Revolutionary Angels Launches Pay-to-Play Business Plan Competition

10/5/09Follow @wroush

Depending on who you talk to, you get conflicting views about where real innovation and growth come from in today’s economy.

One school, well represented at the established venture capital firms on Winter Street in Waltham or Sand Hill Road in Palo Alto, says that there are only a few truly disruptive technology ideas in each business cycle; that these ideas end up generating most of the wealth and job creation in the technology industries; and that wise investing is mostly a matter of finding the right teams of entrepreneurs with the rare and magical combination of ingenuity and experience needed to build strong companies.

The other school, represented by the dozens of startup incubators, business plan competitions, and angel-investing groups currently popping up across the country, says it’s better to let a thousand flowers bloom, even if they turn out to be dandelions. According to this point of view, there are far more entrepreneurs with good ideas than the established venture-capital business can handle, and the important thing is to find ways to connect these innovators with capital, at least in small amounts, so that they can test their ideas in the market.

Chris Hurley belongs to this second group. He’s the founder and CEO of Revolutionary Angels, a new investing group based in Cambridge, MA. Revolutionary Angels isn’t a traditional angel investing group where members pool their own money to fund startups. Rather, it plans to run a quarterly business plan competition where the prizes—currently pegged at $250,000 for the first-place winner and $50,000 for second place—are financed by entry fees from the competitors themselves. The group began soliciting submissions for its first competition on October 1, and plans to announce the first two winners in November. In return for their fees, Hurley says, entrants will get not just a chance at the big prizes, but enough advice from a group of experienced advisors and service providers that the $4,995 entry fee could be a good investment even for teams that don’t win.

“The pool of people looking to get a business of the ground is growing, while the pool of venture and angel capital available to help them is shrinking, and what occurred to me is that there has got to be a better way to do this,” says Hurley. A longtime sales executive and IT consultant, Hurley was until recently a member of corporate development group at Sun Microsystems. He says he resolved to leave Sun after Oracle announced plans to acquire the struggling maker of business software and servers.

“I decided it was better to control my own destiny than to have someone else control it,” he says. “I’m hoping this is an opportunity that will not only provide that control but help a lot of other entrepreneurs out there, because it’s a challenging environment.”

Despite, or maybe because of, startups’ thirst for capital, Hurley’s model may prove to be a controversial one. The $4,995 fee to enter Revolutionary Angels’ first competition is not inconsiderable to a business in need of cash. Hurley’s plan is to limit each competition to 100 startups, meaning Revolutionary Angels would collect just shy of $500,000 in fees for each round. Out of that pot, $300,000 would be invested in the two winners, who will be selected by the company’s panel of advisors. In return, Revolutionary Angels will ask for a 10 percent ownership stake in the grand-prize winner. The other $199,500 in entry fees would help to cover Revolutionary Angels’ costs, Hurley says.

Hurley’s view is that $4,995 isn’t a lot for a startup to spend for a shot at the prize money—at least considering how long it can take for new entrepreneurs to win their first meeting with an angel or venture group, and how much money they often spend attending venture-capital conferences where their business plans will ostensibly be vetted by top-tier investors, usually with little result.

“Every dollar is precious to a startup,” says Hurley. “But factoring in the time it takes to find funding, the connections necessary, and the dollars you are going to spend bootstrapping, we thought the fee we are charging is a good balance.”

Even the 98 companies in each crop that don’t win investments will get value for their entry fee, Hurley argues. Revolutionary Angels’ panel of judges will provide every entrant with written analysis of the strengths and weaknesses of their business plan, he says. “We’re also going to connect them to our network of advisors. Very much as in the angel and venture capital worlds, there will be companies that are standouts, and if the advisors find companies that they think have a lot of promise, they will take them under their wings.”

The company’s advisors include Steve Duplessie, the founder of Enterprise Strategy Group, a Milford, MA-based enterprise storage consulting company; Maureen Ellenberger, a fellow at the New England Clean Energy Council and a senior lecturer at the MIT Entrepreneurship Center; Mike Ewing, senior vice president of global partnerships at Lexington, MA-based VistaPrint; Jacob Farmer, founder and chief technology officer at Waltham, MA-based storage integrator Cambridge Computer; Brandon Ingersoll, a partner at MedEquity Capital in Wellesley Hills, MA; Steven Kokinos, president and CEO of Thinking Phone Networks, a Cambridge, MA, company that provides integrated e-mail, voice, and messaging software; and Jeffrey Steele, a partner at Waltham-based business law firm Morse, Barnes-Brown & Pendleton.

Hurley, who is Revolutionary Angels’ only full-time employee, says the group has also recruited a network of partner companies who will be available to provide professional services to both the contest winners and the other entrants. These include Enterprise Strategy Group, Thinking Phone Networks, and Morse, Barnes-Brown & Pendleton, as well as an accounting firm, a Web design firm, a product design firm, a video production company, and an employee benefits administrator.

“The goal is to provide one-stop shopping” for new companies in need of services, Hurley says. “Every one of these [partner] companies, when they were getting started, got a lot of help along the way, so there’s a sense of wanting to give back to help the next crop of entrepreneurs get off the ground. It also gives them an opportunity to market themselves.”

The keys to making the Revolutionary Angels model work, of course, will be getting enough paying companies to enter the competitions and proving over time that the experience is worthwhile even for the non-winners. When I spoke with Hurley on Friday—just one day after the group opened its first competition to submissions—he hadn’t yet found any takers, although he said he was in discussions with one venture capital firm outside of Massachusetts that planned to help four or five companies submit entries. Hurley aims to recruit 100 entrants before the October 31 deadline—but he says the amount of prize money awarded will depend on the actual number of companies that take part.

Hurley says he’s hoping that most of the teams that enter the competition will be from New England, since most of Revolutionary Angels’ advisors and partner companies are located in or near Boston. But he says there aren’t any geographical restrictions on who can enter. The results of the first competition will be announced at an awards presentation at the Boston Harbor Hotel on November 20.

Because Revolutionary Angels won’t be investing other people’s money, Hurley points out, it won’t be under pressure to choose only companies that have a shot at going public or being acquired at huge multiples. In fact, he says he expects that most of the companies Revolutionary Angels funds will never do either.

The company’s main goal, Hurley says, is to provide opportunities for the unconnected. “If you go to conferences and you see a lot of entrepreneurs and angels and VCs standing around talking, it’s very clear that there are existing relationships between most of them,” he says. “It’s very easy to forget that there is a whole other world of people out there who are trying to get a company off the ground and are just not part of that network.” Seasoned entrepreneurs “may not see as much value” in paying $4,995 for a chance to connect with Revolutionary Angels’ advisors and a 1-in-100 shot at winning $250,000, he admits. “But if you’re someone who hasn’t had access, there is probably a tremendous amount of value in it.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • http://twitter.com/chrisco Chris Comella

    Another scam preying on the young and/or desperate and/or misinformed.

  • Pingback: Is “Revolutionary Angels” either? « Myriad Missives

  • http://LeanStartups.com Apolinaras “Apollo” Sinkevicius | LeanStartups.com

    I am sure regulators will be making a call to “Revolutionary” Angels to C&D their lottery. Sorry, but this is not what Angel investing is all about. There is nothing revolutionary about this. I will not go as far to say it is a scam, but I question ethics of this “investment” scheme.

  • Gloria Guenther

    The nearly 5k “entry fee” would certainly
    be a deterent to cash-poor, but deserving, start-ups. Holy cow!
    Perhaps all entries could submit the
    $4,999.00 entrance fee in virtual currency,
    instead.

  • Pingback: Pay to play? » Business Plan Competition