Last month we noted that the University of Pennsylvania is quickly becoming the Stanford of the East, thanks to a strong alumni network and exciting startups like WantWorthy, Invite Media, Warby Parker, Lore and Custora. Today UPenn –alongside Drexel and other Philly colleges — took another step towards claiming the title.

First Round Capital has launched a new experimental fund focused entirely on college campuses. The Dorm Room fund, worth $500,000, is starting in Philadelphia but will expand to other campuses if all goes well. But the most interesting part is who is running it: Once the fund is set up, First Round will be entirely hands-off. A team of students choose which startups get funded.

Google, Yahoo, Microsoft, and Facebook were started on college campuses. The thinking goes that if students were smart enough to create these companies, then they are smart enough to identify peers with potential. First Round is taking applications for its team of eight student VCs on the Penn and Drexel campuses. Once its initial investment team is picked, those members will choose their own replacements, as they graduate.

They’ll be given $500,000 to invest in companies (around $15,000 each) over the course of the school year.

First Round Partner Josh Kopelman says capital is crucial for entrepreneurs in the “dorm room” stage. As a Penn student in 1991, it took him two years to raise the first $500,000 for his startup, Infonautics. That round was much harder to scare up than the next $10 million. “Getting those first believers to allow you to put a person or two on payroll and get to that first traction … makes the difference between someone pursuing an idea and taking a job as a banker or consultant,” he says.

In a blog post, Kopelman writes:

But just because it takes less capital to build a company now, doesn’t mean it doesn’t take any. … We’ve heard from several entrepreneurs claiming that it was “much harder to raise our first $25,000 than our next $2 million.” Given this, I just wonder how many amazing companies we would be talking about today had they received that first small check. Instead, I hear stories about how amazing students, under the giant burden of college debt, abandoned their startup dreams and chose to take full-time positions at established companies.

The availability of capital for college-aged entrepreneurs has improved in recent years. New Enterprise Associates funds founders in Boston with its Harvard Experiment fund. And plenty of firms and angel investors (including college hater/Stanford professor Peter Thiel) engage with various programs at Stanford. On the flip side, accelerators like TechStars or Y Combinator are great for young founders but often lead to — if not require — that founders drop out. Accepting a small amount of capital from First Round’s fund is an alternative for those wanting to work on a project and finish their degrees, Kopelman says.

If all goes well, First Round may expand the Dorm Room program to four to five more campuses by next year.

The capital comes from a separate fund from First Round’s main fund. Kopelman says the firm expects a much higher percentage of failures in this portfolio, but First Round does expect a return. (“It’s not a charity donation or the world’s most expensive sponsorship,” he joked.) The return could come through successful startups that someday exit, or the fund could uncover a future Admob or Warby Parker, which would be an attractive investment opportunity for First Round’s early stage fund. “It’s an experiment with the hypothesis that this could help and fund some really great talent,” he says.

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