Business school students have gone beyond starting their own companies. Now they're funding one another's ventures.
Campus Inc.
Students have gone beyond starting their own companies. Now they're funding one another's ventures
Matthew Fogarty is getting pitched, which happens a lot, since part of his job is finding deals for an early-stage-investment firm. This meeting is like a lot of the pitches he hears. The company, Brightroom Inc., is an Internet start-up -- one that allows participants in marathons and other events to buy photographs of themselves online. The CEO and cofounder, Burch LaPrade, clicks through the mandatory PowerPoint presentation.
In a brisk British accent, Fogarty fires questions at LaPrade. He's interested in one partner that Brightroom has already signed up, a company that organizes road races and other events. That's a one-year contract? For all their events? Exclusive? Did you pay much for it? The answers: Yes, yes, yes, and no.
"Ha!" Fogarty exclaims with satisfaction, settling back in his seat. One thing he likes about Brightroom is that exclusivity. No competitor can sell pictures of the same event, which makes the product resistant to the Internet bogeyman of competitive price-cutting. "The market for online photos is different from the market for books," says Fogarty. "It's big and it's kind of safe."
But Fogarty is bugged by the thought that selling photographs on the Web is a business without many obvious barriers to entry. Brightroom's unique proprietary technology seems minimal. What prevents competitors from signing their own exclusive deals with other race promoters? In the end, Fogarty thinks Brightroom might be a tough sell. This just isn't ITU's kind of deal.
ITU is the company that Fogarty works for: Information Technology University. The wonky name gives only a general clue about what ITU is all about. It's not a university; it's not even affiliated with a university. Universities are where the nine-month-old ITU goes to look for deals. It searches for businesses being started by graduate students or professors or both and vets them for possible investment. Fogarty has discovered that universities are rich spawning grounds for fresh entrepreneurial talent.
Something like ITU was bound to happen sooner or later. What better place to look for promising start-ups these days, when universities are incubating more and more success stories, building on the foundation formed by companies like Dell Computer Corp., Yahoo Inc., and Akamai Technologies Inc.? According to the Association of University Technology Managers, a nonprofit group based in Chicago, in 1998 alone 364 companies were started around technology developed in universities. On campuses -- particularly campuses with progressive entrepreneurship programs -- canny investors find concentrations of professors and graduate students working together to develop high-potential start-ups. Universities are hotbeds of ideas for ways to turn the bleeding edge of technology into something marketable. Undergraduates who grew up eating, sleeping, and breathing the Internet are encouraged to concoct new ways to exploit its riches, and professors hand over their Rolodexes to help business-school students who can't wait to start and run their own companies. In the race to find -- and fund -- the Next Big Thing, universities are the new frontier of opportunity.
ITU isn't the only group to have that brainstorm. In the past 12 months a host of new investment organizations have sprung up that specialize in campus start-ups. In many cases students have launched them. There is Silicon Ivy Ventures, a venture-capital firm created by a trio of student entrepreneurs, including a cofounder of Raging Bull Inc.; UniversityAngels.com, an online angel network that hooks up alumni investors with student or graduate start-ups; StartEmUp LLC, a venture firm founded by four Duke University students; Lux Capital Group, a technology-focused venture company launched by a group of young Wall Street investment bankers, analysts, and entrepreneurs; and SpringBee LLC, a kind of matchmaking service, hatched by a Brown University undergrad, that promises to connect techies with great ideas to entrepreneurs who can build companies around those ideas.
"We kept seeing a lot of student businesses that had really interesting ideas, with teams that had the right skill sets, if not the experience, and most were not getting the time of day from VCs," says Joshua Newman of Silicon Ivy Ventures, who ran a Web-development company while he was an undergrad at Yale. It wasn't until those student companies had scraped together some funding and launched that venture capitalists "were knocking down their doors," he adds.
That was the same motivation that ITU's three twentysomething founders -- CEO Jonah Schnel and cochairmen Adam Winnick and Chad Brownstein -- had when they started it, last January. After meeting promising would-be entrepreneurs who were in business school, each of the three realized that there was an untapped market there. Most old-line venture-capital funds were too fat to bother making small, early-stage investments.
At the time Winnick and Brownstein were in the middle of opening a venture-capital fund for Pacific Capital Group, the merchant bank headed by Winnick's father. Schnel had been Brownstein's classmate at Tulane University, where they'd often talked about starting a business together, Schnel says. So, with a $6.6-million cash infusion, Los Angeles-based ITU became one of the fund's first investments.
To track down the hottest start-ups on campus, ITU hires people like Fogarty, who joined up in May. In his first two months he read some 200 business plans and heard about 30 pitches. (A really good business plan is "a joy to read," he says.) In addition to scouting, he advises some of ITU's investment start-ups on recruiting, strategy, and networking -- anything that might help them get to the next round of funding. He spends a lot of time on his cell phone and tools around in a lime green Karmann Ghia convertible. It's what such VCs do.
