The study shows that competition prizes can help startups in two ways: by providing funds and by signaling to the outside world that the company is promising. The extent of the benefit depends on the type of startup and the nature of the prize. <\/p>\n\n\n\n
The researchers tracked 987 startups that participated in the Swiss Venture Kick competition between 2008 and 2017. The competition is aimed at startups in the very early stages and is conducted in three rounds, during which participants are evaluated by investors, startup experts, and industry representatives. <\/p>\n\n\n\n
In the first round of the competition, the prize money is relatively small. Instead, the winners receive recognition and can show that they have advanced in Venture Kick. This signals that an expert jury has deemed the startup promising. <\/p>\n\n\n\n
Two years after the competition, the probability of still being in business was, on average, 22 percentage points higher for the winners of the first round. The probability of subsequently receiving external funding increased by 14 percentage points. <\/p>\n\n\n\n
But behind the average, there are significant differences. For research-based startups\u2014including those in medical technology and biotechnology\u2014the two-year survival rate increased by 41 percentage points. This effect persisted even six years after the competition. For startups in the internet, mobile technology, and software sectors, however, the researchers observed no corresponding effect from the seal of quality. <\/p>\n\n\n\n
According to the researchers, the explanation lies not only in the fact that the companies win, but also in who evaluates them. The jury\u2019s ability to recognize the potential of different types of startups is therefore crucial. <\/p>\n\n\n\n
In Venture Kick, the jury\u2019s evaluations were more accurate for research-based startups than for internet and software startups. When the jury has the right expertise, a win therefore becomes a more credible indicator of the startup\u2019s quality, both for the entrepreneur and for potential investors. <\/p>\n\n\n\n
The competition also appears to affect startups that do not win. Researchers see signs that startups that receive negative feedback shut down their operations sooner than they otherwise would have. The jury\u2019s assessment can thus help entrepreneurs determine whether it is worth continuing to invest. <\/p>\n\n\n\n
In the final round, the winner will receive $100,000.<\/p>\n\n\n\n
For research-based companies, there is no clear effect on survival. Their high operating costs mean that the prize money lasts only for a limited time. For digital startups with lower costs, the funding made a bigger difference. Among these companies, receiving funding increased the probability of still being in business two years later by 23 percentage points. <\/p>\n\n\n\n
But the effect was not lasting. After two to three years, it had disappeared, and the prize money did not increase the chances of securing external funding either. <\/p>\n\n\n\n
The researchers therefore interpret the primary significance of the money as being that it buys time. For companies with low costs, $100,000 can give them more time to develop their business, but the money does not in itself seem to lead to more long-term financing. <\/p>\n\n\n\n
The study shows that it is not enough to simply look at how much money a startup competition awards. At least as important is who sits on the judging panel and whether they have the right expertise to evaluate the startups. <\/p>\n\n\n\n
According to the researchers, a quality seal only has real value when the jury\u2019s assessment is credible. The significance of the cash prize, on the other hand, depends on the companies\u2019 costs and how much extra time the money can buy. <\/p>\n\n\n\n
For startups considering participating in competitions, there is therefore more to consider than just the prize money. Who are the members of the judging panel, and how familiar are they with the industry in which the startup operates? <\/p>\n\n\n\n