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Founders of Coffee Meets Bagel, Arum Kang (left), Dawoon Kang and Soo Kang. Courtesy photo
In the South of Market (SOMA) district of San Francisco rests the JPMorgan Chase building, directly across Mission Street from Deloitte. It’s the type of building that stretches to the sky and has a gymnasium-size lobby where at least five security guards skeptically eye you up and down if you look out of place.
The 13th floor of the building is brimming with about a dozen fledgling companies, where millennials in t-shirts and tennis shows bustle around. And one of those startups is Coffee Meets Bagel, yet another dating website that delivers one match to users, a bagel, every day at noon. Members can then like or pass on their bagels.
The founders are an unlikely trio of sisters, a pair of whom sport MBA degrees from the two best business schools in the world: Harvard and Stanford. “I don’t know what different thing I could be doing that could bring me so much joy and so much development and personal growth,” gushes Dawoon Kang, sporting leggings and house slippers. And Kang could probably be doing nearly anything she wants. The 33-year-old Korean American holds an MBA from Stanford. Her twin sister, Arum, who is about 40 feet down the hall in a meeting, holds the Harvard MBA. The two and their older sister, Soo, 35, launched Coffee Meets Bagel, in 2012. With $11.2 million raised in venture capital backing they sit in 47th on Poets&Quants’ Top 100 MBA Startups of the past five years.
The Kang sisters, who were raised by entrepreneurial parents in Seoul, Korea, before coming to the United States from high school, are part of a burgeoning group of students at elite MBA programs. They’re intelligent, scrappy and not afraid to take major risks. They also used their MBA experience to develop skills and a network necessary to set their own career paths.
A STORY OF RARIFIED SUCCESS
“Business school is an environment where you’re going to be learning amazing things, meeting amazing people, co-founders and potential investors,” says Vince Ponzo, the senior director of the Eugene Lang Entrepreneurship Center at Columbia Business School. “It’s a place where you can take that chance and if it doesn’t workout, ‘oops, I still have a world-class MBA and I can still get a job somewhere.’ It’s not an all or nothing bet.”
It’s certainly not. If Coffee Meets Bagel was to suddenly capsize, it’s likely the Kang sisters could simply stroll across the street to Deloitte (or any other similar firm) and garner at least some interest. In addition to their world-class MBAs and young and blossoming venture, Arum has worked at Amazon and Dawoon at J.P. Morgan.
After graduating from Stanford and Harvard, the twins and their older sister saw a problem and a wide-open market space. Despite being spread out in Boston, New York City and Hong Kong–some of the world’s most attractive cities for young professionals–it was a struggle to find decent dates. “We were surprised by the lack of quality dating services out there–especially for women,” Dawoon explains, adding the market was still a “white space.” (the homepage of their site boasts, “The Only Dating App That Women Love”) According to Dawoon, the dominant competitor, Match.com, had not changed much in years. “No innovation had taken place,” insists Dawoon.
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“One of the dirty secrets is, entrepreneurship, to some extent, is a privilege or a luxury to those who have resources,” says Karl Ulrich, vice dean of entrepreneurship and innovation at The Wharton School.
One-by-one, starting with Arum, the sisters quit their full-time jobs to develop a product. They all ended up in Soo’s New York City apartment before sinking a collective $40,000 to get the dating site and mobile app going. They launched both the online site and mobile app in New York City in 2012. Within a year they had generated an $87,000 profit. By the end of 2014, profits had risen to about $1 million in profits, with the site having more more than 160,000 unique visitors. They also created a ton of media interest when they said no without blinking to Mark Cuban’s $30 million offer to buy Coffee Meets Bagel on Shark Tank.
To be sure, the Kangs’ story is one of rarified success. Not everyone has a twin who can also get into an elite MBA program, start a dating app, raise over $11 million in venture capital, and grow a business from a few sisters in a small apartment to 26 employees in a 13th floor office in the middle of San Francisco. And many B-schools are doing their part to prepare their MBAs for that very reality.
THE ‘DIRTY SECRET’ OF ENTREPRENEURSHIP
At the Wharton School at the University of Pennsylvania, Vice Dean of Entrepreneurship and Innovation Karl Ulrich says they have have been focusing on training students to enter the job market ready to step in at established early ventures like Coffee Meets Bagel. “Those are ventures past Seed A funding and have, maybe, 20 to 200 employees,” says Ulrich. He notes that Wharton is calling it “scale-readiness,” which he describes as a safe way to enter the entrepreneurship ecosystem. “They can step into roles in those organizations and contribute in a very meaningful way right out of school,” Ulrich adds.
Ulrich, who says he spends more time at Wharton’s San Francisco campus, takes a very realistic view on entrepreneurship and one that often gets neglected by media and sunshine pumpers. “One of the dirty secrets is, entrepreneurship, to some extent, is a privilege or a luxury to those who have resources,” Ulrich admits.
Despite “at least half” of Wharton students demonstrating an “entrepreneurial tendency,” Ulrich says it’s simply not possible for everyone to immediately see those tendencies through.
