Introducing: The kid VC

  @FortuneMagazine June 18, 2013: 10:07 AM ET
BAN01 alex banayan

Banayan in his new office, which used to be a storage closet, where he writes his book and searches for the next big startup

(Fortune)

It's 11 p.m. in downtown Austin, and we're driving in circles in a very un-school-bus-like school bus: blacked-out windows, a bar in the back, bullhorns strapped to the grille, Nine Inch Nails posters on the walls, dubstep whomm-whomm-whomping through what looks and sounds like an expensive, very loud sound system. There are 25 of us onboard. Most hang on to overhead straps, leaning into each turn. A group of women is dancing, somehow.

We are at South by Southwest, a festival that used to be about undiscovered bands getting signed by record labels and is now seemingly wholly given over to Tech with a capital T. The party bus was booked by Tony Hsieh, CEO of Zappos.com. All Hsieh's friends are aboard: There's an Austin entrepreneur who sold his last company to Zynga (ZNGA); a member of Google's venture capital fund; a partner at Peter Thiel's Founders Fund; and a woman who started a nachos restaurant near downtown Las Vegas, where Hsieh is sinking hundreds of millions of his own money into redevelopment. Also aboard: a 20-year-old venture capitalist named Alex Banayan. He's the youngest person on the bus by a decade, and he has already introduced himself to everyone. More than once, over the sonic assault I hear his voice shout, "That's awesome!"

Banayan is the world's youngest venture capitalist. He works for the San Francisco firm Alsop Louie, which manages $150 million. He's also the youngest author signed at Crown Business, a Random House imprint, and probably the only college student in the world to have received offers from MTV (for his own reality-TV show) and from a singer-songwriter at Interscope Records (to manage him) and turned both down.

Stewart Alsop says that he hired Banayan because he saw something in the 20-year-old that was, to him, more important than tech expertise: hustle. Banayan told Alsop and his partner, Gilman Louie, about how he won on The Price Is Right despite never having watched a full episode. (He earned $32,000 in prizes, including an 18-foot sailboat, a billiards table, and a zero-gravity plane trip.) He told them about all the budding University of Southern California entrepreneurs he was meeting at parties and, later, his book deal, for which the first-time author got a substantial six-figure advance. For the book, he told them, he hoped to interview some of the world's most successful people -- Warren Buffett, Bill Clinton, Bill Gates, Kanye West, Mark Zuckerberg -- and write about how they broke through early in life when no one would take their meetings. People take Banayan's meetings.

"He's incredibly self-confident," says Alsop, who used to be a journalist (and wrote for Fortune) and whose co-founder, Louie, used to run the CIA's venture investment fund. Alsop and Louie wanted someone to track startups across L.A. for them. In Banayan, a USC junior, they had found their man. Banayan has been given an enormous amount of responsibility for someone Alsop still calls a "kid," and he now faces the challenge that greets every new VC: closing. A year after signing with Alsop Louie, when I met him in Austin, he was still searching for that first big deal.

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Hsieh is floating around somewhere in the front of the party bus. Later, Banayan explains how he befriended Hsieh at a friend's sleepover costume party in New Jersey. Hsieh had on a hat that looked like a bear. Banayan went as an alien cowboy. After four or five laps around downtown, everyone on the bus has had at least a few drinks except Banayan, who sticks to Diet Coke. We finally stop, and everyone staggers out. Banayan finds Hsieh on the sidewalk, huddling with self-help guru Timothy Ferriss and a social media entrepreneur named Gary Vaynerchuk. Banayan high-fives Ferriss, then turns to me and says, "Isn't it funny how all the successful people connect with each other?"

To understand how a 20-year-old got a job judging businesses and influencing millions of dollars in investments, it helps to first understand the current boomlet in Silicon Valley. Ever since Mark Zuckerberg became a billionaire Harvard dropout, young entrepreneurs have become as prized as rare orchids. Adolescent strivers are everywhere, and last year venture seed money poured into startups at a record rate. Such demand has created a new ecosystem of 20-and-under entrepreneurs who are learning to write code in their teens and studying how to pitch their businesses before high school graduation. Peter Thiel, the billionaire Silicon Valley investor, has a two-year fellowship that pays $100,000 to students who skip college or drop out to pursue their startups, so long as they don't sneak back to classes. In May, Yahoo (YAH) paid $1.1 billion for the blog service Tumblr, which is run by 26-year-old David Karp. Two months earlier, Yahoo paid $30 million for a mobile application that summarizes news stories and was created by 17-year-old Nick D'Aloisio. Vinod Khosla, another influential venture capitalist, told a conference in 2011 that "people over 45 basically die in terms of new ideas." Khosla is 58.

