As a student at Columbia Business School, Alex Ginsberg uses BuzzTheBar, an app that one of his fellow students created–it lets you order drinks with your smartphone and lets you know when they’re ready. It might sound trivial, but the fact of the matter, Ginsberg says, is that “Part of going to business school is going to a lot of bars.” So when he landed a spot as a student partner at First Round Capital’s New York CityDorm Room Fund, it was the first startup he pitched to his fellow partners. And shortly later, it became the fund’s first investment.
Dorm Room Fund ‘s premise is that students like Ginsberg are more aware of promising campus startups like BuzzTheBar than office-dwelling venture capitalists will ever be. And that some of those startups are the next Facebook.
First Round Capital launched its first version of the concept with Philadelphia students in September and has since expanded the program to $500,000-student-run funds in New York City and San Francisco. It is planning a fourth in Boston. Though the venture firm provides supervision, the students nominate startups for consideration (there’s also an online form for entrepreneurs to submit their own startups) and make the final decisions on investments.
The New York Dorm Room Fund just made its first five investments, each of about $20,000. They’re not all bar apps. There’s no common theme in its portfolio, in fact, which contains a gel that stops bleeding instantly, a gadget for controlling radiators, software for diabetes patients, and sugar-free condiments. If there’s any thread tying them together, it’s a personal connection to someone on the Dorm Room Fund team.
In addition to Ginsberg, who is a current co-president of Columbia’s Entrepreneurship Organization, the 11 partners in the New York team also include the president of the NYU entrepreneur club, the president of the NYU alumni entrepreneur club, the president of NYU Stern School of Business’s entrepreneur club, and the president of the Princeton entrepreneurship summit. It’s a group that came to the table with several campus startup landscapes already mapped.
Ginsberg cites the team’s collective network as one of the fund’s advantages. He doesn’t just use BuzzTheBar, but knows the founder personally and has seen him wait at a bar that was testing the app until it closed 4 a.m., just to make sure everything went smoothly. “People in investing are constantly saying the most important thing is the team,” he says. “To understand that, you have to spend time with people and see them in contexts outside of a pitch meeting…seeing these entrepreneurs on campus is not something any venture capital firm can really do.”
So, is inserting cash into the college entrepreneur network paying off? It’s too soon to tell. One of the startups the Philadelphia team invested in, screen-sharing solutionFirefly, has gone on to earn more than six figures. First Round Capital’s CeCe Cheng, the director of the Dorm Room Fund, cites the startup as the biggest success story thus far.
She also says that no matter how the startups turn out, the firm is creating value by connecting its college portfolio companies with each other through an online forum. “Obviously, it would be great if we invested in the next Facebook or Dropbox,” she says, “but another success scenario is that someone from NYU starts a company with someone from PhilaU because they met through us.” And, though there’s no obligation for entrepreneurs to consider First Round as investors for their future rounds or future companies, that’s not a bad motivation for supporting them early, either.
“In the future, hopefully, they think of us as good enough partners to consider us,” Cheng says.
Phin Barnes: Two fundamental beliefs came together in the formation of The Dorm Room Fund.
The first belief is that college students are capable of creating incredible companies and while there are many examples, some of the best companies in the First Round Community started in Dorm Rooms…Companies like Birchbox, Warby Parker and Invite Media were all formed while the founders were full-time students.
The second belief is that the best venture capital funds are run like start-ups. They compete in a crowded market and find meaningful ways to differentiate their product and build a sustainable advantage through experimentation and by listening to the customer – the entrepreneurs they serve.
So we thought, if we know students can build amazing companies and we think the best venture funds operate like start-ups, we should find a group of students who want to build a start-up in the venture capital industry and help them do it — and we started with a minimum viable product launch in Philadelphia in the fall of 2012 called Dorm Room Fund.
There’s so much focus on encouraging entrepreneurship in young people. Do you believe there should be equal concern for encouraging investment?
At First Round we have seen the incredible power of community to accelerate start-up success. There is amazing value in peer-to-peer company building and Dorm Room Fund is only viable because we are empowering students to support, participate in and build a richer, more successful entrepreneurial community with their peers. Capital is a commodity, but community is priceless.
How do you choose your committees of students?
We have an open application for anyone from undergrads in liberal arts to people getting their Ph.D. in biology. As members of each team graduate, they are responsible for facilitating the selection of their replacements.
How do they find their investment opportunities and how involved is First Round in the vetting process?
One of our fundamental beliefs around Dorm Room Fund is that students are in the best position to identify entrepreneurial talent among their peers. The Dorm Room Fund investment teams are finding opportunities in very much the same way as any venture capitalist — they are tapping their personal networks, they are working to deeply understand a problem or develop a point of view about where the world is headed and then they are meeting incredibly smart, talented people who are already solving the problem and capturing an opportunity by building and innovating in an area of personal passion.
We have established a very robust training program for the investment teams to familiarize them with the mechanics of venture capital, but the investment decisions are in the students’ hands. As a partner at First Round, I am as committed to each Dorm Room Fund investment team as I am to our other portfolio companies. I work closely with them to provide advice and guidance where appropriate and, just like when I work with founders in our community, I am learning a ton from these incredible students as well.
You’re currently in three cities; what, if any, is the plan for expansion?
We started the experiment in Philadelphia and the response from students was amazing. Based on the Philadelphia team’s early market validation, we announced that we wanted to grow Dorm Room Fund and try to identify other cities that had large student populations with strong passion for entrepreneurship.
The response from students across the country was overwhelming, but the student demand from colleges and universities in New York and San Francisco was the strongest. We are always exploring other cities and looking for concentrations of passionate students who are interested in a career in the start-up industry — and based on this we will be launching Dorm Room Fund Boston this fall.