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Upstart, the company that hopes to encourage promising college students to get their degrees before pursuing the startups of their dreams, just celebrated its first birthday with a $5.9 million Series A round. The funding, from new investors Khosla Ventures, Founder’s Fund, Collaborative Fund, Google(S goog) Chairman Eric Schmidt, Salesforce.com(s crm) CEO Marc Benioff and serial entrepreneur Scott Banister, comes atop a $1.75 million seed round that helped kick off the venture in April 2012.
The company also gets two new board members, Bob Kerrey, the former senator from Nebraska and former president of the New School, and Jessica Jackley, co-founder of Kiva, which helps organizations obtain microfinancing.
David Girouard, the former president of Google Enterprise, founded Upstart last year because he thought that the difference between a smart grad starting his or her own company or not often boils down to relatively small amount of money. “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,” he told me last year.
Goal: Helping students stick with school, then launch
Upstart’s goal is to match those students with backers/mentors — mostly tech industry veterans like Andy Palmer, co-founder of Vertica(s hpq). The Upstart entrepreneurs agree to give up a set percentage of future earnings — capped at 7 percent — in return for the backer or backers’ investment.
“An upstart can have as few as 3 or up to 30 backers,” Girouard said in an interview. “How much they can raise can vary to over $100,000 but the sweet spot is $30,000 to $40,000.”
In the past year, more than 80 grads have been funded and 135 backers signed on. And Upstart, which started out focusing on select universities, has now opened up the program to all comers. This is not a charity: Upstart gets 3 percent of the patron’s initial contribution. If the effort pans out and the entrepreneur repays the patron, it also collects a 0.5 percent service fee, down from 1.5 percent last year.
Kicking the can down the road?
Upstart, based in Palo Alto, Calif., stands in contrast to the Thiel Fellowship, which pays smart college kids to drop out and pursue their business objectives rather than staying in school. Girouard has said repeatedly that degrees have value and hopes his program will encourage students to stick with their studies until completion..
Still, Upstart came under some fire — including from some GigaOM commenters — who said it just encourages students to incur more debt, “kicking the can down the road,” when they should just dig in and self-fund or take their first jobs to make money before setting out on their own.
Girouard maintains it’s a creative and low-risk way for these would-be entrepreneurs to get funding that could mean the difference between founding a startup or not.