What’s Wrong With Startup Competitions

I won the startup competition in business school

The other day a startup was pitching me and stressed the importance of the startup competition that they won. They had a whole slide complete with photos and online articles written about their victory. I told the startup that they should delete that slide and not tell investors about the competition as startup competitions are a waste of time for startups. I advised the founder that the only competition they should be entering is the competition for customers in the marketplace.

Naturally I got a lot of pushback.

Based on my experience as an investor, a former judge at countless startups events, and the winner of the business plan competition in b-school, I laid out what is wrong with startup competitions.

Startup Competitions Send the Wrong Message

By pitting startups up against each other, reality TV style, startup competitions create a “beauty pagent” that stresses the wrong things to win. Founders waste time polishing their pitch and focusing on how to put their best foot forward.

This is not how startups work.

Startups work by doing experiments, measuring the results against expectations, and iterating on their business model based on that feedback. Every minute spent by founders focusing on a competition is a minute not spent building their business in the real world.

The Judges Can’t Evaluate Properly

Whether you are doing an one evening pitch competition for bragging rights or a small check, a month long competition for a $10,000 grant, or a 6 month grand challenge for a $1m grant, the judges, no matter how awesome they are, won’t be able to evaluate the startups properly and the winners will not be the best companies.

At best the judges will only have a short bio and company write up to prepare. Then they see the startups for about 5 minutes and have the opportunity to ask one or two questions. Hardly the type of due diligence required for proper evaluation and feedback.

If you are part of a longer form challenge that has a council of judges and multiple interviews, those judges will have constraints set by the challenge organizers, preventing the best companies from advancing. The challenge organizers have to meet certain marketing goals so they create artificial criteria and categories that prevent the judges from selecting the right companies: sending the wrong message to the startups that apply.

Misaligned Incentives

Startup competition organizers are not investors.

At best they are non-profit organizations that put some money into a startup, however, they are driven by other incentives that put them at odds with the startups they support. The competition is motivated by attracting celebrities to their events and getting as much press and attention to their organization as possible (in order to raise more money to run more competitions.)

Typically if the winner of a startup competition receives money from the competition, the competition is a non-profit and does not take equity. This leads to a massive misalignment between the competition and the startup as the startup needs to build a sustainable business, not be a marketing pawn for the competition. Even if the competition takes equity, not being professional investors they usually are poor board members. Due to the misalignment of incentives, they usually give the wrong advice and push the founders to attend worthless events. In addition, they can’t help the company grow or help introduce new investors as most of the investors they know are equally as mis-aligned.

Lastly, startup competitions have the moral hazard of giving the startup who won the false sense of pride and even a sense of entitlement. In reality the startup has done nothing except make a good presentation and were lucky enough to match the organizers criteria. Worse yet, it can be demoralizing for the losers, potentially much better companies.

Stop Wasting Your Time

Stop wasting your time and stop entering startup competitions. Win customers, not competitions. You think winning competitions will help you find investors: It won’t. Very few companies that won startup competitions went on to build high growth companies. While there are some noticeable standouts, I’m using Medium, WordPress, and Google to produce this article and Facebook and Twitter to share it. None of them ever won any startup competitions.

What’s Wrong With Startup Competitions was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.