When Fortune reported that Dorm Room Fund, a student-powered investing group, had spun out from First Round Capital with $12.5 million in capital for its newest fund, it was almost an easy feel-good story. Here was a venture capital vehicle bent on providing experience to the next generation of would-be VCs, now flush with more dollars to further its work — what was not to like?
There was a catch, it turned out. Per Fortune, participants in the program are not paid and do not receive upside in deals that they execute. “In other words, if a [Dorm Room Fund] student spots the next Facebook, they won’t be a cent richer for it,” the publication noted.
Dorm Room Fund CEO Molly Fowler, meanwhile, defended the firm in an email to TechCrunch.
“DRF provides unparalleled venture capital training and investing experience — thousands of students apply to participate in our educational program every year in hopes of having the opportunities DRF affords. We encourage our student partners to allocate time to the opportunity based on their own unique circumstances and have found that the time commitment is commensurate with other on-campus extracurricular activities,” she said.
In prior funds, Fowler notes, DRF contributed 100% of management fees to a pool that the students could spend as they saw fit — and committed to allocate 100% of any carried interest earned to nonprofits of the students’ choice. Now that DRF is an independent fund, students can still use management fees “as they see fit” and the firm has set aside an unallocated portion of the carry to “evaluate new creative ways to include student investors in the long-term, potential success of the fund.” It is unclear what the unallocated carry looks like, and if management fees can be used for students to pay themselves.
The unpaid element of the program kicked off commentary on the ethics of unpaid work more generally, an issue that felt all the more glaring in an investment group able to raise millions in external capital. Venture capital as an industry has been under withering criticism in recent years for its homogeneity — it has historically excluded large chunks of the population from its insular offices. Offering unpaid work to college kids is, at a minimum, out of touch.
The TechCrunch team bandied around the topic internally, leading to yet another multiview piece from the staff. Below, Natasha Mascarenhas, Rebecca Szkutak, Alex Wilhelm and Amanda Silberling weighed in on the situation. Let’s talk about it!
Natasha Mascarenhas: Nay, but here’s where the yays are
To be clear, I strongly believe that organizations should not hire talent if they can’t afford to pay them. However, as the lover of the numbers but also the nuance behind the headlines, I want to offer a different perspective from my colleagues here — what positives to consider.
Track records are currency. When I began doing business journalism, I got my first clip through the school newspaper. And my second clip. And my third. And somewhere around the 40th clip, the Boston Globe hired me as an intern making slightly above minimum wage. The college newspaper, built and run by students, never paid any of us, but it did help us land our first paid gigs, be taken seriously by editors and solve for the activation energy traditionally needed to get your first published article — connections and an editor’s bet.
In some ways, that mindset translates well to some parts of this venture conversation. The school newspaper wasn’t my full-time job; it was run by a small team of people who weren’t getting paid much and driven by the hope that real impact would gain the attention of editors and a paycheck — eventually. Media is different from venture capital, yes, but in the world of small funds — where the economics suck — I see a similar sort of dance happening: Associates work for an emerging fund manager for a few hours a week without pay and in return get hands-on experience and a track record that lands them that full-time, paid job.
There’s a lot of money in the venture industry, but all that money isn’t distributed evenly.
An unpaid internship makes a tad more sense for a small, emerging fund that is likely trying to disrupt diversity numbers than an older, traditional billion-dollar fund. If the firm is in the latter category and chooses not to pay people for their work, despite managing billions in assets, that’s flawed.
Don’t get me wrong: Just because something is common doesn’t mean that it should stay that way; by only employing those who can afford to go without a paycheck, the venture world is deciding to agree with the status quo, even though the status quo is exclusionary. At the same time, there’s power in knowing how the system works and making that work for you until it changes — hopefully, that’s a change led by you.
Rebecca Szkutak: Bad for diversity, prevents people who can’t afford unpaid work from using this opportunity
The Dorm Room Fund allows its student investors to really get a taste of working in VC by scouting out startups and cutting checks with great bullet-point experience for their resumes to boot. But the fact that the students don’t get compensated for their time means it likely caters to students who didn’t need help breaking into the industry in the first place.
Venture firms and investors like to complain left and right that it isn’t their fault their firms aren’t diverse because the talent just isn’t there for them to hire. The “pipeline problem” is a spurious argument to begin with, and, well, only offering unpaid internships and investment opportunities isn’t going to help that.
Exclusively unpaid programs eliminate the consideration of any student who doesn’t have the time or the ability to take on unpaid work. Instead, they favor those from good schools who are already in a prime position to build a network and meet the right people — if they don’t have one from their parents already.
Speaking from personal experience, I, despite coming from a privileged background with a family willing to help me pay for college, struggled to work in unpaid internships. I remember spending two summers working almost every night and through each weekend at my retail job to afford the rent that allowed me to clock in 40 hours at Hearst Magazines for zero compensation.
I credit these internships in helping me get to where I am now in my career but can acknowledge that these programs were designed for people like me — and I still had to scramble to make ends meet. For many people, it just isn’t possible.
For DRF and venture internships specifically, this could have been a great opportunity to get a bunch of students excited about venture that probably wouldn’t otherwise be able to consider the asset class. It could have opened the door for a diverse new set of ideas from all backgrounds to get a seat at the table.
