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Advice for Business Plan Competition Winners

by | Mar 29, 2010 | Community Circle, Observations

A couple of weeks ago, I was interviewed by Lora Kolodny, a reporter for the New York Times.   The article was run last Tuesday March 23, 2010.

Kolodny was doing an article about Virtual Nerd, an online video-based math and science tutoring company, who had entered and won the 2008-2009 Olin Cup business plan competition at Washington University in St. Louis, but had turned down the $70,000 investment prize.

I was referred to her by Mary Lynn Fernau of the Rice Alliance because of PKF Texas’ and my involvement with the Rice Business Plan Competition (RPBC).  I am probably one of a dozen or less folks who have been judges each year since inception of the RBPC.

Though she only used one quote from me in the article, "Why Virtual Nerd Declined a $70,000 Competition Prize", we talked for about half an hour about the pros and cons of Convertible Notes being awarded as prize money for business plan competitions.  Both parties, (the student and the lender) can benefit from such arrangements. 

I think the best advice I offered to her during our discussion was the fact that students tend to overestimate the value of their idea/plan and want much more equity than quite frankly there are entitled to at that stage of the game.  And the lender is taking quite a risk, but it allows for easier transition when future rounds of financing come if the plan becomes viable.

After reading some of the responses to the article, I was disappointed by the feedback from students.  I don’t know where this entitlement mentality on the part of the students comes from, until you’re viable, your value is questionable.  So any funding is a guess at best.

I will be crafting an article with feedback from Richard Scruggs and Kala Marathi.  Richard is the former Director of Texas A&M’s Center for New Ventures and Entrepreneurship and has been a two time successful entrepreneur.  He is currently the CEO of  Salient Pharmaceuticals an emerging venture (his third venture).   Kala is the Executive Director of the Houston Angel Network, one of the largest angel organizations in the United States.  Between the three of us, we probably have over 75 years of experience with emerging market companies.

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