launch festIt’s inevitable: You’re a college grad and you get the obligatory call from the alumni office asking for dough. Or a letter in the mail complete with an addressed envelope to make that transaction even easier. Or, to really pull the heartstrings, a current student calls and tells you how much your donation would personally help people like him.

And if you’ve become a raging success since you’ve graduated, the pitch comes even harder. It’s a good revenue model for a university – a pay-it-forward approach with an emotional appeal. People who head successful companies help out the people who gave them a hand up all the time, but the well-oiled machine of alumni donations doesn’t exist in venture capital. But should it?

“Incubators and accelerators have brought the school model to the investing scene,” said Naval Ravikant, founder of Angel List, during a panel at the LAUNCH Festival in San Francisco. “If you have a school model – and a concept of classes and graduates – why not have a concept of alumni and alumni donations, and giving and granting scholarships?”

Dave McClure, founder of 500 Startups, recalled a company that had exited, from the incubator’s first fund. 500 Startups was still raising the round, and the founders of the company put money back into the same fund that had given them funding.

Ravikant cited YC alumni like Garry Tan, who is now involved in the decision making process at YC because he is a partner at the incubator. Indeed, it’s not too different from the general pay-it-forward ethos of Silicon Valley where you’re expected to angel invest if you’ve done well. And there are certainly examples of “mafias” around companies where post-exit executives and cofounders will continue to invest in one another’s ideas. But it’s never been formalized and based on specific funds or incubators. 

“There’s a lot of precedent for this. Just formalize or institutionalize it,” said Ravikant.

The panelists wanted to make it clear that they were not talking about “round tripping” a quid pro quo where one business gives an asset to another business with the intent of getting it back at a later date.

Aside from giving money back into the investment fund, there is also clearly an emotional potency to the alumni connection, and camaraderie between companies who came out of the same incubator.

I asked some entrepreneurs in attendance at the festival about this idea of alumni wheeling and dealing. One attendee told me about friends of hers that are Y-Combinator grads, who have called up grads from past classes for advice and guidance. Asking for money outright is a bit of a faux pas, she says, but that could change if there forms a mature system around it.

Balanced, a payments company and YC grad, has benefited from the alumni connection: Airbnb founder Brian Chesky is an investor. Balanced CEO Matin Tamizi emailed the Airbnb team asking for help in defining the direction of the company, and eventually connected with Chesky to ask advice on fundraising. “As I talked to Brian, he got excited and decided to invest himself,” Tamizi tells me. “It was the YC connection that got the process started.”

Speaking of alumni goodwill, Yammer launched at the precursor to LAUNCH festival, TechCrunch50, back in 2008 and sold to Microsoft for $1.2 billion. Founder David Sacks said during a fireside chat with Calacanis that he’d give $250,000 to five startups that presented at LAUNCH.

[Image courtesy LAUNCH Media, LLC]