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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

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.


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 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.


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."


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.

The remaining four teams: Dynamic BioSystems, which created a biotech treatment for chronic wounds; FibrinX, a biotech company that produces wound sealants; IntuiTouch, which designed a portable breast cancer detection device; and Mujisan, an advanced drug-delivery bio-pharmaceutical company.

Mujisan earned high marks for its sustained-release, addiction-resistant pain-relief alternative targeted at a $3 billion market and its tight presentation. But one core concern surfaced. "Every pharmaceutical company has a laser focus on that market," said one judge. "This is a new entrant. It will be at least six years before it goes to market."


So with Mujisan now effectively out of the running, it was a matter of placing Dynamic BioSystems, FibrinX, and IntuiTouch in the top three slots. After parsing out Dynamic's impressive research, the judges discussed some of the finer points, including the need for $45 million in funding to develop Diactif, a product that promotes scarless healing in chronic wounds such as diabetic ulcers. "Maybe they were being realistic," said one judge of the prohibitive figure.

It was then down to the two top contenders: IntuiTouch, the home breast cancer detector, and FibrinX, which uses the plasma of Atlantic salmon to make tissue sealants.

The FibrinX team impressed their judges with their well-written proposal, backed by persuasive presentation of why their product is a better and less expensive alternative to sealants already on the market. The judges also noted that the team had been awarded several patents, begun pre-clinical studies, and received research funding from the U.S. Army.


Still, it looked like IntuiTouch had the lead until one judge reminded his colleagues that the team didn't own the rights to the technology. As much as he liked the product, the judge said, "I'm not going to buy a company that doesn't own the IP license unchallenged." And then there was the technology itself -- near infrared (NIR) technology, patented by Penn's Britton Chance and also used as the platform of last year's grand-prize winner. The judges' hesitation at bestowing top honors on the same proprietary technology two years in a row proved to be InutiTouch's undoing.

And so FibrinX moved into the top slot. "I guess we'll have fish jokes," remarked one judge as they walked to the winners' reception.

When the verdict came in, the winning FibrinX team -- Dhaval Gosalia, a Penn School of Engineering PhD candidate from Bombay, and Jonathan Goodspeed, a second-year Wharton MBA student from Greenwich, Conn. -- was ecstatic. Gosalia practically dropped to his knees at the news and grabbed Goodspeed in an embrace. "I deferred defending my PhD for two weeks to work on this," Gosalia said, clearly glad he took the risk. "We are not getting out without a bang."

And with the grand-prize win, the pair got a preview of what may one day be in store for their fledgling venture -- on June 27, they were tapped to open Nasdaq in New York's Times Square. Perhaps the first of many big bangs to come.


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