Yale Entrepreneurs: Start Up, Drop Out?

It’s May 2009, and Leon Noel has an idea. As a Yale junior studying biological anthropology, he’s spent much time standing outside Commons in vain attempts to get people to spit in cups for his research studies. He’s gone as far as bribing people with money or Gatorade, but he still can’t draw enough participants. His struggles inspire him to consider whether the process of recruiting participants might be easier handled online. He’s thinking of some sort of website where researchers can post their studies and potential participants can select the ones that interest them.

Over the summer, Noel teams up with classmate and rising senior Harley Trung to build SocialSci, a website intended to solve the problems Noel faced as a researcher. Before they’ve even mentioned the site to anyone, search engines are bringing them hits. They start to wonder whether SocialSci’s potential might be greater than they had imagined.

In September, they’ve returned to school but are devoting weekends to SocialSci, and Noel finds himself more and more drawn to the project. By December, he’s disengaged from school, ignoring homework and skipping class to work on the website. He wants to drop out, but Trung won’t do it. For the next few months, they commit even more time to the project, developing it into a platform for researchers administering academic surveys. They also submit applications to a handful of startup incubators, programs that provide office space, funding, advising, and networking connections for young entrepreneurs. March brings good news: a well-known Boston incubator called TechStars has accepted them for a three-month stay. Trung finally relents, and, two months before graduation, they take a leave of absence from Yale and move to Boston.

__

Leon Noel didn’t come to Yale expecting he’d leave before graduation. For much of his time in college, he was considering graduate school and a career in academia. “If you had asked me if I was going to drop out,” he says, “I would have laughed in your face.” Now, he doesn’t plan on coming back for several years.

The decision to leave college early puts Noel in the company of some of the world’s most successful innovators. Microsoft, Apple, Twitter — all were founded by college dropouts. Tumblr, acclaimed as the next big blogging platform, was founded by a high school dropout. And, of course, there’s Facebook, Mark Zuckerberg’s dropout story recast by Hollywood in The Social Network this fall. Since its premiere on October 1, the movie has drawn $89 million domestically at the box office, as well as serious Oscar talk.

It’s not just The Social Network that is upping this fall’s buzz around dropout entrepreneurs. In October, Silicon Valley financier and Facebook investor Peter Thiel announced the creation of the Thiel Fellowship, awarded to 20 budding entrepreneurs under the age of 20. Propose a plan for a business that he likes, and you’ll get $100,000 from Thiel to start your company, as well as advice and support from his team — as long as you drop out of school, that is. Thiel promotes his fellowship as a way to address deficiencies in the American education system, which, he claims, isn’t turning out the innovators we need to make this country great.

As lofty as Thiel’s goals are, however, most student entrepreneurs are dealing with a far more prosaic problem: time. In the summer before his senior year, Brad Hargreaves ’08 joined three Yale classmates and one Columbia student to create GoCrossCampus (GXC), an online war game staged on college campuses. Its success prompted widespread interest from investors, turning Hargreaves’ senior year into something of a circus. “Essentially, I was not a student,” he says. “I’d go to one class and leave for New York, San Francisco, Boston for meetings and fundraising events. I’d schedule casual dinner with my friends a couple weeks in advance.”

It’s not just the frequent flyers who are feeling the time crunch. Max Uhlenhuth ’12 has founded two companies in his three years at Yale and is also president of the Yale Entrepreneurial Society, a networking organization for student and alumni entrepreneurs. Uhlenhuth minimizes his academic workload to devote as much time as he can to his current venture, a forest-mapping project called Silvia Terra. Even with his limited coursework, he relies on the techniques of productivity guru David Allen to keep himself afloat. “My Bible is Getting Things Done,” he admits, referring to Allen’s best-known book on time management.

Faced with these compromises between school and business, some student entrepreneurs feel compelled to jettison the former and focus entirely on the latter. For students in this situation, Yale College offers a leave of absence of one or two terms; after the completion of the leave of absence, they do not need to reapply to return. Bob Casey ’11 and Rich Littlehale ’10 took advantage of this policy to work on their electronics recycling company YouRenew. Now back at Yale, Casey has scaled back on his responsibilities with the company to focus on his senior year, though he still has days where he can’t make it to class.

