Yet he's still a student. Fogarty just finished his first year at the Haas School of Business at the University of California, Berkeley. He listens to a lot of pitches in cafés because he doesn't have a real office of his own. His cell phone serves as his office. He'll keep doing this VC stuff at least until he graduates, next year. In fact, all seven of ITU's campus partners, as they're called, are business-school students.
"Nobody else who works while they're in school gets to do as much as we do," says Bradley Harrison, an ITU campus partner at MIT Sloan School of Management. "We do everything. We take the board seats. We do due diligence. The only step we don't do is the final OK." That's left for ITU's investment committee, which consists of the three founders and two board members. "We're doing deals, and everyone on campus knows it," Harrison adds.
That student-centric approach has some disadvantages, including an occasional bit of academic diplomacy sacrificed to enthusiasm. Haas entrepreneurship professor John Freeman was surprised and "slightly miffed" that ITU didn't contact the business school before it started doing deals there. (An ITU spokesman insists that the company always contacts the schools' career centers and that it did so at Haas.) "Most universities don't want commercial enterprises doing business on campus without some kind of vetting," Freeman says. "They might be crooks, after all." (He does allow that he saw nothing unsavory in the one ITU term sheet that he has read.)
And to some of ITU's competitors, who rely on a network of seasoned VCs and experts to evaluate business plans, using students as analysts seems bizarre. "We are not so comfortable with the idea of coming up with some random schmoes to unleash on campuses," says Silicon Ivy Ventures' Newman.
But to ITU's Schnel, it's a no-brainer. "You have to be in the trenches to know what's going on," he says. "To really listen to the university market, you have to be there. We want to have the best market reconnaissance on campus of any venture-capital firm in the country."
By the time he got ITU under way, in January, Schnel had a pretty good idea what kind of start-up it would invest in. Leave the mushy e-commerce plays to other VCs -- ITU would focus on hardcore technology, innovative software, and engineering that it hoped would be just a little ahead of where the world was. ITU was designed to fund only early-stage start-ups, making investments of $200,000 to $500,000 and receiving equity stakes of up to 25%. For starters it concentrated on a few top schools -- Berkeley, Stanford, MIT, Harvard, and Columbia -- with the goal of investing about $1 million on each campus.
Recruiting campus partners turned out to be easy. Schnel simply contacted each business school, and the résumés started flowing in. The company pays a stipend roughly equal to the amount a business student would earn in a summer internship -- but more is paid out in the form of equity in the start-ups in which ITU invests, Schnel says. That lure helped bring in students with strong prior experience and an entrepreneurial bent: MIT's Will Chu, for instance, had cofounded an Internet financial-services company, and Harrison had helped start an incubator and been a consultant to a couple of start-ups; Berkeley's Kai Xu was a former Hewlett-Packard software engineer, and Fogarty had worked at Unilever on supply-chain reengineering.
Originally, Schnel planned to have just one campus partner at each school. But by April, his first hires were swamped with business plans that stuffed their e-mail in-boxes. He started hiring faster.
"Our friends were coming to us for advice or contacts before. Now they know we have money," says Harrison. By midsummer, thanks to its fledgling campus network, ITU had invested a total of $1.6 million in four start-ups: three at Berkeley and one at MIT.
The most advanced of the four is SkyFlow Inc., which was closing in on its next round of funding just two months after ITU cut it a check. Chief technical officer Anthony Joseph, a computer-science professor at Berkeley, started the company in August 1999 with CEO Nibha Aggarwal, who'd gotten his M.B.A. from Haas in 1997. Joseph had developed software for wireless applications that could enable consumers to access the Internet on their cell phones.
Berkeley campus partner Xu met Aggarwal in April at a mixer for entrants in the annual Berkeley business-plan competition. When SkyFlow won first prize, just four weeks later, ITU was ready with a term sheet for a $500,000 investment. "All the VCs knew about them, so we had to close the deal ASAP," says Fogarty.
That was fine with SkyFlow, which had to move fast before its market opportunity slipped away. "ITU moved very quickly and very aggressively," says Aggarwal. "The typical VC moves very slowly."
ITU offers some typical incubator-type support to the companies in its portfolio -- accounting, business-development, finance, human-resources, public-relations, and legal assistance -- but all those services are based in ITU's Los Angeles headquarters. Fogarty, as SkyFlow's main point of contact with ITU, helps the start-up communicate with L.A. and visits the SkyFlow offices once or twice a week. He has participated in high-level strategizing with SkyFlow's management, helping figure out which market to chase and what kind of competition is likely. And he lugged boxes with the rest when SkyFlow moved out of Berkeley Business Incubator's basement to spacious new offices.
