, we’ll reach out to our entire network to make introductions. And as Ellen just pointed out, the ability for them to call up blindly to someone and say, “I’m doing this.” The NVC has developed such a reputation for quality that people will take the calls. It’s an astonishing process.

Ellen Rudnick:

The other thing too that we should mention is the actual class itself is very much like Shark Tank before it was Shark Tank. We created Shark Tank before Shark Tank was created, where the students really have to learn how to pitch their ideas. And as we talked earlier, we have a presentation coach who helps them tell their story. But everybody’s helping them learn how to tell their stories. They get incredibly constructive feedback in those classes from our outside judges who are investors and other entrepreneurs. And by the end of the New Venture Challenge, if nothing else, they will know how to tell their story and how to pitch to potential investors if they have a viable business. And that’s a true skill, I’ve learned that’s a true skill.

Steve Kaplan:

I want to add to that or highlight that. So the process, once you get in and we’ve exposed you to our network, which is very valuable, that classroom period, which is basically, 10 weeks, three months is very intense and it’s also, I think important that you have really tight deadlines and you absolutely have to perform. And so the students work really hard because they have deadlines. And then when they present what you get, Shark Tank you’re presenting to four or five people. And in Techstars and Y Combinator, you present at the end, you don’t present in this crucible early. What is I think really differentiating about us and I’m sort of puzzled more people don’t do it is, presenting early to really smart people and to a bunch of them. And we have now somewhere between 10 and 20 people are in the room who are entrepreneurs or investors, you really get just, bludgeoned is probably the wrong word. You get intense criticism. And it is so healthy to get that intense criticism early, because you find out where your weaknesses are.

Steve Kaplan:

That happens in April, the teams present. And they’re usually just shell shocked, “Oh my God, I didn’t know that.” And it is hugely beneficial. They pick themselves up, they fix things if they need to be fixed, they explain them better if they need to be explained better. And then when they present in May, they are massively better. It is almost magical how much better they are. And then the second time they present, they get the criticism, but it is much more focused and the issues are deeper.

Steve Kaplan:

And then the teams take that criticism, and again, they fix what needs to be fixed, they explain better what needs to be explained and the top 10 teams they present in the finals and they are better again. And so it’s an amazing learning experience because you get that withering criticism. And for the team, some teams actually discover they don’t have a business. And that’s unfortunate, but they’re learning. So even the teams that don’t succeed, we’ve succeeded in that they’ve learned something. And the teams that succeed have really been made much better off in a number of ways usually. And it is just a magical process.

Ellen Rudnick:

I’ve had a number of alumni who are working on their series A and their series B rounds tell me that they’re still using the same approach that they took at New Venture Challenge in order to build their pitch decks and tell their stories. That this is a skill that becomes really important if you’re an entrepreneur and you’re out trying to raise money.

Mark Tebbe:

Yeah. We call it critical, but constructive feedback. But it’s pretty harsh. I’ve seen more than one team after the first round break out in tears about it. I mean, because they’ve poured four weeks before the quarter starts and then they get to the first presentation, they’ve worked hundreds of hours on it, they’ve got to polish to the nth degree and they come in to make this 10 minute presentation uninterrupted. They think they’re crushing it, and then comes a 15 minute Q&A afterwards. And they’re just dissected with this is critical, but constructive feedback. And then they take it back and then it’s the dissection and pulling it apart and re-sewing it back up that really gives them the opportunity to realize that a lot of it can be distilled away. And it gets them more to the essence of what they are.

Mark Tebbe:

I think one of the secrets of the presentations is, we encourage them. Not so many companies, so many entrepreneurs, talk in a 50,000 foot level. We tell them to talk at a 500 foot level, get low. Tell me things that no one else can tell me about your business and really help them think differently about their business in a way that organizationally, they get the essence of their business across in 10 minutes.

Mark Tebbe:

When NVC first started, they had 20 minutes to present. It was 20 minutes and five minutes of Q&A, and then it got down to 15 and 10. And then it got 12 and 13. Now it’s at 10 and 15. Maybe someday it gets to eight and 23, we’ll see. Or eight and 20, but we’ll see. But I mean, the ability to distill it down so you can tell it in a small window means you got to get to the essence of your story.

Ellen Rudnick:

It was so agonizing when we were at 20 minutes, especially when we’d be at the end of 20 minutes and Waverly would say, “But what is it that you do? We’ve sat here for 20 minutes and we don’t have a clue what you do.”

Mark Tebbe:

And some of the student teams at 20 minutes felt like 20 hours because you were three minutes into it going, “This is going nowhere.” But they had 17 more minutes to be fair. You had to just roll your eyes on it.