“There are a certain segment of students that have the resources, the wherewithal and the risk appetite to start something from scratch,” says Ulrich. “But the reality is, most of those people already have resources. They either have some money from their family or they’ve saved up some money and they’re in a position to take a few months or years without pay.”
At Columbia, Ponzo says an entrepreneurial win is both establishing a viable business that creates jobs and economic impact as well as helping students realize entrepreneurship may not be for them. “If people self-select out and decide to go work at a Goldman Sachs, that’s a win as well,” says Ponzo. “We’re doing our students a disservice if we pump up entrepreneurship and say, ‘yeah it’s easy, it’s great, anyone can do it, it’s blah, blah, blah.’ Because it’s hard as hell. And it’s definitely not for everybody.”
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Vince Ponzo is the senior director at the Eugene Lang Entrepreneurship Center at Columbia Business School. Courtesy photo
‘WE EITHER HAD TO HIRE SOMEONE FULL-TIME OR SOMEONE HAD TO QUIT THEIR JOB’
Despite watching both of their parents work incredibly hard to keep their businesses running, the Kang sisters decided from an early age that they wanted to eventually create their own venture. Their father worked long hours at the scrap metal recycling company he founded and managed with his brother. “He was constantly inventing,” Dawoon recalls, noting her father has never had a boss. “Every moment he had, even outside of work, he was thinking about it.”
Their mother opened and managed a restaurant, and both parents worked with the intention of sending their three daughters to the United States for high school. “Parents sacrifice a lot to send their children abroad,” explains Dawoon, who ended up in high school in Hawaii with her sisters.
When the sisters began dumping their own resources into Coffee Meets Bagel, their parents were supportive but hesitant. “My father wanted to know why I was helping strangers find a husband when I hadn’t found one myself,” Dawoon laughs. With the workload too much for one person, it was time for the next sister to sacrifice her job.
“We either had to hire someone full-time or someone had to quit their job and start,” says Dawoon. She was the next to quit her job for the venture. “There were days where every time I looked at our company’s bank account, my heart sank,” Dawoon remembers. But in September of 2012, the sisters were able to raise a $600,000 seed and then Soo quit her job. In May of 2014, they announced a $2.8 million venture round and a year ago announced a $7.8 million Series A led by DCM Ventures. Still, in 2014, it was reported the Kang sisters were counting on continued growth and a $10 million profit year in 2015 to break even.
A DEFLATING BUBBLE?
Going the venture capital route to accelerating an enterprise is risky. And according to Ulrich, it’s getting riskier. Ulrich tells his students to avoid venture capital if they can. “You’d much rather bootstrap,” says Ulrich. “You’d much rather own your own business.” Despite a negative connotation often found behind a “lifestyle” business, Ulrich says it’s the way to go. “If you really think about it, a lifestyle business is a business that earns profits and pays its owner cash,” Ulrich explains. “And there’s nothing wrong with that. That is a beautiful thing actually.”
However, according to Ulrich, the Kang sisters might have nabbed their Series A at the right time. “I advise and invest in a lot of really early stage companies and it’s really hard right now to raise money,” Ulrich believes. “I don’t see the cash going into early stage, or more significantly, the big challenge is going into Series A. Getting the seed round to Series A. I don’t think that’s been harder. It’s really hard right now.”
Tom Eisenmann, the faculty co-chair at Harvard Business School’s Rock Center for Entrepreneurship agreed it’s tougher now than it was as little as six months ago. “The bubble is deflating,” Eisenmann insists. “Bubbles can deflate slowly. Or they can even stay the same size and the world can sort of catch up, if you will, with the valuations and so forth. But we have seen a deflation over the past six months or so. It’s getting tougher.”
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Adam Rothenberg of BoxGroup
ANGEL INVESTOR: NO EARLY STAGE CHANGE YET
Not so fast, says Adam Rothenberg, a managing partner at New York City-based boutique angel investment fund, BoxGroup. “At really early stage, we haven’t see much of a change yet,” says Rothenberg, noting BoxGroup focuses on seed investments and then will follow the company through later investment rounds. Rothenberg says the effects of a slowed market are “stage-dependent” and often take a while to hit the earliest stages.
“I think it takes time for changes in the market to reverberate down and hit the earliest stage,” Rothenberg explains. “Typically you see things start to change at the most liquid point, which is the public market and then slowly shift down.”
However, Rothenberg says he’s seeing a shift down from “pre-IPO through the alphabet.” Specifically, Rothenberg explains, investors are changing the way they view Series B and beyond investments. Rothenberg says to view the investment strategy as a pendulum that swings between growth and profitability. “The recent strategy has been to lean the pendulum closer to the growth stage, but now it’s shifting back to caring about profitability,” Rothenberg believes.
The result, Rothenberg says, is companies that have traditionally been judged on growth margin might now be judged more by profit potential. And if ventures are not showing a strong profit margin, it could become more difficult to raise funds.
