A Startup to Help Build Startups

It’s an old story. College seniors head toward graduation, many with dreams to start their own businesses. Then reality hits, and they end up taking jobs in fields that promise a steady, low-risk paycheck. The startup option goes up in smoke.

That scenario bugged Dave Girouard. A little over a year ago, Girouard, who was then president of the enterprise unit at Google (GOOG), was talking with friends and family who saw that drama play out again and again. Grads with computer science degrees from top schools and a flair for Ruby programming have no trouble finding work they love. But for smart, creative seniors who don’t have those specializations and who carry big school debt and have risk-averse parents, any idea for a startup dies in its cradle.

Girouard had some personal experience here. It was a stretch for his family when he got into Dartmouth. “We could in no way afford it, but my father was adamant that I should do it no matter what,” he says. He graduated with the requisite “ton of debt,” which only rose when he went to grad school. When he got out, he took the most lucrative job he could find at Booz Allen Hamilton (BAH). As soon as he paid what he owed, he quit to join Apple (AAPL).

Debt and the decisions it drives are a problem for the students—obviously; who doesn’t want to follow his bliss? But it’s also an issue for society at large, which misses out on the job creation that can come from small businesses. It bothered Girouard that investment banks and law firms became the default destinations for grads who would have liked to strike out on their own. So he started talking to experts—economists, academics. He looked at government statistics. He looked at crowdfunding sources such as Kickstarter and Indiegogo. He decided he wanted to build a startup to help startups, so he resigned from Google in March and launched Upstart in April.

One of his findings is that it doesn’t necessarily take a fortune to help get someone started. Many of these kids couldn’t, without credit cards, put their hands on $30,000 if their lives depended on it, but if they could, it would be enough for them to rent office space, buy computers, hire some help, Girouard told me last month. And that at least gives them a shot.

The Redwood City (Calif.) company, now with eight employees—helps to match promising upperclassmen from select schools—including Rhode Island School of Design, Dartmouth, University of Michigan—with patrons who have money to invest and business experience to share. (Upstart just added Berkeley, Harvard, NYU, Stanford, and Yale to its roster.) Thirteen mentors signed up initially, including Frank Moss, professor at the MIT Media Lab and a longtime industry exec; and Andy Palmer, who co-founded Vertica Systems (HPQ) and VoltDB.

It should be noted that Girouard himself left a solid gig at Google—something his financial adviser counseled strongly against—to launch this effort with backing from Google Ventures, Kleiner Perkins Caufield & Byers, NEA, and Mark Cuban. Girouard was joined by Damon Whitsitt, another former Googler, and a few others. They wanted to find a way that investors would share in the entrepreneur’s upside but that would also limit the entrepreneur’s downside risk. If the startup doesn’t work out, the investors don’t recoup their investment, but the feeling is they have enough money and expertise to sustain the loss.

Again, the idea was to fund the person, not the startup, paying X amount for a certain percentage of that person’s income—regardless of its source—over 10 years.

In coming up with a plan, Girouard initially thought of some sort of auction: “Here’s Bill, who’ll graduate from Stanford with a computer science degree. What’s 3 percent of his income worth to you?” and have the investors bid it out. One problem was figuring out how much a given person’s earning potential would be over the period in question.

Right around then, Girouard heard about “a kid” in New York who was working on a way to forecast an individual’s earning potential over time. This was Paul Gu, one of the first class of Thiel Fellows. He had been a double computer science/economics major at Yale but left after three years to pursue his research. By the time Girouard reached him by phone, Gu had aggregated a couple of publicly available data sets to help in this task.

For more go to, http://www.businessweek.com/articles/2012-09-24/a-startup-to-help-build-startups

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