The VC in My Dorm Room

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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.

The same basement, a warren of drab cubicles under Berkeley's Bancroft Hotel, still houses ITU's most recent investment, Opient Inc. Fogarty first got to know Opient's cofounders, Khai Leong, Nobuyuki Tanaka, and Nathan Keker, in his entrepreneurship class last fall. They wrote a business plan "for some optical bit that's going to change the world," Fogarty says. His opinion then: bullshit. But now, he says, "it turns out that Opient does have an optical bit that's going to change the world." Tanaka, a Haas student and an engineer with 10 years of experience at Japanese fiber-optics companies, is developing a more efficient process for integrating components within fiber-optic networks. It's a good product to be selling in a world that's hungry for fast, cheap connections.

So in May, just before exams, Fogarty found himself working out a term sheet with his Opient classmates, all of them probably using negotiating tactics that they had just learned in Professional Skills class. "It was fun because it was like a textbook negotiation," he says.

It was no simple classroom exercise, though. ITU ended up investing $400,000 in Opient. Considering Opient's long-term needs, which include leasing a research lab, that's chicken feed. This fall Opient will try to raise a lot more money. (The amount was reported to be up to $35 million, but Keker says that's false, adding that Opient will not disclose the actual amount.) But ITU's money and infrastructure support will enable Opient to get up and running. This past summer the start-up's team put together an advisory board and began developing relationships with future suppliers and customers. It still needs to hire an additional engineer. Opient is looking to ITU's human-resources and business-development people in L.A. for help.

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