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Stanford is the secret sauce of Silicon Valley, our colleague Mike Langberg explains in this piece (free registration). Nothing too surprising, perhaps.

But he doesn’t talk much about what Stanford means for venture capitalists. And why Foundation Capital — a well-known venture firm here in Silicon Valley — will announce today that Stanford University has joined as an investor in Foundation’s latest $525 million venture fund.

Remember, it was John Doerr, of Kleiner Perkins, who walked the halls at Stanford and invested in Sun Microsystems, and angle investor Ram Shriram who stumbled upon the Google co-founders when he was visiting a Stanford professor.

As a firm, you want to get close to Stanford, establish relationship with Stanford engineers, and thus get early access to the companies created by the brightest. (Stanford entrepreneurs feel good about taking money from you as a firm, because Stanford gets a profitable return on its investment if they well; so it is a way to give back.) By having Stanford as an investor, you are meeting the VC gold standard.

Harvard, Yale, Princeton and Caltech have all invested in Foundation’s previous funds, but for whatever reason Stanford hadn’t. Among the companies Foundation partners have backed: Peribit, which was founded by a Stanford student, and was acquired by Juniper for $400 million.

That’s not to say Foundation didn’t already have its Stanford connections. Without them, Peribit wouldn’t have happened. Stanford President John Hennessy was an advisor to the student, Amit Singh, who founded Peribit. And Hennessy was a personal investor in Foundation’s previous fund. Hennessy also sits on the board of Stanford Management, which oversees the three university funds that invest in venture start-ups. Two of those funds, the engineering school fund, and the business school fund, ended up investing in Peribit….and so perhaps it is no surprise now that Stanford is investing in Foundation.

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