At first glance, Tovala’s Chicago headquarters looks like an ordinary apartment. But upon opening the front door to the office space, located in the city’s River West neighborhood, visitors are greeted with an open space filled with boxes, home goods and employees buzzing like worker bees. Some cooked in the test kitchen. Others sat at their desks typing away on computers or chatted in the conference room.
“The nature of our business is there’s software, there’s hardware and there’s food, which is why there’s ovens everywhere and there’s a test kitchen and there’s software engineers right behind us,” David Rabie, Tovala’s co-founder and CEO, says while sitting in a quiet conference room. “It makes it fun.”
Tovala, which sells healthy food that can be cooked in its internet-connected ovens, won the University of Chicago’s New Venture Challenge in 2015, taking home $70,000. Founded in May 2015, the company has since grown to about 50 employees and ships food to customers in 48 states.
The university’s strong entrepreneurship program, including the New Venture Challenge, attracted Rabie to the Booth School of Business. He reasoned that he would start the company in his second year of school, anticipating that he would have to leave school early if the company took off. And when it did, he left.
The New Venture Challenge “definitely opened up a lot of doors, because we won the competition,” Rabie says. “There have been a lot of people who we’ve met who’ve invested in our business because of the University of Chicago and by extension by the New Venture Challenge, but they didn’t invest, because we won the New Venture Challenge. It was a door that was opened that eventually led to investment.”
While most university students don’t see a return on their higher education investment until after they’ve entered the job market, Booth students can use the New Venture Challenge to get the funding they need to kickstart their companies before they cross the stage at graduation.
What began as a student-requested competition has since grown to be the go-to spot for a select few Booth students to hone their enterprise ideas, perfect their pitching technique, get press exposure and attract once out-of-reach investors.
A student-led contest
The University of Chicago launched the New Venture Challenge in 1996, during the dot-com era. Students initially called for the pitching contest, but the university soon recognized its potential and decided to invest in formal resources and infrastructure into it, says Starr Marcello, executive director and adjunct professor of entrepreneurship.
To date, the contest has funded the launch of more than 230 companies that still operate—most notably Braintree and Grubhub—and boasts more than $13 billion in mergers and exits, according to the university’s website. Like other pitching contests and accelerators, the startups have to be vetted before they can participate. Unlike typical competitions, the New Venture Challenge is a 10-week Spring Quarter class.
Since its founding, the contest has added more tracks: the Global New Venture Challenge, for executive MBA students in Chicago, Hong Kong and London; the Alumni New Venture Challenge, for all University of Chicago alumni; the Social New Venture Challenge, for not-for-profit organizations or businesses with a social mission; and the College New Venture Challenge, for undergraduate students. The high demand from students and alumni, as well as the desire to reach different kinds of investors, has driven the university to expand the challenge, Marcello says.
To participate in the challenge, entrants must be either University of Chicago graduate students (except for undergraduate students for the college track) or have a student (or alumni for the alumni track) with at least a 10 percent stake in the company, per the university’s guidelines.
The reason for this, Marcello says, is because the university devotes considerable resources to help the students with their startup ideas, including the faculty who teach the New Venture Challenge courses, the four faculty coaches who counsel founders through the NVC process and roughly 100 investors, alumni and entrepreneurs who mentor the students.
“The resources that go into the NVC are expensive,” Marcello says. “The human capital is spent on developing these teams and developing these entrepreneurs—the resources are limited. The thought right now is and was to build this into the educational goals of the entrepreneurship program within the school.”
Before aspiring entrepreneurs can compete in the New Venture Challenge, they must vie for a spot in the nationally-ranked business program. The University of Chicago Booth School of Business has 3,297 students enrolled across its full-time and part-time programs; the estimated cost of attendance for 2018-19 full-time students is $108,683.
If a for-profit company receives a valuation, the university will own “a very small equity stake” in the startup, which is outlined in a Simple Agreement for Future Equity (SAFE), Marcello says. The winnings for not-for-profit are grants, she explains.
