William Chu is a busy young man these days.
Along with handling his classes as a graduate student at the Massachusetts Institute of Technology’s Sloan School of Management, Chu, 27, is being flooded with business proposals from his fellow students.
Chu, you see, is a venture capitalist, thanks to a new Culver City fund that seeks to exploit the energies and opportunities available around the nation’s elite university campuses.
Along with his partner Bradley Harrison, Chu has reviewed 40 business proposals in the last two months.
“Everyone has a business plan in his back pocket,” he said.
Culver City-based Information Technology University, which bills itself as a “next-generation business accelerator,” has hired student representatives at MIT, Harvard, Columbia and UC Berkeley (with Stanford about to join) to seek out on-campus entrepreneurs and fund the most promising businesses.
By making somewhere in the neighborhood of $1 million per campus available, ITU hopes to get in on the absolute ground floor of the next Akamai Technologies Inc., which emerged from a group of professors and grad students at MIT. After that company went public last fall, its market value nearly reached $30 billion.
Breeding ground for ideas
ITU’s founders are convinced that the combination of cutting-edge technology research and ambitious entrepreneurial spirit at top-notch universities provide tremendous venture opportunities.
“We decided, ‘Let’s design a model where knowledge and skill sets bubble up from the bottom,'” said ITU co-founder and CEO Jonah Schnel. “Our campus partners are the ones who know where the technologies are flowing. They have friends in the labs who are working on next-generation stuff.”
The on-campus people ITU hires aren’t inexperienced. Chu, for example, has both a bachelor’s and master’s degree in engineering, founded his own Internet financial services company and worked for Fidelity Investment before deciding to pursue an MBA. The 10 campus representatives currently working for ITU review the deals and discuss them amongst themselves before presenting the most promising ones to Schnel.
And ITU has some impressive resources. It is backed by PCG Ventures, the venture capital arm of Pacific Capital Group Inc., the Beverly Hills-based merchant bank run by Gary Winnick, who also heads Global Crossing Ltd.
PCG Ventures, which is based in New York, is headed by Gary’s son Adam Winnick and partner Chad Brownstein. Both men have experience in the investment world Winnick most recently at Caravelle Advisors, and Brownstein at Donaldson, Lufkin and Jenrette.
The venture fund started in early January and quickly raised $50 million, helped by investments from Gary Winnick and other Global Crossing executives such as Lod Cook and Thomas Casey. It has invested in companies such as Texas-based BroadJump, a broadband service provider. And it put up $6.6 million to start ITU.
“We decided to start a venture capital fund, and thought it was probably a good idea to source business plans from universities,” Adam Winnick said. “The process of how to raise seed capital from angel investors and VCs is pretty fragmented. It’s hard for students. (But) the best ideas are coming off of campuses.”
Skeptics abound
Of course, universities recognize this as well, which is why they run entrepreneur programs and sponsor business plan contests among their students that can bring some initial financial backing.
Meanwhile, the belief that there is an almost unlimited number of on-campus startup successes just waiting for adequate seed capital has its skeptics.
“The statistical probability of finding a killer deal at your business school or engineering school is no greater than at the port authority terminal at 2 o’clock in the morning,” said Jon Goodman, executive director of EC2, the business incubator project at USC’s Annenberg School for Communication. “If one assumed that business schools in particular were such good mining opportunities, it would also be reasonable to assume that after 120 years of business school, this would not be such a new idea.”
As Goodman points out, the success of any angel or venture capitalist is predicated on deal flow. If ITU gets enough deals in the pipeline, it may well be able to succeed. But, she adds, business schools have venture capitalists lecturing in classrooms and judging entrepreneur contests all the time. If there are good deals to be had, these experienced professionals are likely to find them.
Plus, any technological innovation that arises from the engineering labs of Harvard or any other such university is likely to have the school’s intellectual property rights attached to it. As a result, taking that idea and shaping a business plan around it is problematic.
“You don’t snatch cookies off of MIT’s plate,” Goodman said.
ITU remains unfazed by such talk.
“Bring on the criticism,” Schnel said. “We know what we’re doing is revolutionary.”
ITU is about to close on a couple of deals, putting down somewhere between $250,000 to $500,000 for between 15 percent and 40 percent in the companies. The firm will provide accounting, human resources and management expertise to each startup.
As it expands to other campuses, ITU will have to raise more money. But with PCG Ventures’ backing, it at least has access to some deep pockets and solid name recognition.
“My name has definitely attracted opportunities,” Adam Winnick said. “But I didn’t reject (the access provided by my father’s prominence), I embraced it. I’m near the brass ring, and I decided to grab it.”
