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While you stumble out of Toad’s on a Saturday night, student CEOs are working upstairs. But your noise does not disturb them. They are in their element. Many of them have even dropped out of Yale to pursue their passion. But at what cost?

In Publick Cup there is a picture on the north-facing wall of Andy Warhol with his arms crossed. Words superimposed over the image read, “‘Being good in business is the most fascinating kind of art.’ — Andy Warhol.”

If we accept Warhol’s thesis, then this epigram is exactly where it should be. Directly overhead, in the offices of the Yale Entrepreneurial Institute, eight Yale dropouts and over 12 enrolled students make a great case for the artist’s point, making bank at the same time.

The five student companies — PaperG, TwigTek, GXStudios, CampusKings and Cincinnatus Capital — currently working at 278 York St. comprise the super-organism that is the YEI, which prefers to think of itself as a family. Yale takes no share of the profits, but it continues to help these student start-ups long after it brings them out of the womb.

Student CEOs share tips for Microsoft Excel, show off new product features to one another, eat pretzels in the break room and compete for the bragging rights of most hours spent in the office per week. But at the end of the day, everyone knows who is doing well and who will have to start over. And they all think they know — they think — who just raised a million in venture capture, who grew it, who blew it and who regularly turns down $100 million buyout deals.

These young entrepreneurs have grown up around business. Most of them have been spotting problems in emerging markets since before they learned to drive. But currently, the majority are withdrawn from Yale college. They got here, it seems, only to leave after a few semesters.

Bob Casey ’11 (formerly ’10) hypothesizes that before he took time off last semester, he was working less than 30 hours a week on school and more than 40 hours on his start-up venture, TwigTek, which goes live next week. For people like Casey, entrepreneurship is a passion, but the commitment and the potential reward make it unlike any other extracurricular activity at Yale. It might even make Yale unnecessary.

But even a rookie “Master of the Universe” (see Tom Wolfe GRD ’57, “Bonfire of the Vanities”) like Casey needs college. The YEI gives their student companies a virtually risk-free situation, far more love than any would receive on their own in the real world. So the student entrepreneurs who take time off will have fingers in two pies at once — that is, if they ever go back to school.

THE INCUBATOR

“Yale Fights to Keep Student Start-Ups From Defecting to Silicon Valley,” reads the headline of a 300-word article from the July 31st, 2008, edition of the Wall Street Journal.

“Yale has an inferiority complex,” the article begins. “As prestigious as the university is, when it comes to student-run businesses, entrepreneurial whiz-kids often abandon New Haven and set up shop on the venture capital heavy West Coast.”

This representation seems ludicrous to the current YEI tenants. They think the world of the program. Why would they do business somewhere else?

“Because the heads of YEI are Yale employees, we can be the institutional memory,” says Deputy Director Shana Schneider ’00. “The culture is very important.”

YEI is one of five entrepreneurship clubs on campus, but it is the only group of its kind run by Yale employees instead of students. The lack of such a program at Harvard was exactly what drove Bill Gates to drop out entirely.

Roger Lee (Harvard ’08) is the Chief Technical Officer of PaperG. Working as the business manager of the Crimson, he stuck with Harvard through graduation. But venture capital firms in Boston are notorious for rejecting student start-up companies.

“The resources with YEI are very solid,” Lee says. “They’re trying this now [at Harvard], but they certainly weren’t when I was there, unfortunately so.”

Victor Wong ’10 (formerly ’09), the CEO of PaperG in his second year off from Yale, benefitted from YEI’s care.

“YEI provided us office space when we were first getting started,” he says. “They also provided us with two fellowships for living expenses during the summer.”

But Schneider wants people to know that “time off is not necessary.” The YEI program known as “The Incubator” involves a formal agreement in which students pay YEI rent in exchange for office space. The deal confers the benefit of 24-hour access and an open door policy among the five companies. The Incubator welcomes those who don’t want to work full-time. The point, Schneider says, is that it gives students a chance to try out “the craziest idea in the world.”

Necessity being the mother of invention, the YEI Web site tells its prospective Summer Fellowship applicants to ask themselves of their venture idea, “Is it solving a real problem that some specific group of users will be willing to pay for? What steps need to be taken to validate the need and its magnitude?”

YEI, an entity within Yale University, seems itself to have solved the problem chronicled in the 2008 WSJ article. The student companies across the YEI offices are at vastly different places in their development but are all still in New Haven. Most are Internet ventures, and each moves forward at its own rate. Newer, smaller companies like TwigTek turn to older and bigger brothers like PaperG for advice. In many ways, YEI feels more like a residential college than most residential colleges.

ALPHA

“Form follows function,” Twigtek CEO Richard Littlehale ’10 (formerly ’09) and Casey repeatedly emphasize over the course of an interview on Tuesday night.

