Upstart funds promising student startups — and not just in tech

A college grad with a computer science degree from a brand-name school typically has little trouble snagging a good job and perhaps even launching a startup — even in this tough economy. But there’s an untapped reservoir of creative talent in college– people that could build next-generation startups — that is getting lost in the shuffle.

That’s a resource that Upstart hopes to nurture by finding private funding and experienced mentors for young talent, says Upstart founder David Girouard, an ex-Google exec.

The goal is to enable people close to graduating who have good ideas for a startup to actually pursue them instead of taking a job that’s less inspiring but necessary to pay back the school loan debt loads that many students shoulder. (The average school loan debt for a graduating senior is just over $23,000 last year.)

“At Google we hired hundreds of great young people who couldn’t put together $30,000 to buy a car if their life depended on it without going into credit card debt,” Girouard told me in a recent interview. This funding can be used to pay for office space, staffing, the cost of living — whatever they need.

On Wednesday, Upstart will formally announce the program and introduce seven students funded under its pilot program along with 13 backers including Andy Palmer, a serial database entrepreneur and Frank Moss, professor at the MIT Media Lab, managing partner of Strategic Software Ventures, LLC, and a former exec at IBM (s ibm) and other tech companies.

Phase two of the program will start this fall at five universities—Arizona State,  Dartmouth, University of Michigan, University of Washington,  and Rhode Island School of Design. And there will be more to come, Girouard said.

Backing the person, not the project

There’s a couple of cool things about this model. First, Upstart doesn’t target the already sought-after computer science or engineering superstars from schools like Stanford and MIT. That is by design. “We wanted diversity,” Girouard said. “The early input is this could really work for artists and designers – people who could build their own sole proprietorship businesses.”

Second, recipients don’t have to cough up a huge chunk of equity in what they create.  Investors actually buy into the person, not the project itself, in return for a portion of that person’s income over time, but there is a cap, Girouard said. “There’s an algorithm, for every 1 percent of your income you’re willing to commit, you can raise X dollars, with 7 percent being the cap. Depending on the school, your GPA, we can project your income out over 10 years. But you give up zero control, no equity in whatever you do,” Girouard said.

The model is reminiscent of medieval patrons who funded artists. “It’s like Kickstarter or Indiegogo but instead of backing an idea or project, you’re backing a person,” Palmer said in an interview.

Pairing mentors with entrepreneurs

That sounds like a win-win situation for prospective entrepreneurs who need funds and advice and for established business leaders who like to work with young people. But it’s bigger than that, says Moss. Startups create a huge proportion of new jobs. The Bureau of Labor Statistics estimate that 65 percent of job growth comes from companies with fewer than 500 employees.

“We have to experiment with new ways to empower grads to pursue their dreams and passions or our society is in trouble, “ said Moss said. Moss, as you might guess from his MIT affiliation, is not a fan of the notion proposed by VC Peter Thiel Thiele that school is a waste of time for true entrepreneurs. Students should go to school, but we also need to find a way for them to build companies — not just default to going to an investment bank or big company to pay the bills, he said.

Vincent Lucero, of the University of Washington, netted $25,000 to fund his startup Soaring Squirrels, which is building a mobile game that teaches kids about the environment as well as a gaming platform that will make it easier for developers to put games on all the major platforms easily and for users to move their saved games from device to device. Lucero and his partner are using the funding to pay for their graphic artist — they prefer “old school” graphics. He is also joining Google (s goog) but will pursue the startup separately.

Nathan Sharp of Harvard got $50,000 to help pay his student loans and give him some breathing room to bootstrap his business — PayOrPass — an e-commerce platform that lets shoppers tag any product on any web page with “a non-binding best-offer bid.” PayOrPass then takes those sales leads and broadcasts them to its merchant partners who can fulfill the orders.

Since he was already well into development, he would have launched the startup regardless but the Upstart money gives him more time to find the right investors and to pay off some of his college loans.

You can read more about the Upstart program here on Girouard’s blog.

Soaring Squirrels Cast illustration courtesy of Marina Montes