The problem for VCs lusting after 18-year-old entrepreneurs is that they themselves are usually forty- and fiftysomethings. VCs need the young connectors to scout. Youth feed on the young. Thiel, an early Facebook backer, had Sean Parker (then 24) introduce him to Zuckerberg (then 20). Alsop Louie took this one turn further and recruited a crew of college students.

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Banayan and four other "student VCs" at Alsop follow startups on campuses at MIT, Stanford, and USC. When the firm hires kids, it categorizes them into two types: geeks and gadflies. The geeks know how to scrutinize the technology; the gadflies know how to handle the talent. Banayan is a born gadfly and worried he wasn't geeky enough. "Alex said, 'I don't know if I can do this because I don't know how to evaluate a technology startup,' " recalls Alsop. Alsop told him not to worry. He just asked Banayan to keep palling around with his friends, the budding entrepreneurs. His tech expertise would grow fast enough.

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The next day at South by Southwest, a Saturday, Banayan is on to his second lunch. Soon after arriving in Austin, Banayan tweeted, "If you're at #sxsw and you're under the age of 22 ... Lets meet up. I want to hear your story." He's been in meetings -- usually over meals -- all morning. As he moves across town, he says, "I really only want to meet with entrepreneurs under 25. I mean, if you're 30, what are you doing at South by?" He's hooking up with a pair of University of Michigan dropouts, a programmer named Dave Fontenot and his partner, Raj Vir. Fontenot is wearing checkered pajama pants and an Army hoodie, while Vir wears Ray-Ban glasses a size too big for his face. Six months ago the duo caught the eye of the Valley after they created Playbook, a social-networking app that allows guys to list the girls they've slept with. TechCrunch named it "douchebag app of the year." A month later the two raised $50,000 in sponsorships from Facebook (FB), Google (GOOG, Fortune 500), and Andreessen Horowitz to throw the largest ever college hackathon -- a big coding contest -- in Ann Arbor. Soon after, they dropped out to work on their next project, Market Loco.

The pair describes Market Loco as a ticket, apartment, and textbooks sale site for college kids. The idea came to them when they noticed Facebook's message boards were overwhelmed by students trying to sell Michigan football tickets. On Facebook, finding what you wanted to buy was difficult. "If all of your friends are already going to the same party -- Facebook," Banayan interjects, "and if you notice that one of the light bulbs in that party went out, why did you decide to start a whole new party? Why not just try to fix the light bulb?" Fontenot told him the demand was much bigger than what Facebook could handle.

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We finish our hamburgers (Banayan is taking a day off from following Ferriss's low-carb 4-Hour Body diet, which has helped him shed 40 pounds), and the conversation turns to fake IDs. Fontenot says it's important to have a good fake in Austin if you want to pitch your ideas at the nighttime parties along Sixth Street. Vir mentions that the one he has came highly recommended from a college friend. "Aren't they all?" Banayan says, sounding world-weary. Later, once he's dropped off the Market Loco founders in a cab, Banayan tells me that he wouldn't invest in them now. "But," he adds, "when they have the really great idea, they're going to call the VC they're friends with."

Banayan grew up in a middle-class family in Beverly Hills, the son of Iranian Jews who fled the country's revolution in 1979. Family is important to Banayan. He still lives at home and never misses Shabbat dinners. His parents wanted him to be a doctor, so he was premed, but he never took it seriously. He wanted to become an entrepreneur. In the first week of school an upperclassman introduced him to the startups on campus. Soon he was talking about Keith Ferrazzi's book Never Eat Alone at parties and Starbucks (SBUX, Fortune 500) founder Howard Schultz over lunch.

Despite his early success and privileged upbringing, Banayan describes himself as an underdog. He explains that, while his parents live in Beverly Hills, their house is a modest ranch-style home and they moved within the zip code only for the public schools. He avoids alcohol and partying, he says, to focus on his career. Over a lunch at Chipotle he tells me, "I think you think I'm smart." The humility and larger-than-life tales of cornering CEOs and winning game shows can come off as calculated moves that pit Banayan as a charming loser triumphing in the face of adversity. He rattles off every anecdote with the same enthusiastic, "Can you believe that happened to me!?!" grin. In these moments it's easy to forget just where he grew up and that he attended a private university.