“What we’ve found is that a lot of our students, if they get traction in the New Venture Challenge, many of them will apply to challenges like Y Combinator or Techstars or some of the very competitive big accelerator programs,” Marcello says.
In October 2018, the Seed Accelerator Rankings Project, an organization which examines the performance of tech accelerator programs based on confidential data, listed the New Venture Challenge as a “platinum” program amongst other startup programs like Techstars and Amplify LA. Y Combinator, Stanford University’s StartX and AngelPad also received the organization’s “Platinum Plus” distinction.
Investors come a-knocking
For the students who make the cut, the challenge can catapult their growth. Aside from the funding, often five- to six-figure sums which come in part from the university and sometimes participating investors like the Pritzker Group, the winning startups often get press mentions, funding offers from investors familiar with the competition and the validation needed to attract partners and employees, former contest winners say.
For Rabie, winning the contest persuaded his co-founder, Bryan Wilcox, and his first engineer to join the company. The class, unlike other one-off pitching competitions, was more like a startup bootcamp, Rabie says. Facing tough judge questions during the contest helped Rabie learn how to articulately answer questions from journalists, potential investors and incoming employees.
“With a business like ours, which is so complex, it’s like a pretty pie-in-the-sky idea when you first hear it,” Rabie says. “‘It’s kind of a crazy idea on the surface of it, and we heard that over and over and over again. The NVC gave us just a little bit of validation of, ‘Oh, maybe it’s not that crazy.’”
The face time with investors is invaluable in and outside of the classroom, former contest winners say. Rabie, like other startup founders, continued to pitch in other contests after winning the NVC, but other NVC winners said they didn’t have time to because the contest lured investors to them.
Tamir Aldad, founder of Mindful Urgent Care, says winning the Global New Venture Challenge in 2018 and placing in second in the 2018 New Venture Challenge brought investors to his on-demand mental healthcare company. The majority of investors want to see facts and figures about the company and its business model, many investors, especially Booth alumni, trust that the competition churns out viable companies, thus removing a lot of funding hurdles for founders, Aldad says.
“What if I tell you some of them—we spoke on the phone for 15 minutes, we told them that we won first and second place in the challenge[s] and the next day, they wired us 25 grand, 50 grand,” Aldad says. “Winning the challenge indicates that you met a certain level of quality in terms of due diligence on your part.”
Looking back, Aldad says the contest was intimidating because of its track record for churning out successful startups, but his competitive spirit ultimately kicked in and he decided to participate anyway.
Since its founding, the company has grown to about 15 employees and is working on opening its third New York location, Aldad says.
“We use [the challenge] as supporting evidence of what we accomplished and what we hope to accomplish,” Aldad says.
That validation from the contest attracts attention from investors, but the course enables challenge founders to think bigger about their businesses before competing for cash.
For Ashish Rangnekar, a talk with Waverly Deutsch, clinical professor and academic director of university-wide entrepreneurship content, convinced him to consider a business-to-business model for BenchPrep, a learning assessment software company. At that point, the company, then named Watermelon Express, was profitable, but the overall competition pushed he and his co-founder, Ujjwal Gupta, to consider the steps toward growing the company even more, he says.
Once the company took home the NVC’s $30,000 first place prize in 2010, the win attracted new employees, caught the attention of New York and Silicon Valley investors and softened the company’s risk-averse education publishers such as McGraw-Hill, Pearson, Wiley and Engage, Rangnekar says.
“There were specific instances where after winning the New Venture Challenge [educational companies] were open to talking to us, because now, we came with some level of credibility,” Rangnekar says. “I don’t think it was enough for them to sign the deal, but it allowed us to cut through the noise.”
Beyond the classroom
On the surface, the New Venture Challenge is a staple at the University of Chicago campus, but the university wants to expand its influence beyond the classroom, starting with quantifying the jobs it has created through supporting notable companies like Braintree and Grubhub, Marcello says.
By bolstering these successful startups, the challenge—alongside the city’s other entrepreneurship incubators and accelerators—contributes to Chicago’s reputation as another place to find the next great startup. Judging from the calls from New York and Silicon Valley, investors far and wide are paying attention to Chicago, too.