New Venture Lab course brings industry leader to Kellogg

1/17/2008 - Successful private equity firms need partners with mutual respect, a mix of experience and energy, independent thinking, sound investment strategies, an international network, and a knowledge of their own brand, said T. Bondurant French ’76, who spoke to students Jan. 16 at the Donald P. Jacobs Center to launch the Kellogg School’s new Venture Lab course. The class is an experiential learning opportunity for students seeking hands-on knowledge about the venture capital industry.

French knows the investment landscape intimately: the chief executive officer and chief information officer of Chicago-based Adams Street Partners has been in the business since he graduated from Kellogg during a strong bear market. “Everybody thought I was nuts to go into investing,” he recalled with a chuckle.

Adams Street began as part of First Chicago Bank in 1972, was acquired by Swiss Bank in 1995 and merged with UBS in 1998 before spinning off in 2000. The company now manages $15 billion in private equity assets as a boutique firm. It has no hedge funds, real estate or other asset classes.

With upwards of 450 fund investments, 140 direct investments and 100 secondary transactions in 27 countries, concentrated on startups and early-stage funds, Adams Street has enjoyed a 23.8 percent compounded rate of return since 1979 and 39.4 percent in the last 10 years, said French, who is also a Northwestern University trustee.

Private equity represents only 0.4 percent of the total investable capital market, he said, but it has great promise. Global venture capital fundraising has begun to stabilize after a crash earlier this decade from $120.8 billion in 2000 to $14.3 billion in 2003, reaching $38.3 billion by 2006. China and India have led the growth, with Europe not far behind, said the Kellogg graduate.

“There are a lot of high-quality companies around, and a lot of interesting things happening” worthy of investors’ attention, including online growth, clean energy and unmet health needs, French said. “It’s a great time to be an entrepreneur.”

Students who heard the lecture were able to see how the theories they are taught in the classroom are applied in practice, which is what Venture Lab is all about, said professor Yael Hochberg, assistant professor of finance. She teaches the new course with Mitchell Petersen, the Glen Basel Professor of Finance. Students in the class design projects in conjunction with Kellogg professors and actual venture capital firms.

“There is no substitute for giving them exposure to someone who is in the trenches, doing this every day,” Hochberg said. “It helps to hammer home why the things we teach them are going to be so important.”

French provided a valuable perspective as a “pioneer” in private equity whose firm has consistently outperformed the industry median, Hochberg said. “He’s been on all the roller-coaster rides,” she said. “It’s a great thing for the students to hear from somebody who has a proven model.”