PORTFOLIO COMPANIES ‘HEMORRHAGING CASH RIGHT NOW’
Despite a sizable fourth quarter drop, at $128 billion in venture investments, 2015 was reportedly the highest year in United States venture since 2000. But the frothy environment seems to be cooling, specifically with valuations, causing some VCs to predict an approaching “Hunger Games” environment for raising funds.
Ulrich has his theories on why early stage funding is quickly drying up. “The biggest venture capital firms have portfolio companies that are hemorrhaging cash right now,” explains Ulrich. “And the venture funds that are backing them have to come up with hundreds of millions of dollars, essentially, to keep these companies going. And it’s all based on the promise that one day they are going to achieve positive cash-flow. But in the interim, they have to provide that cash. So they’re raising because their portfolio companies need this cash.”
Ulrich believes the enormous Series D and E rounds being reported are creating a somewhat deceptive environment. “We’re still thinking about Uber raising how ever many billions of dollars,” Ulrich explains. “You see those things, which are the late stage venture financing at really high valuations. But there are real distortions in what’s being reported because we don’t really see the deal terms.”
THE MBA GAINS GROUND
But those who seem to be poised to withstand a potential bubble burst are MBAs. “We love investing in smart MBAs,” Rothenberg says. The MBA seems to be trending in value in a space once dominated by computer scientists and engineers. Ulrich says he’s seen a “rise of MBAs” in Silicon Valley over the past decade.
“10 years ago, you had people like Paul Graham, who founded Y-Combinator, really disparaging the MBA,” says Ulrich. “Basically saying, ‘why would you ever hire an MBA?’ And maybe that was justified. But now, the tech companies in Silicon Valley can’t get enough MBAs. There’s been essentially the rise of MBAs in Silicon Valley.”
Factors such as the importance of digital marketing and operational excellence have made the MBA highly attractive, Ulrich maintains. “The kinds of things elite MBAs learn have become increasingly appreciated in Silicon Valley,” Ulrich believes. “And that’s led to the rise in demand for MBAs. And that’s been a real sea change that I’ve watched over the last 10 years.”
And the numbers are backing it up. The most recent job reports for elite MBA programs show a significant growth in MBAs being hired by blue-chip tech companies and a decline in finance and consulting hiring.
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Harvard entrepreneurship professor and faculty co-chair of the Rock Center Thomas Eisenmann. Courtesy photo
A TWO-WAY TECH AND STARTUP TO MBA STREET
And it seems to be a two-way street from tech and entrepreneurship to elite MBA programs. Ponzo says he’s seeing more students coming from startups into Columbia’s MBA program, as well as students using the MBA to leap from consulting and finance to tech. “They’re coming with a little bit of a disruptive mindset,” Ponzo says of the students with startup backgrounds. “They’re scrappy. They’ve seen first-hand, for better or for worse, what being at a startup is like. And they come to business school with that mindset.”
At Harvard Business School, Eisenmann has been seeing the same thing. “It’s big and I’m almost positive it’s growing,” Eisenmann says of students coming from the startup world to earn their MBAs.
Ponzo has observed that such students take an entrepreneurial lens and focus it on business skills. “The tools they’re learning in business school around market sizing, and margins and financial projections are being put on top of some big entrepreneurial opportunities,” says Ponzo. The result is a “polished” skill set.
“A lot of startups don’t succeed and you have a lot of students that went to work at a startup right after college or a couple years after college and three or four years in they realize that startup isn’t going to be the home run that they thought and they can come to business school and polish,” Ponzo explains. “At a startup you can learn a lot of things but in a disorganized and chaotic way. And I think an MBA gives those students those skills in a very organized way, it’s the polish on everything they’ve already learned.”
KOREAN AMERICAN WOMEN RAISING FUNDS IN A WHITE AND MALE VC ENVIRONMENT
Those polished skills and scrappiness have been factors in Coffee Meets Bagel’s success. “What I’ve realized over the years is startups don’t fail because of competitors,” Dawoon believes. “Startups fail because of the founders giving up. They’re tired. They implode because they can’t work together anymore. As long as you’re able to pivot and develop your product and get it to a market fit, you are going to be OK.”
The sisters have been able to pivot and grow and even convince a VC world largely dominated by white males to throw them some dough.
“I think in a seed stage especially, what your selling is yourself and your connection and chemistry with the investors,” says Dawoon. “It’s really about the fit and connection. And that kind of connection is really elusive. And I think human beings, including myself, we are proned to be more biased towards people who look, think and act like us. And we come in and say, ‘hey we have a dating app that’s really great for women,’ a lot of men don’t understand it.”
‘THE DOMINANT PRODUCT IN THE DATING INDUSTRY’
Understand it or not, Coffee Meets Bagel has scratched and clawed it’s way to relevancy in a market crowded with the likes of Tinder, The League and fellow Harvard Business School-founded dating app, Hinge. Dawoon says they’ve been able to tap into the wisdom of their “biggest supporter” and an entrepreneur very close to them–their father.
“He said if you always stay in the same place you will be decaying,” says Dawoon. “And you want to constantly reinvent yourself. We want to build Coffee Meets Bagel to the dominant product in the dating industry.”
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