Article written by Leandro Gualario (Italy), current student of the Master in Finance 2015.

Leandro Gualario holds a BSc in Economics & Finance from Bocconi University, Milan where he was Vice President of Bocconi Students Investment Club. Before IE, he completed two internships in the finance sector: at a financial services company and an alternative investment manager. Leandro is the founder and editor of Italiazionisti.it, a website that prepares and distributes quarterly reports on shareholder activism in Italy to finance professionals, journalists and students. His work was featured in Activist Insight, the leading resource of the sector. Apart from finance which is his main interest and the sector in which he would like to start his career, Leandro also spends a relevant portion of his time cultivating hobbies. He is enthusiastic about innovation: early adopting new products and services and getting in touch with startups. Leandro is an active member of the Italian Startup Scene network and an equity crowd-funding investor. Also, he is interested in philosophy (back at high school, he participated in “Forum della Filosofia” – the national philosophy competition); music (he used to run an electronic music netlabel) and contemporary art. 

IE Venture Network: why startups are important for Finance students 

Every Thursday, from 7 pm to 9 pm, the Area 31 at IE Business School opens its doors to students, entrepreneurs and investors for the weekly meetings.

Area 31 is a startup incubator founded by IE Business School and other business partners (Microsoft, Amazon Web Services, Paypal, IBM): every year, a group of startups receives up to US$150,000 worth of services, including  free office space, mentoring, training and extensive networking opportunities.

The series of weekly meetings, called IE Venture Network, is open to startups incubated in Area 31 as well as to guest startups. They have the opportunity to present their business in 7 minutes (slightly longer than an elevator pitch) in front of a group of experts (venture capitalists, business angels, investors). Every week from 2 to 4 startups are presented in front of 2-4 experts, who have the opportunity to offer advice and ask questions to the entrepreneurs. IE students can take part to the weekly meetings, listening to the startup pitches and to the Q&A sessions, and having the opportunity to ask questions themselves.

Area 31 and the Venture Network are a clear example of the competitive edge of IE Business school in the entrepreneurship sector: only few business school in Europe have a startup incubator (and very few with such important partners), and the opportunity to have access to 12-15 startup pitches each months is really an asset for IE students.

As finance students, most of us are not directly interested in entrepreneurship: after all, the Master in Management (MIM) or the MBA are programs better-suited for prospective entrepreneurs, and choosing the Master in Finance demonstrates, at least in most cases the willingness to pursue a different career path. Anyway, I am here to tell you that the IE Venture Network is an unparalleled learning experience for finance students.

Why is important to follow the startups?

In Europe, startups are a growing phenomenon: the Silicon-Valley model, consisting in an ecosystem of fast-growing companies, top tier universities and risk-seeking investors, has been imported in Europe only recently. Today, London and Berlin are considered the main European startup hubs, with many other cities (including Madrid) developing quickly. The startup model in the US is simply too big to be ignored: any investor should be aware on how the most successful startups are doing because they will become multi-billion public companies in a relative-short time; bankers fight to secure their place in the most successful startup IPOs and private placements, as well as in acquisitions.

Even if in Europe the “startup world” is smaller, it is gaining influence: JustEat, Rocket Internet, Deezer, Yoox are only some examples of highly successful startups listed in European equity markets in the last years. Being familiar with such high-growth companies since their first days constitutes an incomparable advantage for bankers and investors (and aspiring ones!): these companies can disrupt very larger markets (think about how Spotify is changing our approach to music), influencing existing companies and shaping the future for entire businesses and regions.

It is important to learn about how entrepreneurs are trying to innovate, simply because those innovations will change the aspects of the business in which we operate.

Startups are an asset class

Most of us run an investment portfolio, or are willing to run one in the near future. We are usually pretty comfortable with stocks, bonds and even some alternative investments (e.g. commodities), but few know that startups can be considered an asset class. After the Sarbanes-Oaxley act and equivalent European regulation, becoming a public company is increasingly getting more expensive and less attractive. This is the reason why most of the upside of these fast-growing companies is captured by sophisticated early-stage investors (i.e. venture capitalists and business angels), but not by retail investors. To make a comparison, Microsoft went public with a market capitalization of $350m, while Facebook was valued $100B in its IPO. Early stage businesses can offer prodigious returns if one is able to invest in its first days.

Startup investing is becoming increasingly more democratic: business angels networks are more often open to syndicates, which means that retail investors can take part to the venture round as a minor participant (and with a lower investment). Furthermore, equity crowdfunding is being regulated and spread throughout Europe; at last, platforms for the exchange of private companies shares (usually employee stock options sold in the secondary market) are being founded and offer stocks of promising businesses.

Make no mistake, startups are probably the riskiest asset class: but, as finance student, we should be able to appreciate the value of diversification and the importance of the risk/return profile. Why not proposing a 5% startup investment in a paper portfolio during your next interview?

…they are coming for us!

Before I wrote that entrepreneurship is basically a “MIM/MBA thing”, but that is not totally correct: one of the hottest sector in the startup space is actually FinTech.

FinTech (Finance+Technology) is a buzz-word that describes a wide range of sub-sectors; the intuitive concept behind this is that many parts of banking and finance are ripe for automation. If you think about it, finance is still a labor-intensive business, whether we consider the army of bank clerks or the number of junior investment bankers packed into the world’s finance centers.

Banks themselves have been approaching this new scenario, with the world’s leading finance institutions investing in new technologies (e.g. the blockchain) or gradually automating some operations (few weeks ago the CIO of Goldman Sachs presented a fully-automated IPO process).

It does not matter if we want to be the disruptors, which means being actually some of the entrepreneurs innovating in our field, or if we just want a job in a leading financial institution: these innovations will change forever the way we work and operate in our day-to-day activities.

Again, being familiar with this process constitutes an incomparable advantage for aspiring finance professional.

The intellectual stimulation

At this point, it should be clear that startups are important for our personal development and for our future careers. Yet, there is actually more.

IE Venture Network is first and foremost a way to practice and learn from two main lessons: the importance of feedback and the ability to challenge ideas.

The entrepreneurs presenting their ideas in the weekly meetings are usually prepared: their pitches are flawless, their numbers great and overall everything seems to work. Yet, the most important part of the meeting is the feedback from investors and students: everybody is there to listen. Startups need something that in jargon is called “validation”: the business is not successful until you have numbers, which means customers willing to use your services. Until that moment, everyone’s feedback is precious; if the feedback is coming by people with high level of expertise (like those invited to the Venture Network) is clearly better.

And this brings us to the second lesson: the ability to challenge ideas. Being able to follow a pitch, think about what we have heard and ask meaningful questions is something we will be asked in our careers. Listen critically, evaluate assumptions and make suggestions in a very limited amount of time is not easy but it is usually what marks the difference between a brilliant junior employee and a mid-rank one.

IE Venture Network is a 2-hours weekly investment of your time, and I am sure it will help you to achieve a meaningful return for your future.

 

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