Theirs is the largest room at YEI, in the back right corner and with a window overlooking the Off-Broadway Theater. Next to the desk where Littlehale works, he has hammered seven nails into the wall, from which now hang his keys, his wallet and his blackberry in its case.

Littlehale and Casey run Twigtek. Both are currently withdrawn from Yale. Their mainline product, YouRenew.com, launches this Tuesday. In Yale business lingo, the company hangs between its “Alpha” its “Beta” phases.

“Very simply, we’re trying to create a product that pays you to recycle,” Littlehale explains, breathlessly. “It’s exciting for us because it really creates a platform where people can have a great reason to recycle. Electronics are the worst thing you can throw away. There are millions — hundreds of millions — of electronics thrown away each year.”

Littlehale and Casey relate hundred of facts about YouRenew.com without blinking. In one ton of cellphones, for example, there are over $15,000 in precious metals — “and that was at August prices!” A network of “wholesalers” that will not dangerously export the waste overseas purchases over 30 different types of electronics, including iPhones and all sort of laptops and video games.

Enough partners have signed on over the past several months that the partners expect to see their milestones met during the coming Beta phase. YouRenew.com is the second iteration of their third business idea.

Abstracting their success story from the world of Internet recycling, it seems clear that Casey’s origin myth is common to many successful people from all walks of life. Casey’s father started his own company when he
was his son’s age, and both Casey’s parents are lawyers, “which helps with the legal end of things.”

While their company operates under a Yale roof, its reach could extend around the globe. The lead designer, a full-time employee, lives in Jakarta, Indonesia, making Twigtek what President Obama would refer to as “a company that ships jobs overseas.” Most of their outsourcing, however, happens in the United States.

“We outsource research, we outsource some simple design stuff, repetitive data entry stuff,” Casey says. “For awhile we had an administrative assistant in India … The amount of data we need that’s very specific, that you can’t really find anywhere, is incredible.”

If things go right in the Beta phase for YouRenew.com, Littlehale and Casey could be the owners of the next Facebook or Craigslist, the type of Web sites to which they regularly look for inspiration in design and interface, or “form” and “function.”

BETA AND BEYOND

In an interview, Wong declined to mention the name of the investment bank that offered him a job in 2007. After weighing his options, he said, he turned down the offer because he determined that starting his own company would offer higher reward.

“The recruiting officer said, ‘That sounds kind of risky.’ ‘Well, if you ask me,’ I told him, ‘It seems like it’s pretty risky to work in finance right now,’ ” Wong said.

It turns out he was right. Wong hypothesized that the bank was “probably responsible for the problems this country is having right now.”

Bold though his words may be, Wong’s story proves that a program like YEI is especially useful in the current crisis.

But not everyone can be Wong. YEI’s nurture collided with Wong’s and his cohorts’ anomalous nature.

Enter Malcolm Gladwell. In his recent book, “Outliers,” the sociologist posited that an individual’s likelihood of long-term success is often a function of raw commitment. Gladwell collected data on violinists in music schools across the country and found that the players who were considered best by their peers all had practiced at least 10,000 hours over the course of their lives. By Gladwell’s equation, Wong and his partners have each exceeded this high-water mark.

Wong thinks back to his early teen years and chuckles, “Well, the joke goes ‘On the internet, no one knows you’re a dog.’ ” He has been making money off advertising since he was 14 or 15. By the time he was 16, he had developed a software for local hospitals that more efficiently distributed doctors on night calls across communities.

The economic crisis gives student start-ups the advantage. But serious hours determine the real winners.

“I work way longer in this gig than I did in college,” Wong said. “And I enjoy it more.”

BACK TO SCHOOL

“The point at which I’d go back to school is when we’re set,” Wong says, refusing to elaborate.

Once a well-managed company achieves a certain measure of success — past Beta — it essentially runs itself. PaperG’s local advertising softwares, FlyerBoard and PaperLocal, are already the toast of YEI, so it’s not clear what Wong is waiting for. Because Wong’s standards are ridiculously high, it makes sense that he’d be holding out for something the rest of us don’t see.

Everyone interviewed for this article intends to re-enroll sometime in the future. It’s not that the real world is harsh — everyone seems to have a buoyant enthusiasm for the future — but school is a part of the YEI experience.

The community aspect of the YEI might be its most valuable lesson for its students — and asset for itself. Schneider stressed, “It is extremely important that you build a community. You can build something similar to the Bay Area if you have enough team spirit.”

It would seem she has big plans for YEI. If its student companies get huge, YEI will follow. Like a rainforest that grows from a single seed, YEI seeks to retain its younglings in order to propagate itself and grow into a fully self-sufficient ecosystem. If all goes well, New Haven could become the next Silicon Valley.