Is Entering a Business Plan Competition Worthwhile?
To help finance an MBA degree that now costs more than $200,000 at some of the best private business schools, future entrepreneurs could do what most MBA students typically do: apply for scholarships or take out student loans—or, they could enter a business plan competition.
In April 2019, two teams from the Kellogg School of Management at Northwestern University won combined prizes from Rice University’s business plan competition that totaled over $500,000. Incredibly, neither of Kellogg’s two teams—one a neurology medical device startup firm and the other a coffee vendor—won the competition. That honor went to a team from Minnesota’s Mitchell Hamline School of Law who walked away with an even larger award for their innovation in helicopter safety: almost $700,000.
What’s even more interesting is that large prize pools for business plan competitions for student startups appear to be increasingly common, including the Hult Prize, the Hello Tomorrow Global Challenge, the International Business Model Competition, the Baylor New Venture Competition, and perhaps the most lucrative: the Rice University Business Plan Competition (RBPC).
The Rice Business Plan Competition: A Money Machine for Student Startups?
So just what is this competition, anyway? According to Rice University, the Rice Business Plan Competition (RBPC) amounts to “the world’s richest and largest graduate-level student startup competition.” The event began 19 years ago as a joint initiative between the university’s Jones Graduate School of Business, the Brown School of Engineering, and the Wiess School of Natural Sciences, along with the school’s sponsored projects office. That year, in 2001, only nine teams competed for a paltry $10,000 prize pool.
Times have certainly changed for the RBPC. In 2013, another Northwestern University team that enhanced rechargeable lithium batteries took home almost 100 times that much—$1,000,000—after winning first-place honors. In the most recent 2019 event, the total prize pool amounted to a record $2.9 million, with the top seven finalists winning $355,000 on average and none of these teams receiving less than $100,000.
The RBPC appears to owe many of its larger awards in recent years to a single investor organization. A major sponsor of the competition is the oddly-named GOOSE Society of Texas; the acronym stands for “Grand Order of Successful Entrepreneurs.” Started by Jack Gill—the principal behind Vanguard Ventures, one of Silicon Valley’s first early-stage venture capital firms—this investor network funded $1,275,000 (or about 44 percent of the event’s awards) in 2019.
But the GOOSE gravy train doesn’t necessarily stop at the awards banquet. The network’s executive director, Samantha Lewis, told Houston’s online business magazine InnovationMap that the GOOSE Society may invest more after wrapping up their due diligence investigations. For example, the RBPC’s 2017 winning team from Carnegie Mellon University received a $300,000 GOOSE grand prize during the awards ceremony, but eventually netted $2 million from the network overall.
What is the RBPC’s Track Record in Creating Successful Companies?
Are the RBPC’s contestants mainly student projects or do these ventures live on as successful companies? Clearly, most of these teams experience considerable success long after the competition.
This interesting infographic summarizes the track record of the RBPC’s success stories. It illustrates how about 60 percent of the teams transformed into companies that raised about $2.36 billion in capital. Of the 239 successful firms, 197 continue to operate and 32 firms successfully “exited,” meaning they were acquired or conducted successful initial public offerings (IPOs). The value of these exits amounts to over $1.18 billion.
The chart also shows how two industries (tech innovation and life sciences) have the highest percentages of successful firms, with the life sciences and energy industries accounting for most of the funding. This 74-page document profiles the competition’s most successful alumni firms.
These success stories are also geographically diverse. RBPC’s alumni teams represent 162 universities from 36 U.S. states and 18 nations on six continents. And despite the way that startups cluster in Western states like California and Washington, only three universities dominate the awards: Pennsylvania’s Carnegie Mellon University in Pittsburgh, Northwestern University in Evanston, Illinois, and the University of Michigan in Ann Arbor.
Role of Angel Investors as Judges and Donors
Traditionally, as this classic Harvard Business Review article points out, the venture capital industry has not provided the earliest seed funding to startups. Instead, angel investors typically invest in startups at the earliest stages, long before venture capital firms. Sometimes referenced by names like “angel funders,” “business angels,” or “seed investors,” angel investors often tend to be high net-worth individuals and families, sometimes with personal connections to the entrepreneurs they fund. They typically inject capital into startup firms in exchange for convertible debt—loans that can be converted to stock—or a proportion of the stock in the startup company.
For example, in 1977 former Intel electrical engineer Mike Markkula helped launch Apple with arguably the best investment of any angel in history. According to Apple co-founder Steve Wozniak, Markkula provided $250,000 to Wozniak and Steve Jobs. Of that sum, only $80,000 was an equity investment and the balance was a loan. In exchange, Markkula received a third of the company’s stock as the third employee, ran the company as CEO from 1981 to 1983, and served as chairman of the board from 1985 to 1997.
So-called “super angel” investor networks such as the GOOSE Society represent a blend between venture capital firms and angel investors. Here is how Fast Company described this newer breed of firms:
These crafty interlopers represent a hybrid between the two investing models that have long ruled the normally placid world of startup funding. Super angels raise funds like venture capitalists but invest early like angels and in sums between the two, on average from $250,000 to $500,000. By being smaller, faster, and less demanding of entrepreneurs than VCs, super angels are getting first dibs on the best new ideas.
So it’s not surprising that at RBPC’s 2018 competition, 40 percent of judges were angel or super angel investors. That’s more than double the proportion of judges from the venture capital industry and triple the proportion from the next highest sector: legal and financial services. It’s also not surprising that—barring some notable exceptions like Cisco Systems, NASA, and the Texas Medical Center—angel investors donated most of the largest prizes.
Other Business Plan Competitions With Large Prize Pools
Although our research disclosed no other competitions with prize pools quite as substantial as the RBMC’s nearly $3 million, we did find several events offering prizes large enough to provide compelling incentives for starving graduate students. Here are a few examples:
The objective behind the Hult Prize is to “launch a start-up enterprise that can radically change the world and breed the next generation of social entrepreneurs.” The prize is known for the involvement of the United Nations and President Bill Clinton, who presents awards to recipients. The top prize is $1 million for the winner.
Hello Tomorrow Global Challenge
The focus in the Hello Tomorrow Global Challenge, a Paris-based competition, encompasses launching “deep tech” emerging technology ventures with funding requirements far greater than cloud- or mobile-based Web applications. The current prize pool is about $235,000.
International Business Model Competition
The IBMC isn’t a business plan competition, per se. Technically, it’s a business model competition, which means that startup teams must adhere to lean startup methodologies and organize their pitches using a lean canvas framework. This Utah-based event offered a 2019 prize pool of $200,000. (Learn more from our article about how the lean canvas approach provides an alternative to traditional business plans.)
Baylor New Venture Competition
Another Texas-based event, Baylor University’s New Venture Competition only offers about $100,000 in cash prizes. However, IBM has kicked in $120,000 in cloud credits for each of the top three finalists, making this competition especially attractive for cloud-based technology startups.