Startup competitions are popping up everywhere these days, like mushrooms after the rain. Startup companies are overwhelmed with the amount and variety of these contests.
Some of these competitions offer monetary prizes, others offer exposure and connections to investors, and there are those who offer access to potential target customers.
All of these rewards are very tempting and desired by startup companies. That’s why many of them apply and participate in these competitions. Of course, only few win, while many go home empty handed and disappointed.
And yet, that’s not the real loss. Losing a startup competition is not bad in itself. Participating in such a contest can provide you with meaningful feedback about your idea or product. That is of great value. Also, if in the process of preparing for the competition you improve and polish your pitch, that’s another valuable benefit.
The more significant loss from participating in a startup competition is the loss of time and attention to your key imperatives. These include product and customer development.
Because, participating in a startup competition takes a significant amount of time, resources and attention from your team. This could adversely affect your company’s progress, and consequently its survival. This is especially true for an early stage startup, which make up most of the companies that compete at these events.
I have experienced it personally. As a founder and CEO of a startup company, I had the good fortune of participating and winning a prestigious startup competition. Hence, I can say that the price of admission for any startup competition is not negligible. Quite the opposite, it’s pretty high.
Therefore, entrepreneurs should evaluate carefully the costs and benefits of attending such a competition.
These days, I work with entrepreneurs and startup teams on value creation and business model generation. I also connect them to the right investors. I guide and assist them throughout the process of raising the money they need to build and grow their companies.
As a result, I quite often get asked: should we participate in this startup competition?
Here is my answer.
Why Should You Participate
Everything we do in business (and life in general) should have a clear purpose and well defined goals. Startup competitions are no different. In my humble opinion, there are three primary goals for participating in startup competitions.
In order to raise money, a startup company needs to reach the right investors. In addition, it’s a great advantage if the introduction comes with a positive reference. For example, remarkable customer feedback. Another great reference is winning a reputable startup competition.
By winning a prestigious startup competition a company can gain immediate exposure to a large number of investors. Furthermore, it can create awareness for itself. As a result, it can save a lot of time and effort that’s required to reach these investors.
So, gaining exposure to investors is an important purpose and objective of participating in a startup competition.
And yet, that is true to a limit. There is great value to winning one or two competitions. Participating in more than that may have a diminishing, and even a negative effect. First, it halts the company’s progress on its main goals–developing a product and building a business. Also, it can lead investors to question whether the company has anything real to offer, or is it just “vaporware”.
Start competitions that offer a significant (greater than $50,000) prize money can be a good source of short-term (pre-seed) funding. For example, the competition that my startup has won gives the winner $100,000. This is cash money with no strings attached. It funded our operation for more than a year. Consequently, it enabled us to postpone our seed round and raise it on much better terms.
Therefore, winning a substantial cash prize is also a valid objective of participating in a startup competition. But, it cannot be a long-term funding strategy. Furthermore, the same risks and negative effects of becoming a “serial startup competition” company apply in this case.
Bottom line, one or two – good, four or more – bad.
I think this objective is sometimes overlooked by entrepreneurs. Winning a startup competition validates your value proposition, and lends you and your company credibility. Both are important for attracting investors.
Investors know that in order to win the competition you had to present your idea to a panel of credible judges. These judges perform a mini due diligence that reduces the perceived risk to investors. You passed a valid screening.
In addition, you also present to a large audience. In some cases, their feedback is also factored in to the decision on who wins the competition. That’s another form of validation for your idea and proposed solution.
Even if you lose the competition you can still get valuable feedback from the judges. It can point out issues in your value proposition and/or business model that you need to address. You can also receive candid feedback from the audience. If nothing else, you gained important inputs as part of your idea validation phase. Such feedback could typically take you a significant amount of time to collect.
Based on this constructive criticism you can make the necessary changes to your value proposition and/or business model (aka pivot).
Lastly, participating and winning a startup competition gives you a lot confidence in your idea and in your team. Confidence that will serve you well in your engagements with investors, business partners, and customers.
In conclusion, when debating whether or not you should apply for a startup competition, verify that it meets the above goals and objectives. Of course, you can define your own purpose and goals. If it doesn’t meet your goals, simply pass on it and focus your attention and resources on your real priorities.
Most of all, if you decide to go for it, make it count. Good luck!