The VC in My Dorm Room

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"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.

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.

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