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Funding the dorm room

September 24, 2012: 3:03 PM ET

A different type of education finance.

FORTUNE -- The dorm room is for today's generation of young entrepreneurs what the garage was to their forefathers. So it's not surprising that several venture capital firms have hired student "scouts" to patrol campuses for promising new start-ups.

But, until now, no venture capital firm had empowered students to make actual investment decisions. The exception to that rule is First Round Capital, which has committed $500,000 to what it's calling The Dorm Room Fund.

Here's how it works: First Round will hire a team of eight current students at Philadelphia-area universities, who will be expected to source and invest in startups founded by current students or recent graduates. No parameters on company sector, with typical investment sizes of between $10,000 and $25,000.

First Round partner Josh Kopelman will initially serve on the DRF investment committee, but his goal is for the effort to eventually be self-sustaining and self-managed. That means that the students will be asked to raise outside capital, and also pick their own successors (upon graduation).

In a blog post, Kopelman wrote:

Just because it takes less capital to build a company now, doesn't mean it doesn't take any. And, for a student population already taking out five figure loans to pay for school, finding and obtaining that additional capital is often extremely difficult. Friends and family are usually stretched thin, and in most cases, already do whatever they can to ease the burden on their college relatives.  At the same time, we've seen the growth of many wonderful incubators and accelerators – but those often require a student to drop out (or take a "leave of absence" from college). And traditional venture capitalists are not optimized to write $25K checks to fund a student's idea while they are still in school. We've heard from several entrepreneurs claiming that it was "much harder to raise our first $25,000 then our next $2 million."

Kopelman adds that if the Philadelphia pilot program is successful, then he hopes to bring the program to other cities.

First Round's $500,000 commitment will come from its fourth fund, which recently closed with $135 million in capital commitments.

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Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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