Sometimes, however, two terms isn’t enough. At that point, the only option left is formal withdrawal — dropping out. Formal withdrawal does not bar one from returning; readmission requires two courses at a college or university with grades of A or B and approval from the Committee on Readmission, part of the Yale College Dean’s Office. Still, it’s by far the riskiest option, if only because it exposes the possibility of not coming back. Labor Department studies suggest that dropouts have to contend with decreased salaries and lower job security, not to mention the social stigmas that equate dropping out with failure.

In the last five years, just three undergraduate Yalies have formally dropped out to pursue venture ideas. Two of these students, who asked to remain anonymous because they worried appearing in the article would jeopardize their business, set up an advertising company. Both spent two years away from school, including one year of formal withdrawal; they returned this fall for their senior year. Arun Gupta left Yale last winter, after the first semester of his junior year, to develop his company WakeMate, which produces an alarm clock for smartphones that wakes you up only during the optimum points of your sleep cycle. He has yet to return. Noel and Trung both also plan to drop out once their leaves of absence expire.

__

Nevertheless, the dropouts are outliers. Much of Yale’s entrepreneurial community is skittish about the prospect of withdrawal. Casey of YouRenew admits that the idea of dropping out runs through his head every day. At the same, he says, “I can’t advocate completely dropping out for almost any idea.” Discomfort with the notion is even stronger among faculty. Barry Nalebuff, a professor at the School of Management and co-founder of beverage company Honest Tea, suggests that students who drop out of college to start ventures are by and large “showing their ignorance. It is a terrible waste for them to be spending time screwing on business ideas and missing the opportunities at Yale.”

Those who argue against dropping out cite a number of reasons. A Yale education teaches critical thinking skills useful for any pursuit, but especially for entrepreneurial ventures. Moreover, entrepreneurs need to be comfortable with complex fields like finance, accounting, and business law, all fields in which most undergraduates have no experience. Meanwhile, having a degree can serve as a safety net if — or, more realistically, when — a venture fails. Graduating in 2008 allowed Hargreaves and two of his partners at GXC to devote themselves full-time to the company. Within a year, it had flamed out.

So what’s with the entrepreneurs who drop out? To be fair, all of the recent dropouts plan to get their degrees. The advertising company founders have already returned for senior year, and Gupta of WakeMate also expects to come back, albeit after a few years. Though Noel and Trung plan to formally withdraw to continue working on SocialSci, like Gupta, they anticipate finishing their degrees. At the same time, leaving school marked the importance of these companies to their founders. Before SocialSci, Noel had already received what he calls “the entrepreneurial kick in the butt,” having started a nonprofit website called List Full of Hope, a Craigslist for charitable giving. SocialSci played on those interests. Gupta, for his part, says he felt “lost” and “directionless” at Yale before WakeMate. In addition, the balance between schoolwork and WakeMate became unmanageable. “I wasn’t doing anything properly,” he recalls.

Once Gupta, Noel, and Trung had left Yale temporarily, the evolution and growth of each company made formal withdrawal a necessity. SocialSci and WakeMate have both raised substantial amounts of capital from outside investors, usually referred to as venture capitalists. The companies benefit by gaining the capital needed for investment, while the investors gain a stake in the companies, with the hope that the company’s success will bring them a good return. In these situations, investors expect the students to stay out of school so that they are fully committed to the success of the venture. Indeed, Noel says withdrawal was an essential step for SocialSci in raising capital. “Who in their right mind gives $500,000 to a 21-year-old unless they really think they’re committed to the project and really think they have a good idea?” he says, laughing. “So how do I show I’m committed to the project? I drop out of the best university in the world.” Gupta also worried that if he didn’t commit full-time, someone else would beat him to the product.

Gupta, Noel, and Trung produced businesses with potential, and their success forced them to face difficult decisions about their priorities. What’s important here is not so much the nature of their final choice, then, as the fact that all three, as serious student entrepreneurs, had to make it. Any school with a strong entrepreneurial climate will produce students who face this decision, and it’s foolish to expect that all of them will opt against formal withdrawal. The question becomes, then, what sort of entrepreneurial environment Yale wants for itself.

