A Fund for When Incubators Are Too Late Stage

Lately, there’s been a lot of discussion about whether too much money has gone into incubators and seed-stage funds, and whether a shakeout is on the horizon.

That’s one reason it was intriguing last week to touch base with Bilal Zuberi, a principal at General Catalyst Partners, who is managing a new seed funding effort targeting startups that are too early stage even for an incubator program.

This month, the Boston-based firm, which makes early stage and growth investments in Internet and technology companies, launched a program called Rough Draft that will target student-founded startups at local universities.

Where Rough Draft differs from the typical seed-stage effort is in the immaturity of the companies it funds. Zuberi says the type of startup it is looking for likely doesn’t even have a clear business model, let alone a product or revenue stream. Rather, Rough Draft, as the name implies, will look for talented students working on potentially fundable projects with an eye to getting them ready for the next step.

“The investor community is more focused on startups that launch with products,” Zuberi says. “The problem is it takes a while to get these companies going and these guys who are hacking away don’t want to spend time writing business plans.”

Rough Draft is a low budget program. It will make investments of below $20,000, and typically less than $5,000, for startups it supports. The money will go to basic startup expenses, such as buying computers, tablets or hosting services. Funding will be in the form of convertible debt, which could convert to stock if the company raises additional investment.

Finding startups for such a very early-stage affair stands to be a labor intensive project, which is one reason General Catalyst is signing on students to do some of the vetting. The program will be open to all universities in the Boston area, and Zuberi has looked at projects so far from institutions including Harvard, MIT, Tufts and Boston University.

To date, there’s plenty of history of significant companies — from Facebook to Akamai Technologies to Cloudera — getting their start in Boston-area universities, and backing students is nothing new for General Catalyst. Its current portfolio includes such student-founded startups as marketing platform provider Hubspot, big data startup Locu and online eyewear boutique Warby Parker.

What’s different now is the level of interest among students in creating startups, says Peter Boyce, a Harvard senior who will be scouting candidates for Rough Draft. Even since his freshman year, Boyce says he’s seen a noticeable increase in the number of students concentrating in computer science or adding it to their skill sets regardless of major. More students are also working on side projects and participating in business plan competitions.

While chances of getting in first on another Facebook may be low, Zuberi says he expects Rough Draft funding will at least encourage student entrepreneurs to stick with their projects longer and with greater devotion now that they’ve taken on outside investment.

Image courtesy of General Catalyst Partners.

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