Colin Keeley:

In 2015, NVC was ranked as the number one university accelerator program in the nation. And then it was also ranked alongside top accelerators like Y Combinator and Techstars. So every MBA program has some variation of NVC nowadays. What do you attribute boosts NVC program’s success to? What makes it different?

Steve Kaplan:

I mean, it’s the things we just talked about that again, I’ve been sort of surprised that other schools don’t do it this way. But it’s this year-long process, it’s having the course. And I was just talking to a friend of mine at another very tough business school that just had their New Venture Challenge and they don’t run it as a course. I would say like, “Paul, run it as a course. Why aren’t you doing this? Here’s what we do.” And they just don’t do it.

Steve Kaplan:

So it’s sort of a mystery, but it’s the combination of a year-long course, people really point to it, number one. Number two, we really unleashed the network for them. And that’s really important. And that just gets better over time because more and more people are in our network, more and more people are former students and it’s very powerful. Then you have the presenting in the arena and getting this very brutal, but constructive feedback. And then the final thing is, huge time pressure, you got to perform. And those forces are very powerful and the more you do it, the better you get. So we’ve gotten better at it over time to the point where it’s really just a… I mean, it’s magical.

Ellen Rudnick:

The other thing that is really important, as Steve mentioned earlier, it’s the selection process.

Steve Kaplan:

Yes.

Ellen Rudnick:

The inputs are what create the outputs. And so we select teams that we really believe have the potential to be real businesses and that have the potential to launch at the end of NVC if they’re successful through the process. And so that feeds into these rankings, right? I mean, the rankings are looking at how many companies have come out that have been successful, how much money have they raised and so forth. And that’s one of the reasons why I think New Venture Challenge has continuously been successful. In addition to everything else Steve has said of course.

Steve Kaplan:

And I’ll add something Mark said earlier, the other thing you get once you have this virtuous circle, then you get people coming to the school in order to do this. So the selection is not only the selection of, who we let into the New Venture Challenge, but the selection is who actually comes to the school in order to do it.

Mark Tebbe:

And that’s one of the points I was going to make is, it’s obvious, but it’s often overlooked. The quality of our students are so high. I mean, you start with top quality students who are extremely bright, who absorb this and it just does really, really well. Just an ability for them to just flourish is natural within this process. But it’s the quality of our students not to be overlooked.

Colin Keeley:

The prize money is a big component as well thanks to Rattan Khosa and others. It is a million dollars in 2020. How big of a component do you think that is?

Ellen Rudnick:

I think the prize money is really important. I think it’s one of the reasons the students work so hard, want to get into NVC and to get into the finals. And a number of these prizes are for specific types of companies or specific types of industry. Everybody has the potential who gets into the finals to be a prize winner. And I think it’s also important to mention that in addition to the million dollar prize that we have worked ourselves up to over all these years, is that we have a lot of non-cash incentives.

Ellen Rudnick:

We have a number of sponsors who give free services to our teams. So there’s legal services, that’s real money to the teams if they don’t have to pay legal services to incorporate their companies. Amazon provides web hosting services to teams. And so there are a number of what I call, in kind sponsorships that add to the million dollars. And so I think it’s a huge incentive to these teams to work hard, get to the finals and win something.

Steve Kaplan:

And what’s happened over time, which is why it was a million dollars last year is, we didn’t walk in with that amount of money as Mark said. And what’s happened is we’ve made good choices of our finals judges and the finals judges after they see the teams, have been kicking in money into those teams in the finals judging. And what we decided to do this year, and I think Mark gets the credit for this is we said, “Well, why don’t we just ask them to commit ahead of time rather than while they’re there.” So what we’ve done now is, we’ve gotten commitments from our judges for over a million dollars going into the finals. So what will happen is that they don’t have to choose their team until they see the finals, but they’re committing they will give some money to those teams. And so we’re going to see, we’re walking into the finals with over a million and could end up a fair amount more than that. We’ll see if the teams are good, but that’s a real incentive for the teams to want to be in the finals.

Ellen Rudnick:

And the other incentive to the teams is just to present to these finals judges. It’s a really a who’s who type of list of people. And then many of these judges will volunteer to work with the teams and mentor the teams after the competition. And as Mark said, Mark was a judge for a while and got him connected to Grubhub. And there are many other stories like that.

