Revolutionary Angels Defends Business Plan Competition Amidst Widespread Criticism

11/30/09Follow @wroush

A post last week on the New York Times’ “You’re the Boss” small business blog examined the phenomenon of business plan competitions with high entry fees, with the focus largely on Revolutionary Angels, a Cambridge, MA-based competition we profiled in early October. The post questioned whether the $4,995 entry fee that Revolutionary Angels charges companies to participate in its competition—which has projected prizes of $300,000, funded by the participants’ own fees—is a good investment for the typical cash-strapped, early stage startup.

“Five thousand dollars is about the cost of one business course at a top university,” Jill Kickul, who directs an entrepreneurship program at New York University’s Stern School of Business, told Times blogger Lora Kolodny. “Can a competition deliver enough mentoring and coaching to be worth that money? Any more than $5,000 sounds like gouging entrepreneurs, to me.”

That echoes some of the skepticism we heard after our October story on Revolutionary Angels. And the Times piece has sparked a new round of critical comments. Seth Levine, managing director at Boulder, CO-based venture capital firm Foundry Group and a principal at Mobius Venture Capital, wrote on his own blog that “There is no circumstance in which entrepreneurs should pay to pitch their business to prospective investors. Period. End of story.” (Actually, the whole statement was capitalized.)

Levine went on to call Revolutionary Angels’ contest an “underhanded hustle” with unjustifiably high fees. “The fact that more than 100% of their investment dollars come from the entrepreneurs they are supposedly helping out makes it even more pathetic,” Levine wrote. He went to argue that if an angel group doesn’t have enough cash to fund startups out of its own pocket and bear the overhead costs of running an investing operation, “then you’re not rich enough to be an angel investor.”

Many other members of the venture-capital tribe have come down on Revolutionary Angels and other investing groups that require fees before reviewing business plans. Shawn Broderick, executive director of the Boston version of the TechStars venture incubator program, blogged in response to our October piece that he has “an allergy to anything that consumes precious start-up capital that does not generate product progress, customers, or revenues.” Mahalo CEO Jason Calacanis, Brad Feld of Foundry Group, and Fred Wilson of Union Square Ventures have all come out publicly against the “pay-to-pitch” model.

After Levine’s response to the Times blog post, I contacted Revolutionary Angels founder and CEO Chris Hurley to ask for his response. Hurley says critics of Revolutionary Angels seem to misunderstand the organization’s entire model—from the nature of the competition to the services rendered to the reasons for using the entry fees to finance the prizes.

First, Hurley says the Revolutionary Angels business plan competition isn’t a marketing-oriented “pay-to-pitch” program like the DEMO technology conferences, the other example mentioned in the Times post. Rather than simply listening to a pitch, the Revolutionary Angels panel members are acting as consultants, Hurley says.

Second, every startup that enters the competition “gets support and help with their business plan and their strategy,” Hurley says. “We’re really trying to give them the benefit of experience from entrepreneurs who have been there and done that.”

In fact, Hurley says that benefit would be worth the $4,995 entry fee even if … Next Page »

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

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  • http://www.i-nalysis.com Drew Hession-Kunz

    They’ve “been there, done that”, but didn’t earn enough money to actually invest. Why would I want their advice?

    Besides, there are plenty of people giving out cheap advice. Get a board. Get some business acquaintances. Get a plan and execute.

  • http://www.jasonmendelson.com Jason Mendelson

    Talk is cheap – not worth $5000. There are plenty of VCs, Angels and experts in the startup ecosystem who are willing to give all of this advice for free, or in the case of groups like Techstars pay the team to give this type of advice in exchange for a small founders share of equity. This isn’t a new model – it’s been around for years and a rip off is still a rip off.

  • http://www.sethlevine.com seth

    I’ve posted some thoughts on Hurley’s response over on my blog: http://fndry.gr/790Z

  • http://www.ashimmy.com alan shimel

    While I don’t necessarily agree with this model, all of the VCs gnashing their teeth about the injustice to the poor entrepreneur is not doing it. Ultimately the market will determine if this is a viable model with customers who are getting enough value to buy the 5k lottery ticket. I have written more at my blog http://www.ashimmy.com/2009/12/is-there-room-for-another-model-in-the-vc-investment-world.html

  • https://tsw.winningworkplaces.org Mark

    Wow, $5000 to evaluate just a business plan. The nonprofit I work for, Winning Workplaces, does an annual small business competition where we evaluate many aspects of the workplace culture and business metrics — everything from # employees and % minorities, to benefits offerings and leadership development — and we’re charging only $100 for a comprehensive 7-page online application. Granted, the prize in our case is being featured in Inc. Magazine, and not cash, but that still seems unattainable for the vast majority of startup or pre-startup phase entrepreneurs. Thanks for posting this.

    • http://www.startupbusinessloans.com/research/ Sophia Anne Walker

      Many savvy aspiring business entrepreneurs have opened online businesses for less than $5000.

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