Yale SOM Student Raises $5m Fund: Credits Trust and Morals

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In business school, the entrepreneurs hatch their plans to convince funds to impart some of their investor’s cash into their business. But Josh Chen, a student at the Yale School of Management, has bigger plans, he has decided he is going to be the one doling out the cash.

Starting a fund is not a common thing to do at business school. In recent years, some schools have popularized the search fund, but that’s not the same thing. A search fund is a job where graduating students look for a company to buy with other people’s money. What Chen is doing, raising a large sum of hard cash, is simply beyond the expectations of what is possible at business school.

No matter the aspirations—to start a business, to make a career shift, to change the world— business school students are rarely accused of  being unambitious. Some students will muster the courage to state that they will be the CEO of an investment company, or exit a successful business, or even raise a fund… some day. These are the ambitions that would signal complete success for a business school graduate if they were able to achieve them in the years after graduation.

But, Chen has already done all of these things and he hasn’t even graduated yet. Having just raised a $5 million fund, Josh has completed the trifecta of entrepreneurship with a few weeks to spare before commencement.

Josh is a member of the new cohort of students at Yale SOM comprising the Master of Advanced Management program, now 62 in number after three years. The program represents MBA graduates from the 27 business schools in the Global Network for Advanced Management, an initiative created to provide more meaningful collaboration for business education on a global scale.

Josh’s path after college started out similar to other students’, but quickly took a turn that showed the difference in how Josh was approaching his career. He started out in consulting, working for US based consulting firms X-Consulting and McKinsey. During this time he was inspired to bring what he calls “modern management” to Chinese businesses and decided to open his own accounting and strategy firm. After five years of success, he was recruited to be the CFO of an investment company with net assets worth $200 million.

When Josh went to do his MBA at Renmin University in Beijing, he was promoted to active CEO of the firm—a daunting challenge which he executed with grace. His experience as CEO was an inspiring story of management leadership. Josh divested three subsidiaries and used the revenue to boost productivity for the remaining eight. “Using a revised compensation structure, I was able to increase the income of the fundamental labor by three times and increase profits and bonuses for management while reducing turnover form 40% semi-annually, to around 1% annually”.

I asked Josh how he was able to accomplish so much as a business leader, he responded with a word that would become familiar in our discussion, “trust. I spent two years giving that business owner free advice so he could trust that I was going to represent his interests and not my own.”

According to Josh, all of this success was simply a way of building trust with his future connections.

“Before coming to Yale, I did not have the confidence that I was able to deliver the level of reliability to my future partners that I wanted. My experiences and expertise was unique to me, but I needed the academic knowledge which has been validated and grounded in strong theory. Now that I have both, the experience and the education, I can sleep at night. I have found my inner peace.”

My suspicion was that Josh had particular family connections that gave him an advantage early in life that he was now reaping the rewards of, but he surprised me.

“Only now do I feel ready to reach out to my family connections. Before now, I was small potatoes and would expose myself to inexperience and risk my reputation and my family’s reputation.” For the past ten years, Josh has been investing actively and fanatically in the resource of trust. According to him, there are three reasons people will not trust you: the risk that you will do something evil, something dangerous, or make a bad mistake. The last one can be solved by proving you are competent, but the first two can only be built over a long time.

According to Josh, the only reason he was able to raise a fund now was because he had invested so heavily in trust over the years. In the beginning, he explains, it was not easy. “People exaggerate in finance such that everyone is skeptical of everyone else, and young people are not trusted easily in that world. So, when people asked me for a recommendation of a restaurant, I would only recommend a place I had eaten at myself. My word was too valuable to rely on the recommendations of others.”

Trust is so important to Josh that he recently rejected funding from a potential partner because he did not like the way they treated women. Morality, in addition to competency, is a fundamental aspect of trust that Josh feels is critical to the strength of relationships required to create financial returns for himself and his partners.

Josh is flexible with where he plans to invest the money but he is mostly interested in technologies that exploit new growth areas, rather than established fields like social media, for example. One area that Josh hopes will bring great promise is the new transformation of industries in China to be cleaner and more modern.

Josh is happy to answer questions for entrepreneurs and students of the Yale community at joshua.chen@yale.edu

 

Cameron Rout is a dual degree student at the Yale School of Management where he is earning a Master of Advanced Management along with an MBA at IE Business School. He has a background in engineering risk management for the oil and gas industry but also has experience with lean startup methods. Cameron is joining Google as a Product Manager upon graduation this year.

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