Mark Tebbe:

That’s a great question Colin. But I think the thing to think about in this overall, we’ve always had good prize money. I mean, if you’re a startup, even back when our prize pool was $30,000, if you could get 10, $20,000 to be focused on your business, that’s a great starting point. But over time, because of Rattan’s gift of saying, “We want to give $150,000, at least $150,000 to the first place team, and then others with the Moonshot Awards and other specialized gifts, it became clear that the money was incentive enough and changing enough that these businesses could go and have a little bit of runway before they had to go out and to go fundraising. Because an entrepreneur knows, fundraising takes a lot of time. So we wanted them to come out of the NVC with all this feedback and have some runway to basically finish building out their business, and the way it was envisioned out of the finals presentations to really then go on and start talking to people about what it takes to invest, to give them a little bit more runway.

Mark Tebbe:

But the other piece about it is, it is a lot of schools out there that do “business plan competitions” and “business plan accelerators” and I used to be a junkie of them. I mean, before I came to Booth full time, I used to be at the UIUC one. I used to do the one I was at Harvard’s Angels, I was at Booth, I was at Kellogg. I’ve done a lot of them. And I was always amazed. The quality of Booth is what really came clear to me. But the money does make a difference.

Mark Tebbe:

And so, when I first started 10 years ago, we were giving away $75,000, which was barely enough to give everyone a little bit of money. And so when we were able to start seeing it walk up, we’ve now given away over $4.5 million in the 25 years of the NVC, not counting this year’s. This year’s we’ll be, I’m willing to bet, closer to $6 million than anywhere else.

Steve Kaplan:

Not this year. You mean a million and a half.

Mark Tebbe:

No, no six million in total.

Steve Kaplan:

Yeah, yeah, yeah.

Mark Tebbe:

Not in one year. No. Let’s be clear, a few years ago, with My Art Cache, when we gave them $365,000… They got an investment of $365,000 for winning the NVC. That was the largest first place prize pool for any incubator, any accelerator, university affiliated or not. That was the largest prize for a first place team, that was a game changer. Now that we’re going to be over a million, close to, and probably even over a million and a half for this particular year, we will be the largest business plan competition in the world. And it speaks to the quality of our students, it speaks to the quality of the program, but it speaks to the institution that we’ve created here with the NVC. And so it really sets the stage that this is a game changer, not just for the students, but for the university as well, because our goal here is very simple. When you think entrepreneurship in the grad school level there’s Booth, and then there’s all the others. And NVC is the exclamation mark that says that.

Colin Keeley:

One thing we didn’t really talk about is the New Venture Challenge has spawned a lot of founders and CEOs, but it’s also spawned a lot of venture capitalists that have been very successful. Are there any others that you want to touch on or talk about?

Steve Kaplan:

One of our participants in the New Venture Challenge was Koh Nakamura. And he participated, I think, three times, twice as a student and once as an alum and just was amazing. He showed up the first year he participated and here was a person who is as entrepreneurial as anyone you’d ever see. And it was just amazing. He was from Japan, where he would be super entrepreneurial in the US and then he was from Japan where they’re not generally so entrepreneurial. He was just like a complete outlier.

Steve Kaplan:

And his New Venture Challenge teams ended up not being successful, but he ended up understanding he loved the entrepreneurship. He decided ultimately be a venture capitalist. And he now is a co-founder of Sozo Ventures, which what their strategy is, is they take us companies that are scaling and bring them to Japan. And the fund invested. He invested in Coinbase, he invested in Zoom, he invested in Square, he invested in Palantir, invested in Fastly, and it’s a very, very successful fund. And he is now a judge for the finals, and he is a supporter of the New Venture Challenge. But it’s a good example of somebody who was in the New Venture Challenge, didn’t win, but it really helped his career. And it taught him some things that he now I think uses in his investing life.

Mark Tebbe:

And Koh’s got a great eye for talent. I mean, obviously we’ve seen, and Professor Kaplan has research that speaks to the focus and power on the team, but Koh’s got an amazing eye for meeting an entrepreneur and saying, “This is not only a good idea, this is a great entrepreneur.” And betting on the entrepreneur and has really done a great job in his investing with that.

Ellen Rudnick:

I think the takeaway here, Colin, is that even if people don’t go on to start businesses on the New Venture Challenge, the skills they develop can really help them in many different areas, particularly on investing in entrepreneurs. But can also help if they go into corporations and focusing on a lot of the innovation efforts that are going on in companies these days. These skills can be very valuable.

Colin Keeley:

So where do you go from here? What’s next? What does the future of NVC look like?

Steve Kaplan:

The process is very good, we keep doing what we’re doing with the Booth students. And I think what would be ideal is to do more with the university and more with deep technology and marry our MBA students with technology from the university. But it’s just doing more of what we do and doing it better.

Colin Keeley:

All right. That is it for this episode. If you could do me a huge favor really quick, please go to your favorite podcasting app, often Apple Podcasts and rate and review our show. This gets the show recommended to more folks, and it also helps us get bigger and better guests for you to listen to. Take care.

 

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