Freshman Fund Invests in the Future

Entrepreneur Jeff Frese and the young beneficiaries of his latest startup have something in common -- they all eat a lot of peanut butter and jelly sandwiches.

Frese eats them because he's pinching pennies while trying to get his new business off the ground. The beneficiiaries or his startup enjoy PBJs for a more obvious reason -- they're kids.

Freshman Fund co-founders (left to right): Jeff Frese, Jonah Keegan and Jason Olim (Photo courtesy of company)
Frese's business, based in Manhattan, helps parents and others interested in investing in a child's college education to contribute online to any 529 plan, not just those run by a particular administrator.

Frese said he was at his niece's fourth birthday party a couple of years ago when the idea for Freshman Fund came to him: "There was this massive pile of presents that was bigger than she was and then she tore through everything -- garbage and junk everywhere -- and I felt like by the time she was done the gifts were already forgotten. I wanted to offer a more meaningful gift."

Frese, who spent the last 12 years as a technology consultant to media, technology and financial firms, asked his niece's parents how to contribute to her college fund and discovered that there wasn't an easy way to do it unless you're the account holder.

He started working with his business partners to put together a Web site. They also commissioned a study that asked 500 families with children in the United States whether they would want to use a site like "We thought we'd get about 50 percent saying 'yes' but it was 80 percent of those polled," who said they'd use it and ask friends and family to donate through it, according to Frese.

The company also went through a couple of business models, a process Frese likened to "building an airplane while you're flying it." An early incarnation of the company envisioned the firm operating as a broker-dealer that would sell 529 plans. The company's founders nixed the model when they realized it would alienate needed partners and put them in competition with financial advisors.

"So we opened up our service to work with all 529 plans from every state whether advisor-sold or direct-sold," said Frese. "We want to be the place for getting and giving the gifts of college education. We want to be the place that everybody goes to."

Freshman Fund doesn't sell plans and a site user must already be signed up for a 529 plan to register. Once enrolled, the holder of the plan can send an e-mail to friends and family with a link to the fund notifying them that they're able to contribute to it. Would-be donors can also search by name in the site's registry.

"We're not touching the money, we're not managing the money, we're just sending it to your 529 plan, we just make sure it gets wired to the right spot," said Frese. "Sure, you can give someone $100 and say hey, this is for Timmy's college, but then there's $100 lying around and then it's time to order pizza and that money never makes it to a college fund. We want to make sure the money gets to where it needs to go."

Seasoned entrepreneur Jason Olim is the startup's CEO. He founded and headed with his brother Matt online retailer CDNOW, which went from a basement startup to a Nasdaq listing. It eventually was bought by Bertelsmann. He's been involved with 20-plus tech and consumer firms.

Frese works from home while two of the company's full-time employees work out of rented desks at thanks to Olim's friendship with Meetup CEO and co-founder Scott Heiferman. "We could have a third desk, but that's more money each month. We're watching every dime and penny," said Frese.

The company initially worked with a Web firm on the design of their site, but found them "slow and not responsive or creative," recalls Frese. They then found out about a startup service called Odesk, which offers a stable of freelance Web developers for markedly lower fees than that which U.S.-based workers with similar skills would command. The company now uses these offshore freelancers and gives them explicit instructions on how to create and build the technology. "We've gotten a lot of really great value from developers in the Ukraine, Russia, Vietnam, Canada and India," said Frese.

He added that because there were tech-savvy people already on Freshman Fund's in-house staff, it was easy to quickly discern if a freelancer wasn't working out. "Within one week we might hire six people and maybe keep just two," Frese said. "We're often quick to hire and quick to fire. It's pretty apparent if someone can do something or is capable."

Matt Olim came on board as chief technology officer and was able to guide the freelancers, review their work and ensure it was good. Olim gets paid a minimum wage salary, but hopes to receive options from the company in the future.

The firm was paying the Odesk freelancers anywhere from $11 to $20 an hour, a huge discount from the up to $150 an hour U.S.-based freelancers might earn. Frese credits the firm with saving Freshman Fund tens of thousands of dollars, but acknowledged that the service might not work for a small business that didn't have the savvy to oversee the freelancers' work.

Frese says the firm has decent funding from friends and family, "but as a startup we need to be really aware of what we're spending money on." Right now, the majority of those funds are going to development. The company is just starting to create a marketing plan. It hopes to be advertiser supported, with highly targeted ads.

The Freshman Fund team thinks about money every day -- both personally and professionally.

"Money is hard," said Frese, who doesn't take a salary. "None of the founders are taking a salary and one of them has a baby on the way. We're all scrimping, saving and eating peanut butter and jelly."

He expressed frustration with angel investors: "I don't think they exist. To me, [an angel investor is] someone who invests in a team, but we talk to angel investor networks and they all say you're too early for us, come back in six months with customers, revenue, growth and traction...To me, they're just asking us to come back when we don't need the money."

He also said it's challenging to be a really small business trying to look like a big, established company. "Every day I'm meeting with someone who says send me a proposal on that and it's always something that I have to start" from scratch. Then there are the larger firms that want a non-disclosure agreement on things that are talked about. "We'll give it to them, but it has to go through their legal [department] and it can take 30 days," which is a lifetime for a startup.

But Frese said he feels like he's on the right track by growing and building a customer base and partnerships.

The firm recently signed a deal with Futuretrust to create a Freshman Fund-branded Futuretrust credit card, where a percentage of the money cardholders spend with the card will go into their designated 529 accounts.

"We're doing what we need to do to grow the company," Frese said. "And you'll never get rich working for someone else."

By Sharon McLoone |  September 22, 2008; 9:10 AM ET Profiles in Entrepreneurship
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