Judgment Day at Wharton

BW Online gets a behind-the-scenes look at how the judges at this year's Business Plan Competition Venture Finals made their decision

by Stacy Perman

It all came down to this -- the venture world's equivalent of a firing squad. What began with some 800 participants had been winnowed down to the "Great Eight," and each of these entrepreneurial teams now had just 20 minutes to sell their ideas to a panel of five judges at the University of Pennsylvania.

Business plan competitions have become a mainstay at universities across the nation. But what goes on behind the curtain? How do judges decide which would-be entrepreneurs have promise, while others are likely to falter? And how can fledgling companies better seal the deal?

BusinessWeek Online was granted exclusive access to the deliberation process during this year's Wharton Business Plan Competition Venture Finals, held on Apr. 26, and emerged with some insights into how investors today evaluate the merit of up-and-coming startups.

The Wharton competition is an intense, yearlong process, bringing together more than 200 teams (each required to have at least one Penn student) that have their business concepts reviewed, workshopped, and for most, ultimately eliminated by a panel of venture capitalists, entrepreneurs, and industry experts.

CASH CONNECTIONS.

The stakes are high. The annual competition awards $75,000 in combined cash prizes, access to capital, and in-kind legal and accounting services to the top winners. But in many ways, the real prize is the stamp of approval that that comes with winning.

Last year's grand-prize winner, InfraScan, a Philadephia company that makes a handheld medical imaging device, has gone on to receive nearly $1 million in funding from the U.S. Army and Navy. The contest has helped catapult a number of other successful companies over the years, including PayMyBills.com and MicroMRI.

Immediately following the final presentations, where teams had to make the case for their viability, market need, and value proposition, the judges -- all Wharton graduates, hailing from Sienna Ventures, Johnson & Johnson, First Round Capital, the Perseus Group, and Arboretum Ventures -- decamped to a closed third-floor room at Wharton's Jon M. Huntsman Hall.

VIABLE EMPHASIS.

It was a close call, as all of the judges (who asked not to be identified in relation to their quotes) agreed that this year's proposals were unusually high-caliber. "Their plans focused on an area with an unmet need," said one veteran, who has judged the contest several times before. "Some have already filed for patent licenses, had peer reviews, preliminary discussions with the FDA, and met with potential strategic partners. This is more than just a bunch of kids with good ideas."

In trying to draw distinctions among the well-rounded teams, one key issue that emerged was the ability to raise capital. "How close are they to fundability?" asked one judge, citing a team from last year's contest that proposed a reusable launch vehicle to send to tourists to space for four minutes. "It was a great idea, but not really viable." That viability was at the forefront this year.

While debates rage in the entrepreneurial community about exactly what should go into a business plan and even whether fast-moving startups need formal ones, they're obviously necessary in a business-plan competition. But the judges' deliberation showed that the knowledge, ability to answer challenging questions, and the passion that entrepreneurs convey personally can be just as important when wooing investors. "I rated them first on their business plan," one judge said. "And then after their presentations, I changed my ratings. Some dropped several points."

NARROWING THE FIELD.

After a lightning-quick opening round, in which four of the companies that received the fewest votes were eliminated, the table opened for discussion. The judges focused largely on the depth of knowledge and personal style the teams projected. They also looked at market factors. "There's huge competition that concerns me," voiced one judge. "They whiffed on the pricing," said another.