The unpaid nature of this program ensures those who wouldn’t have struggled struggle even less.
Looking at the page of the current group of investors, the schools most represented are Stanford, Yale, the University of Pennsylvania and Harvard. Students at these institutions are already at an advantage to break into venture compared to others just from their school name alone.
Lastly, it honestly blows my mind that things like DRF and venture internships aren’t paid because of the sheer amount of money in the industry.
Firm fundraising broke a new record in H1 2022 and firms are flush with cash. Even if they didn’t want to spend any of that, or were a smaller fund that really couldn’t afford to pay, they could at least throw the students a bone in the shape of potential carry on their investments.
Without either, unpaid venture internships just cement the type of student who gets their foot in the door before said door slams shut on potential diverse talent.
Alex Wilhelm: Wealthy parsimony is obscene and morally bankrupt
I have been familiar with Dorm Room Fund for some time and think that it should be able to correct the unpaid element of its business without too much stress. (If not, it should do some self-introspection.) So, boo to DRF for winding up with the model it did, but let’s put their particular action to one side for now.
What drives me utterly bonkers more generally is aggressive frugality from the already wealthy. Doubly so when it comes to clearing a path for those who might follow in their footsteps but lack their financial background. This manifests across institutional groupings, including higher education, the money management world and other, more rarefied circles. We often see systems maintained that cater to an extant in-crowd, with at most a sliver of a bone thrown to those who lack the resources for normal entry to fight over.
While I despise unpaid internships in general, I hate them all the more when we are dealing with an industry flush with capital. Venture as an aggregate is in the midst of its most successful fundraising year in history. There has never been more capital flowing into the venture market. Evidence of that fact? Apart from raw data, a venture fund just raised $12.5 million for students to invest. As a former youth, huzzah! But I wouldn’t have been able to put in the amount of unpaid time that DRF expects when I was younger, as I had to work during school from the start through the end — I actually graduated a quarter early from university so that I could go full time at my gig sooner because I needed the money!
Who are unpaid programs for? And to what purpose? Presumably to offer experience in industries with few paid slots; fair enough. But if the purpose of such efforts is to broaden the top of the talent funnel away from existing, non-diverse networks, closing the door most of the way simply affords, literally, the space made available to those who would have likely already squeaked through.
It’s gross and annoying. It’s the industry equivalent of a rich person tipping poorly because they don’t think that the person behind the counter is worth the dosh. Please. The person making food works harder than most folks buying the product of their labor, for less money, with fewer benefits and a worse, less reliable schedule. Sure, junior investment bankers spend a lot of time logged in but having worked some manual labor jobs, let me be clear that nothing in front of a desk is as hard as actually working.
The best way to stay rich is to not spend your capital foolishly. But when it comes to offering jobs at a well-capitalized business, the same parsimony must not apply — else we’re just rich-washing the hope of opportunity to assuage guilt and not enacting real change. Fuck that.
Amanda Silberling: Unpaid internships are both a labor and a mental health crisis for the working class
Like Dorm Room Fund founder Josh Kopelman, I also attended the University of Pennsylvania. Sure, I studied English and fine arts, but I was not immune to the presence of the hypercompetitive culture on campus, largely proliferated by the undergrads studying at the Wharton School of Business. How many times did I exit my freshman dorm to see other students walking down the hall in suits trying to woo investment banks during on-campus recruitment?
Competition over high-paying summer internships is one thing, but sometimes these suit-clad hoards of mostly generationally wealthy students would be competing for a spot in a club. Yes, clubs at Penn are not simply fun extracurricular activities. They are seen as your ticket to those very same high-paying internships, which turn into high-paying jobs, which turn into more generational wealth, and on and on.
Dorm Room Fund extends this exploitative culture beyond the Penn campus. As Becca points out above, unpaid opportunities only benefit the students who are privileged enough to be able to work for free. I get why the president of a high-achieving college Model UN club probably doesn’t get paid. But unlike a standard extracurricular activity, the goal of Dorm Room Fund is to make money. Taking advantage of students’ expertise to help VCs invest in companies without pay — and without equity if you happen to spot a future money-maker — is criminal.
VCs will throw millions of dollars into a burning pile of trash in the hopes that it’ll become the next Uber (which still isn’t profitable), but you can’t compensate some college kids after you raise $12.5 million?
I’m sure that investing with Dorm Room Fund looks great on the resume of a wannabe VC. But I am so tired of hearing stories about how even low-income students can make these unpaid opportunities work, so long as they just wait tables in the evenings. Do we not understand that a hefty class load plus an unpaid internship plus a laborious service job is a recipe for a mental health crisis, which I witnessed so devastatingly often as a Penn student?
When we buy into the narrative that hard work can overcome anything — even financial inequality — we also buy into the narrative that it’s OK for low-income students to work themselves to the bone just to keep up with their classmates who will never have to wait tables or serve coffee in their lives.
Maybe this is why ride-share and delivery apps are so notoriously awful to their contract gig workers. If the people running these companies and investing in them have only ever worked jobs that look good on a McKinsey resume, how will they understand what it’s like to bike through the rain to deliver a pizza only to receive a 5% tip?