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Banayan's respect for his elders also represents something new in the world of teenage entrepreneurs. While Zuckerberg made it cool to dismiss authority (an early business card famously read I'M CEO, BITCH.), Banayan seems to embrace authority to the point of being in awe of it (see his book). Then, when he meets with peers, he passes off his aged wisdom, acting the adult in a world of kids.

On Saturday night, Banayan ends his time in Austin at a private dinner with about 100 young entrepreneurs, most around 30 years old and part of a startup community called Summit Series. Justin Bieber's manager, Scooter Braun (age 31), is here. So is Sophia Bush (age 30). The dinner feels like a giant pitch meeting -- everyone has a business or a cause to promote. Banayan hops from conversation to conversation, talking about his book, his own career aspirations becoming clearer.

Banayan says he envisions his book blooming into a business, like the Khan learning academy, the free online lectures designed by a former hedge fund manager and endorsed by Bill Gates. He wants to create a community in which regular Joes get practical advice from some of the most successful people in the world. He might include Gates on how to negotiate a contract or Sugar Ray Leonard on how to train for your big meeting. He has dropped out of USC for the next year to focus on the book, and has flown to New York for a Clinton Foundation fundraiser where his $2,500 donation earned him a picture with the former President. In the 15-second window, he pitched Clinton on the book interview and, after he reached for his wallet to show him a list of subjects, turned into a security threat. He's also cornered Larry King in a Whole Foods parking lot, where King eventually broke down and invited Banayan to breakfast.

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"Alex has the key ingredients to become a great entrepreneur," says Elliott Bisnow, who started Summit Series and has built it into a kind of TED conference for twentysomethings. "You have to be nice and likable and dream big." You also have to prove you belong. The book deal is a start. But Banayan wants his name on an Alsop investment to prove to himself, and to outsiders, that he's for real. Which still means landing that deal.

On Monday afternoon, back at USC, Banayan meets with Harsh Vathsangam, a Ph.D. student who created a health-monitoring app for smartphones. The USC campus looks like a picture-perfect vision of Southern California: all manicured palm trees and sun-soaked afternoons. It's hard to believe anyone would want to leave it, especially for Banayan's tiny windowless office -- once a storage closet -- where he works near his mother's Beverly Hills law practice. We walk to the engineering building, to Vathsangam's cubicle deep inside. Once we're settled in Vathsangam's space, Banayan, hopped up on Diet Coke, begins shooting off questions about the smartphone app's capabilities. The app is calibrated to track a phone stored in a pants pocket to measure walking, running, and almost any movement. "Girls sometimes carry their phone in their bra," Banayan says. We all stop to consider the dilemma. Vathsangam assures him it will still work.

The reason Banayan is here has nothing to do with the technicals of a phone being carried in a bra. Alsop Louie's partners can handle that. They can also fix a business plan. What they can't create in a startup is a big thinker, and that's what Banayan is here to shape. The partners want to fund entrepreneurs who long to take over the world. "How is this going to change lives?" he asks. Banayan's enthusiasm is perfectly calibrated for questions that wouldn't be out of place at a Tony Robbins convention. Vathsangam says he genuinely wants to make people healthier, get them active. His app triggers your phone to vibrate if you haven't moved in 15 minutes.

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Banayan goes back and forth with Vathsangam about the potential market in the insurance and corporate worlds, where companies are desperate to bring down the cost of premiums any way they can. They talk about insurance giant Kaiser Permanente using the app to motivate policyholders and Fortune 500 companies bringing down employee health costs. They talk about changing billion-dollar industries.

After 2½ hours, Banayan wraps things up by inviting Vathsangam to San Francisco to meet the Alsop Louie partners. We walk across campus through the lamplight and to his car, Banayan thinking aloud about Vathsangam's future. Sure, the app is technically impressive, and the Alsop partners love it. But does Vathsangam have what it takes to make it a success? The world is filled with ambitious people, Banayan says, but only a few have enough drive to get really important, big things done.

He brings this up by way of explaining why he turned down the MTV reality show and that job in music management for a tiny office and late nights hustling startups. He wants, he says, to change the world. He stops under a streetlight. "I hate when people call me ambitious," he says, and we continue across campus in the dark.

This story is from the July 1, 2013 issue of Fortune. To top of page



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