The MBA and Venture Capital

Ran across a piece where the University of Wisconsin said they were starting to think about dropping their MBA program.  Big Education is in a tough spot.  It’s expensive to go to college these days.  You can find ways around it, but if you want to go to a top school the cost is not cheap.  There is an incentive to go because college grads generally do better than high school grads.

The University of Iowa stopped offering the MBA and so did Wake Forest.  There clearly is something going on.  The elite schools that are always at the top of the rankings still have demand.

Matriculating to graduate school is another issue.  If you thought college was expensive, graduate school is even more expensive.  There is not only the cost of school but the opportunity cost of not working.

I have written a bit about the MBA degree.  I went and did my MBA after the age of 40.  I do think you should carefully consider why you are doing it no matter what your age.  After age 40, it’s less useful to you.  When we were in the trading pits we made fun of graduate degrees.  The best grad degree was the PhD, but it stood for “parents have dough”.   I solved the working problem by doing an EMBA.  I had to take every other Friday off though and it cost me.  I couldn’t trade, my positions were smaller than they normally would be and I was distracted in a lot of classes when I shouldn’t have been.

For me, the reasons I got my MBA were a bit different than a lot of people.  Number one, it was a de rigueur credential for my generation.  I knew a lot of people that went to undergrad and then straight to MBA school. So, I always wanted one.  When I was on the board of CME I used to eat lunch with Professor Merton Miller.   We talked about an MBA and he told me, “When you do it, you do it at Chicago.”  Of course, I applied to Northwestern (Kellogg) and they rejected me.  When I applied to Chicago, they accepted me.  There are a lot of great MBA schools out there but my bias is with Chicago.  Hey, I am a natural contrarian.  I also wanted a degree for the credential based on my background.  Most people think floor traders are just lucky gamblers.  Having a sheepskin from the #1 business school in the country changes people’s impression.

Another reason to do an MBA is to learn about business.  A lot of people don’t take business courses in college.  When they get out in the working world learning the intricacies of accounting, finance, marketing and operations are critical to getting ahead. It can make a lot of sense if you want to become a C level executive in your company.

I also think one year MBA programs are a bit light when it comes to academics and deep learning.  Don’t waste your time.

When I speak with people in their 20s, they often ask me if an MBA is a right path for them.  That is a very tough question with no easy answer.  It all depends.   What are their career goals?  Do they need the MBA moniker after their name to get there?  My advice:  Check out people’s vitae in a position that you envision yourself in.  Do they have the degree?  Things might change but in the short term, they probably won’t.  If you can talk to people in those positions, they might be able to tell you if the world is going to change and if you need the degree or not.  There might be some confirmation bias in their answer based on whether they have an MBA or not-no one likes to waste their time.

When it comes to startups, you don’t need an advanced degree.  Anyone can do a startup.  MBAs fail as much as anyone else.  But what about the other side of the table?

If you look at most venture capital firms, an overwhelming number of partners have their MBA.  Most VCs have a degree from either an Ivy or a top school like Chicago, Stanford, Duke or Northwestern.  Recently, one of the top firms added a new partner.  They have not only an MBA, but Ivy League credentials.  If we broaden the search to private equity firms we see the same sort of bias.  A large number of people that work there have graduate degrees from the top schools.

It is changing a little where a lot of firms are seeking out operators and aren’t worried about a credential.  However, it’s important to remember who is sitting on the opposite side of the table from the PE/VC firms when they raise money.  Having the degree gives fund of fund managers more comfort.  Again, no guarantee of success but people are generally risk-averse.

For some people, an MBA would seem redundant.  If you were an undergraduate business major, you already took all the same classes you will take in an MBA.  For you, it might be more about network than actually learning.  Picking a school that can expand your network in a different way is a good idea.  I had a cousin do their undergrad at Michigan (great network) and their MBA at Notre Dame (great network).  Some schools don’t have “elite” status but their networks are truly awesome.  Everyone says they have a great network.  The hard thing to determine is if it really works or not.

I suspect that in PE/VC for the short term, having an MBA is better than not having one.  I also think we will see a lot more public and lesser private schools close their MBA programs because the cost of doing one there versus the opportunity cost of not being in a top 25 school will become high.