THE BLOG
09/17/2014 04:41 pm ET Updated Nov 17, 2014

Keep Your Alumni Engaged: Create a VC Fund for Them!

Americans owe more than $1 trillion in student loans. The amount of debt per-capita is $24,300. More than 11% of it - that's roughly $110 billion - is delinquent or in default, and the delinquency rate is higher than all other types of debt.

Young people are not buying homes, cars, and other items, thus decreasing the level of consumer spending that fuels the U.S. economy. The debt burden further adds to the wealth gap in the United States, and one-third of college graduates feel that they would have been better off not going to college at all. My alma mater, Lehigh University, now costs $58,835 per year - and that does not include the interest on the student loans!

In such an environment, it is not surprising that college alumni engagement and donations are plummeting. In Forbes, Alexander Aciman summarizes the feelings that many recent graduates have when their universities ask for money following graduation:

The email spam and inconvenient phone calls, however, aren't the problem. It is the fundamental unseemliness of universities' relentless solicitation of donations from recent alumni in a country where the current balance of outstanding student loans is 1/15 of the nation's entire GDP. More than half of recent graduates at the time I finished school in 2012 were unemployed or underemployed, and many more were mal-employed--working in fields other than those offered by their majors. Universities must realize that many of us cannot spare the donation required to get a mug with our class year on it.

I can imagine the thought that is in the heads of college graduates today: "I gave you $100,000 - why should I ever give you another dime?" In fact, when universities have, say, $30 billion endowments with average annual rates of return of 12% over twenty years that are funded by donations such as this recent $150 million one, students cannot be criticized for wondering why colleges need to keep raising their tuitions - or even have tuitions at all. Most universities are not for-profit businesses that need to show increased profits every quarter.

So, how can colleges increase engagement among graduates in such a tough financial environment? Obviously, ending tuition and paying off the student loans of all alumni is probably not feasible.

One answer is to create or connect with investment funds such as MentorTech Ventures, which invests in companies that are founded or managed by students, faculty members, and alumni in the University of Pennsylvania "ecosystem." I would like to do the same at Lehigh University.

The University of Pennsylvania is not alone. Angel investment funds, incubators, and accelerators are starting to pop up at universities and colleges throughout the United States. A quick Google search shows similar funds at NYU, UCLA, the University of Illinois, and elsewhere. Stanford University is going to invest in student startups directly. The University of Utah even has an investment fund that is run by current students.

Such investment vehicles, however, need to become part of the future of every university. Why? First of all, students typically receive very little real-world assistance from their universities outside of, perhaps, the editing of resumes and the posting of openings on job boards.

Student and alumni entrepreneurs who can get funding and consulting from their universities will feel that their colleges directly helped their careers more so than those who believe that all they got were pieces of paper in the forms of diplomas and student-loan bills.

In return, those alumni will feel much more inclined to engage with - and donate to - their universities after graduation. (Especially if their startups and small businesses take off!) Tough economic times often force graduates to become brutally realistic - they will give money only if they see direct benefits (or saw them in the past) from their times at college.

Of course, this may sound like an easy answer. It's indeed difficult to establish an accelerator, incubator, or fund that is directly linked to a university. Just one question of many that needs to be answered is whether the fund will be managed by a university employee or alumni with relevant experience.

Regardless of the issues that arise, colleges have a significant advantage over other new VC funds: they already have established networks of successful people in the industry who care about the universities. Alumni databases can yield tremendous opportunities in the forms of fund managers, partners, and consultants. In return, colleges such as Lehigh University, for example, can hold equity in the startups and businesses - many of which will be successful.

In the end, colleges need to rethink how to engage with their alumni. Scrap Alumni Weekend and find better ways. Create an alumni news website and invite people to submit blog posts on what they and their companies are doing. Get rid of the fundraising "phoneathons" and focus on projects that matter such as on-campus incubators for students and alumni. It's time for universities to think smarter.

Focus on how you can help your students and alumni financially - especially the millennials and younger Gen-Xers who are crushed by student-loan burdens - and they will return the favor tenfold in the years to come. The equity that universities and their funds will receive will just be a bonus after they create the VC funds.

Lehigh University, you have your first volunteer to help. The Baker Institute is a step in the right direction.