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Considering a startup competition? Here are 3 things to think about first

February 1, 2013 4:05 pm by | 0 Comments

business decision

Winning a startup competitions is a great way for an entrepreneur to take an idea from concept to reality, to get attention, and to obtain initial funding, which can be one of the most difficult hurdles.

I’ve won two startup competitions and have learned some lessons along the way.

There are hundreds of startup competitions ranging from Arch Grants to MassChallengeTechStarsY-Combinator and Startup Chile. Here are three things you should consider when applying to a startup competition:

  1. How you get the money you win
  2. Location and the cost of living
  3. The startup network

How you get the money you win

Most competitions ask for equity in a company. Arch Grants, MassChallenge and Start-Up Chile do not. They award equity free grants of $50,000, $100,000 or $40,000, respectively. However, the realities of how you actually get the money are quite different.

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The most important difference is how the money makes it to your bank account. MassChallenge distributes money once your accelerator program ends. Arch Grants writes you a $20,000 check on your first day and then $10,000 checks each of the following three quarters. Start-Up Chile will “reimburse” up to $40,000 dollars over a six month period. This means every 4-6 weeks you meet with your account executive and justify the things you’ve spent money on, hoping they approve everything. They also actually only reimburse 90% of your expenses. If they don’t approve an item, too bad, you’ve already spent money on it. This can be an incredibly frustrating experience for everyone involved.

The goal of the grant is to help you create a growing business, not fill out paperwork.

When submitting to a foreign competition, another thing to note is currency conversion. While a competition may advertise they are awarding so much money in US dollars, they may actually award the money in non-U.S. currency. With fluctuations in currency rates, the award amount can end up being more or much less than you were expecting to win.

Location and the cost of living

The issue here really comes down to what kind of startup you are building. If there is a significant international component to your mission, being based abroad could be advantageous. However, for the majority of startups, being stateside is usually the best option. The USA is still far and away the best place to start a company. The USA has an infrastructure to support the growth of a small business and easy access to resources that may not be readily available in other countries.

The lower cost of living you may experience in a foreign city vs. a US city can be overshadowed by the cost of moving to a foreign country. Buying plane tickets and visas really adds up.

Another overlooked piece of the equation are the costs and frustrations that come with needing to buy things not offered in that country, like iPhones and iPads. When looking into a foreign country as a place of business, it is important to check to see what resources they have. Will you have easy access to purchasing computers and other technology needed to conduct business? Many of the things that Americans take for granted are not readily available in other countries.

The cost of living in various cities in the U.S. can also vary greatly. Most competitions require you to move to the host city, and it’s important to know what additional costs this may involve that could offset your funding award. Living in St. Louis, I can spend more money on my business and less on rent.

The startup network

Aside from money, connections and mentoring are the best benefits a startup competition can provide. You should consider who will be in the program with you (fellow startups) and the people the program executives can introduce to you. A contest like Start-Up Chile is BIG. They bring in roughly 100 companies, three times a year. This means you’re surrounded by roughly 700 entrepreneurs at any given time. You’re either going to feel lost in a sea of entrepreneurs, or uber connected to like-minded individuals from around the world. It’s what you make of it.

Other competitions like St. Louis-based Arch Grants are much smaller. For my round, they only accepted 15 companies (20 will be accepted in the next round). Because of this, it’s much easier to stand out. St. Louis is an amazing place that is going through a revival. They’re quite eager to pump you up. If you let them, everyone will want to help you in any way they can.

Overall, one competition may turn out to be the better deal for entrepreneurs. If you don’t mind giving up equity in your company, the network that TechStars and Y-Combinator provide could be worth it. If you’re a non-profit, your best bet is probably a bigger and broader competition like MassChallenge. For me, Arch Grants has come out the winner, primarily because the money is really a grant, and the city is affordable and has a dedicated support network.

At the end of the day, it’s hard to complain about free funding. However, researching the finer details of any program you apply to is essential. Sometimes clauses can be crippling.

Marshall Haas, 23, is the co-founder of Obsorb. His other works include 18th.me, Connected Bedding, and AllRendered. You can follow him on Twitter @MarshallHaas. Marshall and his co-founder are the only people to have been accepted into both Start-Up Chile and Arch Grants. Marshall started Obsorb when he was accepted into Start-Up Chile’s first round. Obsorb is currently in Arch Grants’ first round. Between the two programs, the company has been given a total of $90,000 in equity free grants, in addition to other funding.


Filed under: Business, Deals, Entrepreneur, VentureBeat

This article originally appeared on VentureBeat

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