The Investment Office will invest up to $52 million per startup in the new grant

Prospect Fellowship, named after the office’s old headquarters on Prospect Street, is accepting applications with an application deadline of October 14.

Gino Salzy

22:47, September 29, 2024

Contributing reporter

Gino Salza, Contributing Reporter

The Yale Investment Office is accepting a maximum of five applicants to become fellows of the new Prospect Fellowship, which will support investment management entrepreneurs in an intensive eight-week program.

The fellowship, which promises no equity or revenue shares, seeks long-term relationships with investment startups, regardless of where they are in the startup process.

“Fellows will receive funding,” the Office of Investments proposal says, “while leveraging the resources of Yale Investments and creating deep connections across our office and network.”

In an interview with The News, Marcella Rooney, spokeswoman for the office, discussed the parameters, the acceptance process and the future of the scholarship. She told the News that accepted fellows will receive initial seed capital followed by investment capital.

“We will loan grantees up to $2 million in working capital to start their business,” Rooney told the News on behalf of the Investment Office. “(There will be) a minimum investment of $25 million at launch and an additional $25 million in follow-on investment.”

Rooney added that they will consider smaller amounts for different strategies, but the package nonetheless includes an investment offer of up to $52 million in working and investment capital for approved grantees.

The scholarship accepts applications from startups that are at any stage of the process. Ideal candidates will likely have extensive investment experience, but Rooney said the office does not prefer any one application profile.

“Great talent can emerge at any stage, and great ideas can emerge anywhere,” Rooney explained. “We support promising people who have a diverse perspective on investing. As such, the application and selection process focuses on people, not achievements.”

Rooney told the News that finalists will be selected for an in-person interview in New Haven, but other than a few in-person days at the beginning and end of the fellowship, all other programs will be offered virtually.

The scholarship was met with interest from the investor community. Charles Skorina, founder of Tucson-based investment management firm Charles Skorina & Company, praised the office’s willingness to invest in smaller-scale startups.

“It’s good for (Matt) Mendelsohn and the Investment Office. This is a real seed investment,” Skorina told the News. “Show me another school that is only willing to commit $2 million in seed investment – ​​you can’t.”

Skorina noted that the scholarship is a continuation of what the Investment Office has been doing for years. In an interview with The News, he cited Hillhouse Investments, a global private equity firm founded in 2005 with seed capital from the Yale Investment Office. Hillhouse currently manages over $70 billion in assets.

The $20 million seed investment in Hillhouse was negotiated by David Swensen, the office’s chief investment officer at the time. Swensen, who died in 2021, is known for his “Yale model,” a diversified portfolio that posted an average annual return of 11.8 percent from 1999 to 2009.

When asked about David Swensen, Rooney told the News the Prospect Fellowship would continue his values.

“David is widely considered one of the most innovative, respected and successful institutional investors in the world,” Rooney told the News. All potential grantees must share Swensen’s high integrity, including “a clear thought process, a solid investment philosophy, a sustainable competitive advantage, a passion for investing and high ethical standards.”

Rooney said the Investment Office is committed to providing resources that promote integrity and support success, including guidance and support in starting an investment firm – from operations and technology to legal contracts – as well as collaboration with speakers, mentors and advisors from the Yale network.

Given the lack of shares or revenue shares, the Investment Office instead seeks to obtain capacity rights and pro rata investment rights in each participant’s company. The Investment Office wants this exchange to grow with the investment leaders of the next generation.

Rooney said the Office of Investments intends to offer the Prospect Fellowship every year, but may adjust investment data and acceptance rates over time to serve Yale’s strategy, which Rooney described as historically consistent.

““Yale Investments’ mission is to serve current and future generations of Yale scientists by generating superior risk-adjusted returns from the resources that many generous donors have given to our community,” Rooney told the News. “With Prospect, we hope to offer a new avenue for productive, value-added partnerships at a time when they are most impactful.”

Rooney said the office added that many of Yale’s partnerships last longer than 10 or 20 years, and one lasted more than 40 years. Most of these partnerships started similarly to the Prospect Fellowship: with small investments.

Given Yale’s long-term vision for the fellowship, Skorina noted that it will be interesting to see how Prospect Fellows perform after the fellowship ends.

“Eight weeks is a short time to assess someone’s potential,” Skorina told the News. “Never mind, sounds interesting. Sounds innovative.”

From 1985 to 2015, Yale’s venture capital investments as a percentage of its capital increased nearly 15-fold, according to the Office of Investments’ annual update. The Prospect Fellowship, a type of venture capital, will further demonstrate Yale’s growing interest in seed investing and venture capital.

Applications for Prospect Fellowship will end on October 14.