Revolutionary Angels Defends Business Plan Competition Amidst Widespread Criticism

11/30/09Follow @wroush

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participants had no chance of obtaining an investment (envisioned at $250,000 for the grand prize winner and $50,000 for the runner-up, with a 10 percent equity share required in return). “We woudln’t have done this if we didn’t think they were getting their money’s worth,” he says.

Third, Hurley argues that there’s room for more than one approach to startup investing. He thinks traditional angel and venture groups ask for more equity—and require greater investment returns—than many entrepreneurs can realistically provide. By funding Revolutionary Angels’ investments from the entry fee pool, he says, the group has the ability to invest in startups that may never provide returns on the scale angel or venture investors usually expect.

“What we tried to achieve with our model is to make sure that every single entrepreneur gets help with their business plan, but also to change the dynamics of the funding,” Hurley says. “Just like a traditional investor, we’re looking to invest in successful companies and entrepreneurs, but because we’re taking the funds that we’re generating from the competition and using those as the investment dollars, that gives us more flexibility. Standard venture capitalists and angel investors are working either with their own money or they have limited partners who have put money in, and those investors expect a certain rate of return. There are lots of companies that may provide a 3X to 7X return rather than a 20X return—does that meant they shouldn’t get funding?”

Hurley continues, “I certainly understand the venture model. It’s worked for a long time. It doesn’t mean there isn’t room for other models to support more entrepreneurs.”

Hurley also has a response ready for venture and angel investors like Levine who argue that they’ve been working to make themselves more accessible, and that there’s therefore less need for entrepreneurs to participate in programs like Revolutionary Angels. (Levine writes: “If you’re looking for ‘access’, try emailing me, signing up for my community hours or my partners Brad or Jason’s community hours, or any number of other credible VCs that are increasingly more open with their time.”) These investors don’t understand the scale of the demand, Hurley says. “If people think everybody has access to experienced entrepreneurs, that’s just not true,” he says. “In my talking to entrepreneurs, not enough of them are getting access to the people who have been there and done that. There is a much larger pool of people who aren’t being served.”

The debate over the role of paid business plan competitions in the startup world will no doubt continue. Meanwhile, there are signs that Revolutionary Angels’ first competition isn’t gaining traction quite as quickly as Hurley originally hoped. He told me in October that the group hoped to sign up 100 competitors by October 31 and hand out the first $300,000 in prizes in November. But the group has extended its application deadline to December 31, and now says a prize ceremony is planned for January 15.

The first competition has been attracting entrants, Hurley says, though he did not say how many have signed up so far. He added that it may not be necessary to gather 100 entrants in in order to provide first and second prizes of $250,000 and $50,000; the group could still give out prizes of those amounts by reallocating some of the money allotted for overhead expenses, he says.

“With a new model, it takes a little bit more time to explain things to folks,” Hurley says. “I’ve been talking to a lot of entrepreneurs, and we’ve definitely had a positive reaction, but it takes time to help each entrepreneur understand how we work and what each entrepreneur is going to get through the process.”

[Update, 12/1/09: Seth Levine at Foundry Group has posted a lengthy, point-by-point response to Hurley's defense of the Revolutionary Angels business model.]

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.

  • Pingback: Revolutionary Angels – Round II | Seth Levine