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Learning is a life long process. I would very much encourage my kid to do it - they would get to bring a passionate idea to fruitition, get exposed to running a company and get mentored by very smart entrepreneurs.

If it doesnt work out, I'll still pay for them to finish their degree the next year.

What is the downside?

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Good if it works out like that. But what's the point of linking the grant to dropping out?

It makes a political statement that may or may not be appropriate, and helps him target the funding. I personally think it would be morally hazardous as an investment, but it is hard to fault as a grant. The requirement may simply be to avoid having kids continue with their schoolwork on the side.

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