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Schooling start-ups at Stanford

Investor-coaches who have hit the jackpot listen to pitches and dole out advice -- sometimes money.

May 26, 2008|Jessica Guynn | Times Staff Writer

PALO ALTO — You're still in your 20s and you've already netted two blockbuster successes. What do you do next?

Give others a shot at an Internet fortune.

Jawed Karim, who lucked out as co-founder of YouTube Inc. and an early employee of PayPal Inc., is taking part in a unique Silicon Valley tradition: helping the next generation of entrepreneurs with cash, counsel and connections.

Despite netting $65 million in Google Inc. stock when the search giant bought YouTube, Karim, 28, lives in a dorm at Stanford University, where he's working toward a doctorate in computer science with the goal of becoming a professor.

He also is schooling start-ups through Youniversity Ventures, a twist on the traditional tech investment firm. Instead of opening their wallets and doors in shiny offices on Sand Hill Road, Silicon Valley's famed venture capital strip, Karim and his two partners hold office hours at Stanford every quarter. They hear start-up pitches from current and former students at the birthplace of such Internet greats as Google and Yahoo Inc.

His collaborators are two successful 38-year-old entrepreneurs from his PayPal days. Keith Rabois is vice president of strategy and business development at Slide Inc., which makes fun features for social networking sites, and Kevin Hartz is chief executive of online event service EventBrite.

With their youthful carriage and casual dress, they could easily pass as students during their campus visits. But these guys are all business.

On a recent Friday, they listened intently as entrepreneurs presented ideas, interrupting with sharp questions and insightful advice.

They brushed aside boasting and name-dropping -- one team trying to create digital coupons for mobile phones said Jeffrey Ullman, Sergey Brin's doctoral advisor, hadn't been this excited about a start-up since Google.

And they wowed young go-getters with war stories. Rabois recounted that in 2001, PayPal had resisted buying Google despite the urging of famed venture capitalist Michael Moritz because "at the time, we had a more proven revenue model."

Uplifted by angels

Entrepreneurs-turned-investors are crucial to the ecosystem here, an unparalleled incubator of innovation that so many regions have tried to re-create.

Typically the first to take a chance on start-ups born in dorms or garages, these "angel" investors roll up their sleeves well before venture capitalists do. They write small checks in exchange for minor upfront stakes or convertible notes that can be turned into equity.

Then they coach entrepreneurs through a Darwinian contest in which flameouts far outnumber jackpots.

"There are smart hackers in Pittsburgh or Ithaca [N.Y.]. There are plenty of rich people in Miami," said Paul Graham, 43, an entrepreneur who runs Y Combinator, which hands out seed money and loads of advice to young entrepreneurs. "But what makes Silicon Valley unique is the number of people who became rich from start-ups. That's where all the top angel investors come from."

The Youniversity guys scrutinize each start-up for that rare combination of the right team in the right market at the right time. They decide jointly but invest separately. And they go with their guts.

That's what Rabois did in July 2005, when he ran into Karim at a barbecue. They slipped away to their host's computer, where Karim showed off his new project, a video-sharing website. Rabois took one look and blurted: "Can I invest?" That deal netted Rabois $4 million in Google stock when the Internet leader bought YouTube for $1.65 billion.

Why do these busy executives, who already put in long hours running their own start-ups, sacrifice sleep and time with their families to act as guidance counselors? Hartz said it was "what we do instead of playing golf."

It's what Karim does when he's not in class or hitting the books.

Shunning the spotlight

He dropped out of college in 2000 to join PayPal, which EBay Inc. bought in 2002 for $1.54 billion. After finishing his undergraduate degree at the University of Illinois at Urbana-Champaign, he co-founded YouTube with Chad Hurley and Steven Chen. Karim remained an advisor when he started grad school, and the Google acquisition landed him nearly $65 million in stock.

A soft-spoken engineer who loves to learn, Karim didn't have much use for the spotlight that comes when your path leads from start-up to stardom. Yet he is gripped by start-up fever.

About a year ago, he reconnected with Hartz and Rabois. They hit on a new concept: to exclusively back current and former students at Stanford, where Rabois and Hartz received their undergrad degrees, and Illinois, which has produced such famous computer scientists as Netscape co-founder Marc Andreessen.

"I want to help students take their idea to the next level and have the mentorship I wish I had had early on," Karim said.

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