Matthew Mendelsohn’s assumption of the role of Yale’s new chief investment officer marks an important milestone in increasing university endowments investing in venture capital.
Since joining the Yale Investments Office in 2007, one of Mendelsohn’s primary interests has been venture capital – an asset class that has gained ground among a growing number of institutional investors these years – and Yale’s investment approach has long been a model for other endowments.
But even as endowments increasingly diversify their investments, they face a growing wave of pressure to consider ESG initiatives, many of which can deliver the returns they seek in decades to come.
For example, students at many universities have pushed endowment fund executives to move away from fossil fuels. Here’s another idea that endowments should consider: investing in educational opportunities to give more people pathways to corporate careers.
In the venture capital world, there are far too few internship or scholarship opportunities for potential venture capital investors to gain hands-on experience learning the ins and outs of working in venture capital. This perpetuates the remarkably closed ecosystem of hiring in VC, where jobs are rarely even posted and warm introductions are practically essential.
Endowments are perfectly positioned to change that. By taking a partnership approach with VCs rather than a more transactional approach just as sponsors, endowments can accomplish several things at once.
They can continue to invest in the funds that they think are the best investments; they can support and expand opportunities for those who wish to work in venture capital, especially diverse people who may not have ties to venture capital firms; and they can organize themselves to have close relationships with these eager learners, some of whom may want these endowments to someday be LPs.
In many cases, this could also involve greater collaboration between endowment funds and career centers in universities, each of which may have existing relationships with VCs, whether on the funding or education side. .
If endowments partner with VCs on these initiatives, they can help shape programs to better serve those who participate. Of the internship and scholarship programs that exist today, many are designed for interns or fellows to be free (or underpaid) labor to perform due diligence and seek out startups in which the venture capital firms might want to invest.
While this may not be entirely worthless to participants, programs should start with a giving-first approach in which they intentionally focus on teaching and supporting participants so that they can have broad exposure to the issues. types of work VCs do and are able to spend time learning directly from investors.
Existing programs such as BLCK VC’s Black Venture Institute, Recast Capital’s Empowerment Program, and VC Include Fellowship for First-Time Fund Managers provide excellent models for effective and inclusive risk education. And a program like the Black Venture Capital Consortium Summer Internship is exciting in the way it connects undergraduates from HBCUs to VCs for internships, but the kind of full alignment I just described between endowments and VC has the potential to create even better synergies for participant-centered educational programs.
By working as partners on these educational programs, endowments and venture capital firms can also begin to shift the mix of venture capital to include investors from diverse backgrounds. With 93% of VC dollars currently controlled by white males, the need for greater diversity in the industry could not be greater, and endowments committed to expanding the VC ecosystem are in. an obvious position to be the champions of these efforts.
This type of partnership is a win-win situation for all parties involved. By supporting a path to greater diversity in the business, endowments and VCs can help usher in a new era for the industry that sees investors from much more diverse backgrounds identifying and supporting startups than the old guard might. never even meet or consider.
The endowments are well placed to play such a long game, and the interests of all parties involved in these initiatives could not be better aligned.