__

In 2007, Yale established the Yale Entrepreneurial Institute (YEI), which marked a major transformation in the university’s relationship with its entrepreneurs. Sitting atop Ashley’s Ice Cream on York Street, YEI serves as the primary hub for entrepreneurs on campus, both graduate and undergraduate. Students with venture ideas can meet the YEI staff for advice and planning. Those whose projects come to fruition can rent office space and gain access to advisers, lawyers, and investors to help them build their company. In addition, YEI’s Summer Fellowship program accepts ten Yale student startups for an entrepreneurial boot camp. YEI even has its own incubator program, one of the first of its kind at an American university.

The creation of YEI filled a void in the Yale entrepreneurial community by providing a setup for serious entrepreneurs to pursue their businesses. Before YEI, the Yale Entrepreneurial Society (YES) served as the primary campus organization for entrepreneurs. At its height, it offered connections to alumni and other students, published a magazine, and ran business plan competitions which gave out $50,000 each year to budding entrepreneurs in the Yale community. While YES is student-run, YEI is a university institution, which gives it the resources to support a far wider array of programs.

Just four years after its founding, YEI already boasts a number of major student ventures that trace their origins to its offices. Casey and Gupta grew serious about their businesses as 2008 Summer Fellows and continued to work with YEI after the summer’s completion. Today, both are leading impressive companies. Gupta’s WakeMate was accepted last year to the be-all and end-all of incubators, Y Combinator, and has been receiving press from major tech review websites like TechCrunch and Macworld. Casey’s YouRenew handles electronics recycling for hundreds of companies nationwide. Other notable YEI ventures include Hargreaves’ GoCrossCampus, whose success earned coverage in The New York Times, and GSM Nation, an online retailer of unlocked cellphones that hopes to double its workforce by the end of the year. “If you’re a kid who’s 19 years old and has a good idea,” says GSM Nation Founder Ahmed Khattak ’09, “then I bet that [YEI Director] Jim Boyle can help you more than Peter Thiel.”

Indeed, among recent Yale undergraduate ventures, only a handful has not ended up working with YEI. Andrew Ruben ’11 and his father founded Blue State Coffee while Ruben was a high school student. Today, Ruben goes to YEI occasionally to chat with the staff, but his business had passed the startup stage by the time he came to Yale. Noel and Trung approached YEI this past February about SocialSci, but, by March, they had left campus.

__

Despite its successes, there are some things that YEI can’t change about entrepreneurship at Yale. Most prominent among these is New Haven. Of course, some Yale ventures do well in New Haven. The Blue State outposts on Wall Street and York Street are the third and fourth locations for the growing coffeehouse, which started in Providence back in 2006.

But most Yale undergraduate entrepreneurs are pursuing tech ventures, which aren’t so naturally suited to New Haven. For student entrepreneurs, these sorts of businesses are the easiest to start. For one, they rely on the sorts of technologies more familiar to young people who’ve grown up in a tech-heavy environment than to older professionals. In addition, many early-stage tech startups don’t need much in the way of office space and staff, the funding for which is rarely available to students without entrepreneurial track records. By and large, entrepreneurs agree that the best places for tech startups are Silicon Valley, Boston, and New York; New Haven hardly merits a mention. SocialSci left New Haven for Boston and TechStars, while WakeMate headed to Silicon Valley after being accepted to Y Combinator.

Staying in New Haven also poses other problems. Gupta found it difficult to raise capital in New Haven for WakeMate. “East Coast venture capitalists are very risk-averse,” he says. “It was impossible to raise any money when we were there.” Finding personnel can also be a challenge for tech companies. Sean Mehra ’08 saw these problems firsthand as one of the five founders of GoCrossCampus. “The pain point for most web startups in New Haven is, I can’t find engineers to build my product,” he says.

