Xfund’s Humanities Graduate Entrepreneurs – The Next Generation of Success
By Douglas Hansen-Luke, Executive Chairman of Future Planet Capital
Imagine the chief executive of a brilliant new business nurtured at a university, and you probably think of a scientist or medic suddenly transformed into an entrepreneur. For anyone looking to build an investable, high-growth company, it can seem that the best preparation is to study physics, computer science or medicine.
The reality is rather different. Scientist and medic founders play a crucial role for any university investor. The Oxford COVID-19 vaccine, for example, directly resulted from the work of our portfolio company Vaccitech – created by professors Adrian Hill and Dame Sarah Gilbert. Its work contributed to the prevention of over six million deaths in a year.
But these are not the only people who can create businesses that answer big questions and promise significant growth. In fact, in the ‘universe’ of 13,000 university-affiliated enterprises that we track, 80% were founded by alumni of institutions, rather than current academics or scientists.
Many of those founders hold degrees in the humanities – not the sciences – and some are set to make a major impact on the wider world.
New thinking and a new focus
Our focus on these founders is no accident. Too many venture capital firms try to replicate the strategies of the likes of KPCB, A16Z, or Sequoia – chasing a small pool of scientific founders in a small geography. They hope to do as well as the first movers in this field, but many fall victim to the economic rule of diminishing marginal returns. Returns generated across the venture industry tell the story: only 10% of managers match or exceed the mean performance of their peers.
A new strategy is called for, and one of our principal partners in the US – Xfund – is showing what can be achieved with new thinking. It has achieved some of its biggest successes working with humanities students. Take Kensho, the artificial intelligence start up that achieved the world’s largest AI exit in 2018. Its founder, Daniel Nadler, launched the firm while finishing his Harvard PhD not in machine learning, but in economics. His approach to technology is informed by his experience as a published poet. Poetry – he argues – can teach us how to build a better search engine.
The key to Xfund’s success
“That liberal arts founders are spectacular is the hypothesis that we set out to prove,” says Xfund’s Managing Partner, Patrick Chung, who numbers graduates in classics, PPE and art history among his successful founders. “And so far, knock on wood, it’s proving out.”
The idea behind Xfund’s approach is straightforward. The firm targets exceptionally bright students who have emerged from universities that boast long track records of innovation. These founders can access networks and resources associated with their institutions and create real value. The combination of their personal achievements and their universities’ standing gives investors confidence.
Investing in under-represented founders
Thinking differently about where they choose to invest has another important consequence for Xfund. It goes out of its way to seek success among under-represented founders, investing ten times more in female-led companies than the industry norm. Some 58% of their dollars have gone to startups led by women, immigrants, or people of colour.
The approach works. These investments have an enviable record of success, with Anne Wojcicki of 23andMe is their most notable female founder. By investing in humanities students and seeking out under-represented founders they have been able to write the first checks and secure meaningful positions in a stream of winning companies.
The power of university funds
Science-based investors will always be vital to the work of Future Planet Capital. E14 at MIT and Berkeley SkyDeck are crucially important partners to us. Xfund’s approach helps to bring an additional multi-disciplinary mix. Together they allow Future Planet Capital to pursue our own strategy of connecting with early-stage university fund partners, then leveraging the research and value from their offerings.
This way we can follow and curate some of the most exciting companies to emerge from university ecosystems and then invest during their growth stages, at key inflection points where revenues and profits are ready to scale. For us, this diverse range of founders and strategies is the best way to fulfil our vision of funding the brightest minds to profitably address the world’s biggest challenges.