John Gavigan thinks it’s time to stop treating the 43North business plan competition like a startup.
With the $5 million business plan competition now in its third year, Gavigan said 43North has established its reputation and built a solid foundation for not only running the contest, but helping the winners develop during the year they’re required to spend in Buffalo.
Now it’s time to try to get more bang for the state’s bucks by tweaking the way the competition works.
• Instead of quantity, the new focus is on getting the highest-quality applicants.
• Rather than 11 winners, there will be eight.
• The winners will be guaranteed a bigger prize. Instead of prizes ranging from $250,000 to $1 million, the smallest prize now will be $500,000. Six of the eight winners will get $500,000 and the runner-up will receive $600,000, with the grand prize winner still taking home $1 million.
• Entrants will have to pay to play. For the first time, 43North is charging an application fee of $50 through the end of March, rising to $100 for entries received in April and May.
“In the first couple of years, it was all about branding and marketing,” Gavigan said. “Nobody knew who we were.”
So 43North cast its net far and wide, using social media and an international road show to convince applicants of all shapes and sizes to apply. It worked, too. The contest drew 6,900 applicants in its first year and 11,350 in its second.
In fact, it worked almost too well. Last year, 74 percent of the entries were rejected out of hand because they didn’t meet 43North’s eligibility guidelines. For the qualified entries that remained, it took 3,300 man-hours – the equivalent of 137½ days – for 43North’s volunteer judges to sift through those applications and select the competition’s 100 semifinalists.
Now that 43North has established itself, Gavigan said that’s not a wise use of the $3 million that the group has to run the contest and nurture the previous year’s winners.
So shortly after last year’s winners walked off the stage of Shea’s Performing Arts Center just before Halloween, 43North officials and its backers started to rethink the competition.
“We wanted to leverage the resources we had and back the best of the best,” Gavigan said.
By adding the application fee, 43North figures to weed out the less-than-serious applicants.
Gone is the brief, eight-question application that all of the initial applicants had to fill out. In its place is a much more comprehensive, 50-question application that demands details about an entrant’s product or service, its financial projections, how they size up its potential market and how it adds value compared with the existing competition.
“It’s pretty in-depth stuff,” Gavigan said. “We’re asking, ‘Are you serious? And have you done enough work?”
43North’s marketing plans also are changing. Rather than casting their net wide to bring in a lot of applications, this year’s marketing will be much more targeted, said Peter Burakowski, the contest’s marketing director.
Gavigan has been reaching out to venture firms and other early-stage investors to try to build a network of well-connected investors who are familiar with the contest and can refer promising startups that they encounter to apply to 43North.
It’s an approach that will yield far fewer applications – maybe not even 1,000 – but Gavigan thinks most of those that do apply will likely be of the high-caliber variety, which will streamline the selection process. It’s such a radical change that 43North won’t even reveal how many applications it receives this year, after having made that number one of the focal points of its marketing campaign during the first two years.
By giving bigger prizes, even if it’s to fewer firms, 43North is trying to make a bigger impact on all of its winners. It also will focus the competition on entrants that might command higher valuations.
Because 43North takes a 5 percent ownership stake in each of the winners, a $500,000 prize implies that a company is worth $10 million. The $1 million grand prize implies a $20 million valuation.
The contest’s finals week at the end of October also will have a new look. In the past, 43North picked its 11 prize-winning finalists before they came to Buffalo. Each finalist knew they would win at least $250,000.
Not anymore. This year, 43North will invite up to 20 semifinalists to Buffalo to make a pitch to the contest’s judges, but without a guarantee that they’ll win a prize. That round, and perhaps one other, will winnow the field down to the final eight. Each will make another pitch on the Shea’s stage during the 43North finals, and the judges will choose six $500,000 prize winners and bring back two finalists for yet another pitch session that night before the judges, who then will choose who get $600,000 as runner-up and who gets the $1 million grand prize.
“We’re going to have a bunch of fun and drama surrounding it,” Gavigan said.
The changes also leave 43North with $400,000 in prize money that won’t be awarded during the finals. Instead, 43North will hold that money back and use it for potential follow-on investments in the winning companies during their year in Buffalo, if merited.
“It could be one, it could be sprinkled around,” Gavigan said. “We’ll be the first money in on the next tranche of investments.”