I did not have this option in my original list but it was suggested so many times in the comments that I added it. This is an option that has become a lot more available to entrepreneurs in recent years. There are so many programs out there that target entrepreneurs where the winner(s) is/are awarded cash prizes or small equity investments.
The accelerator programs are probably best known to this audience. TechStars, Seedcamp, DreamIT, Startl, SeedStart, ER Accelerator, and the Fintech program are all active in NYC. Y Combinator is the pioneer of this kind of program. And there are similar programs all over the country now. These programs will require you and your founding team to relocate to a set location for around three months and participate in a program. The equity investment varies but is generally in the range of $25,000 to $30,000. The equity you will give up for this cash is usually in the range of 5-6%.
I believe the accelerator programs are excellent for teams that are just getting started and that have not had a lot of startup experience. The money is usually sufficient to fund the founding team for the three month program and often can last a bit longer. But the biggest value comes from the mentoring and the opportunity to pitch to a large group of angel investors on the last day of the program.
Contests and prizes have been around for a lot longer but there has also been an explosion of them in recent years. One of my favorite is the NYC Big Apps contest where developers compete to build the best app that uses data from the NYC open data project. The winning team gets a prize of $10,000 with no equity dilution (total prizes are $40,000). The winners of NYC Big Apps the past two years have gone on to create real businesses with funding and user traction.
The company that coordinates NYC Big Apps is called ChallengePost. They coordinate many of these contest/prize programs. When I visited ChallengePost just now, I learned that Lollapalooza is running a contest to create apps for concerts. There are $5000 of prizes available. There is stuff like this going on all the time.
I just participated in the judging of the Disrupt NYC contest. The winner Getaround recieved a check for $50,000. Again there is no equity dilution for that cash.
You are not likely to fund your business all the way to cash flow breakeven on the money you get from an accelerator program or winning a contest (although I’m sure someone has done it). Funding startups is like climbing the stairs. You have to go up the first stair to get to the second one. These kinds of events/programs can be a great first or second stair for an entrepreneur. It can give you the money (and connections) you need to get going and get somewhere and set yourself up for the next funding source. And we will continue next week with the next post in this series.
There are lots of indications that the top programs do great things for the companies who are selected, including contacts, advice and PR. Wind to their sails.
However, from the entrepreneur’s perspective, esp the more experienced one, I’m not a big fan of contests.
You could spend all day every day filling out applications for these things. A good application is probably a 5-hour task or more. Every application is just different enough that you have to start from scratch. To raise your odds, you need to do up-front socializing with the organizers so they know and like you. If you have time to do that, then great.
But typically you’re talking <5% odds — not rational to a smart entrepreneur. So unless they have an inside path, probably best to spend that 5 hours on product or user testing with a customer and not filling out yet another set of forms.
When you jumped through the hoops, and don’t get in, which you probably won’t, it stings. And your job #1 as CEO is to keep your mojo up. So the vast majority of people get negative, non-market-derived value from it.
So I wonder if there’s a way to spread a little more value to the ‘losers’, to grow the ecosystem at scale. Throw a Loser Party with an open mic segment of 60-sec pitches and prodigious beer, as a thank you for spending the 5-10 hours on that application. 🙂 Or invite them to the final presentations too, so they learn something. I wrote a blog post about it here: http://terezan.tumblr.com/post….
BUT — no question — the 6 or 10 companies that do get it, it seems derive tremendous value and in this case the VCs and other coaches are truly generous guides.
This article was originally written by Fred Wilson on June 6, 2011 here.