When Mark Volchek ’00, Miles Lasater ’01 and Sean Glass ’03 decided to start Higher One, a company which provides financial transaction services to higher education institutions, a significant part of their initial funding came from a unique source.
Sachem Ventures, a venture capital firm at Yale’s School of Management, is one of the nation’s only student-managed funds of its kind. In addition to providing New Haven-area businesses with start-up investments of $75,000 to $125,000 from a total pool of about $1.5 million, students involved with Sachem help to operate the companies in which they invest.
But students and faculty who work with the fund say it is not currently receiving enough quality proposals to make as many investments as it would like.
“We’re not finding enough business plans to make us happy,” SOM professor David Cromwell said. “We’re looking everywhere.”
Venture capital funds typically invest in about 1 percent of companies that apply for funding, Cromwell said. He said in order for Sachem to make more investments, it must see a greater number of promising proposals. Sachem has reviewed between 300 and 400 business plans since its start three years ago, Cromwell said. Sachem has invested in two companies — Higher One and Vertrax, Inc., which provides management solutions for the oil and propane industry.
Both companies are based in New Haven, and the fund has made a small profit on the investments.
Cromwell, a former CEO of JP Morgan Capital Corporation who serves as a leader for students running the fund, said the fund would ideally like to work with two or three companies each year. Cromwell attributed the fund’s lack of proposals to the economic downtown of recent years.
Sachem’s funders include New Haven Savings Bank, Yale and private investors. Cromwell said the difficulty of securing funds from Yale was the largest obstacle in starting the fund.
Cromwell said Sachem differs from venture capital funds at many business schools because it deals with entrepreneurs whose projects are not necessarily related to the University and makes investments independently of professionally run venture capital firms. Most significantly, he said, Sachem is different from other firms because students play such a crucial role in the firm’s management.
“Developing skill sets in the classroom is important, but being able to apply them in a real-world setting is very helpful when you’re out there looking for a job,” Scott Wallsmith SOM ’05 said.
Chris Cook SOM ’04, who is working to encourage entrepreneurs to submit proposals to Sachem, said the firm has been trying to form contacts with other venture capital funds, attend trade shows, and publicize its Web site in order to raise its profile.
Due to Sachem’s relatively small size and its requirement that its funds go to New Haven-area businesses, as well as national economic conditions, Cook said it faces extra challenges in finding investment opportunities.
“Now that not many [venture capital funds] are doing deals, we’re finding that we have to go it alone,” Cook said.
Wallsmith, Cook and Cromwell said Sachem aims to create jobs and wealth in the local economy as well as educate students and make a profit.
“Start-up businesses in general are very beneficial to New Haven’s economic development,” Volchek said. “Thirty employees [at Higher One] isn’t a huge change, but it’s a step in the right direction.”
SOM students said the opportunity to work with companies they helped to start has proven to be an important part of their educational experience.
“If you’re interested in business or finance, the most exciting thing you can be involved in is seeing something grow from the beginning and achieve success,” Wallsmith said.