As a result, in nurturing entrepreneurs, Yale stands at a disadvantage compared to schools like Stanford, whose entrepreneurs benefit immensely from the school’s location in Silicon Valley. At Stanford, entrepreneurship is king. BASES, the undergraduate entrepreneurship club, is the largest organization on campus, and the university stages its own Entrepreneurship Week, with speakers like America Online co-founder Steve Case and even MC Hammer. Serial entrepreneur Tom Currier, Stanford ’13, founded his first business at the age of 9 and is now developing Black Swan Solar, a promising clean energy venture. “I’ve been dreaming about going to Stanford since I was a little kid,” he says. “Stanford is by far the most accommodating [school] to entrepreneurs.”

On the other hand, a good location doesn’t necessarily guarantee a good on-campus community. Though Harvard benefits from its location among a glut of universities in Boston, entrepreneurs on campus “are largely a fragmented community,” Stephen Maheshwary, Harvard ’12, wrote in an e-mail. He is the co-founder of an online language-learning company called NaviTOUR. While entrepreneurs at Yale praise YEI for building cohesion, Maheshwary reports a different picture at Harvard: “organizations don’t talk to each other, and there is no fluid movement of ideas between startups.”

A number of factors suggest promise for change in the New Haven entrepreneurial environment. Cheap real estate minimizes costs for office space, an important factor for student startups that need to expand. New Haven’s location between New York and Boston means that local ventures can, to a limited extent, take advantage of the thriving entrepreneurial communities of both cities. Proximity to Yale helps, too. Indeed, a handful of Yale entrepreneurs with tech businesses have stayed in New Haven after graduation. Most prominent among these is Sean Glass ’03, who, as an undergraduate, joined two classmates to found HigherOne, a financial aid disbursement company for colleges. Today, HigherOne handles financial aid for more than 650 colleges nationwide. Several YEI alums, including Casey and Khattak, also remain in New Haven. While a few companies don’t make for an entrepreneurial hub, they do form a foundation for future growth.

At a certain point, however, debate about New Haven is pointless. Regardless of whether the city improves, Yale isn’t moving. But that doesn’t mean there aren’t other steps Yale could take toward making entrepreneurship an easier pursuit. On this question, it seems that everyone’s got a suggestion. Uhlenhuth of the Yale Entrepreneurial Society wishes he saw more undergraduates with computer science skills. “If Yale wants to be serious about startups,” he says, “[it] need[s] to start letting in more technical people.” Mehra of GCX points to the alumni network as an underused source of support for entrepreneurship. He’s currently a student at Stanford’s Graduate School of Business, where he’s been impressed by how the Stanford entrepreneurial community taps into its alumni network. For Yale, he envisions an entrepreneurship endowment to which alumni could make donations specifically marked for the cause of entrepreneurship.

One of the most intriguing suggestions involves the leave of absence policy. YEI Director Jim Boyle has suggested to the Yale College administration that it allow a four-term leave of absence for YEI entrepreneurs. “Yale parents are less likely to feel comfortable with taking more than a year off because it’s not part of accepted Yale policy,” he explains.

Whether or not Yale takes up any of these suggestions, the school’s approach to entrepreneurship will undoubtedly play a large role in determining the sort of institution it evolves into over the next few years. Over at Stanford, Tom Currier has 10 companies under his belt. His latest venture promises to make solar cheaper than coal, and he’s already lured an industry veteran to serve as his CEO. Meanwhile, BASES has courted controversy with the Stanford faculty by inviting Peter Thiel to speak in late November. Max Marmer, Stanford ’14, is considering an application for the Thiel Fellowship. “I was considering dropping out before I even got in,” he explains. “I knew the University’s ‘product’ was increasingly irrelevant for the 21st century.” Most Yale entrepreneurs don’t know the Thiel Fellowship exists.

__

Over in Boston, Leon Noel is flying high. Since March, SocialSci has expanded to 26 universities on four continents, and the participant pool is growing daily. He and Trung also raised $500,000 in funding from venture capitalists. Still, the degree lingers in the back of Noel’s mind. “I’m the first person in my family to go to college,” he explains. “Having that piece of paper means a lot to my family members.” In working outside of YEI, Noel never got a chance to engage closely with the students shaping Yale’s entrepreneurial community for today and beyond. When he returns, he’ll be able to see the work they’ve wrought.

Comments