Ephblogger Wick Sloane is featured in this article about the Massachusetts Legislature’s idiotic proposal to tax university endowments (which will certainly never pass — given that this would severely undermine the Commonwealth’s most prominent industry, higher education). See here for a response from Williams and its supporters — note that the ample reservoir of local goodwill Williams has earned from its donations to local schools is among the best ways to counter this type of legislative initiative.

I had breakfast yesterday with a rich Eph who was then off to have lunch with Chief Investment Officer Collete Chilton. The conversation reminded me that, instead of just whining and complaining, I ought to make some substantive suggestions for the management of the endowment. So, how about an Eph Combinator?

Background: Paul Graham founded Y Combinator three years ago. Start here for an introduction. Let’s steal his genius idea, but in a Williams context.

Consider:

So it’s not surprising to me that the Y Combinator model is being adopted and adapted by others. Last summer my friend Brad Feld helped sponsor TechStars in Boulder Colorado and a number of interesting startups have come out of that program.

I was at a meeting recently where a University was considering starting a venture fund to back companies coming out of their school. I encouraged them to look at the Y Combinator model for inspiration and suggested that they back 10 teams at $25k each instead of one team at $250k. Two reasons. First it’s hard to know who will get it right, by backing 10 opportunities instead of one, you vastly increase your chances of success. And second, you can get a lot done on $25k now, particularly if you back young software engineers right out of school (or even in school) who can live for at least six months on $25k.

This stuff is transformative.

Indeed. Basic idea is to fund 5 or so sets of Williams students in the class of 2008 who want to create a start-up. (Recent alums would also be welcome.) Give them enough money to live on for six months in exchange for equity. Plug them into the Williams network, starting with Village Ventures. Have the teams live in Williamstown, all the better to encourage them to focus on their work and continue bonding with Williams as an institution. After 6 months, set them free. If they have built something even vaguely interesting, they will be able to get some more funding, move to a big city and away they go.

This idea (stolen completely from Graham, see his essays for more details) is a win for everyone. The student founders are much better off working for a start-up then being a drone in some larger organization. The endowment probably makes money on the investments. (This is the main reason why others are trying to copy the plan.) The Williamstown community is invigorated with small business formation. Even academic departments like Economics and Computer Science have a chance to become more directly connected to the outside world.

In fact, I am sure that there are alums who would write a check tomorrow to fund the first year or two, either as a gift to the College or as a split-the-profits deal.

Would someone like Collette Chilton ever go for this? Not in a million years. (This is one prediction that I hope to be very wrong about.) She does not live in Williamstown. She does not care that much about Williams. She does not know the names of more than a handful of undergraduates.

The larger picture is that Williams as an institution has two goals when it comes to wealth. First, it needs to turn its $2 billion dollars into $10 billion dollars over the next 20 years or so. Not as easy as it sounds! The best place to put the marginal investment dollar is probably in the human capital of its graduates. Second, Williams wants to take care of (future) wealthy Ephs now so that those Ephs become big donors 20 or 30 years in the future. Funding them at the age of 22 is a great way to earn their loyalty.