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Are they really expecting to get quality entries with a Grand Prize of $5k? Seems like it would only make sense if you were planning to build the app anyway.

Why not use the YC model? Accept applications, pick the 10 best ideas/teams, and give them each $10k and 3 months to build the app, in exchange for 5% equity. Have a panel vote after 3 months to award a $50k bonus (additional incentive to make a great app).

Well, you can win a little more than $5k.

http://www.avc.com/a_vc/2010/12/nyc-big-apps-version-20.html...

"One of the winners [of last year challenge] was a team of 6 who quit their jobs on Wall Street, are in dozens of cities, received millions in VC investment (at a multi-million dollar valuation), are profitable, and recently rang the closing bell on NASDAQ."

I think BigApps compares a little bit with the Google summer of code where you get pay to make something cool and if it's cool enough it turns into a job/business.

The YC model idea sounds interesting, though.

iirc that's similar ($5-20K) to what Paul Graham offers for 6% of a company. This is a better deal imho.
This was news 2 months ago. You're probably out of time this year, but maybe next year.
The submission deadline is January 26th - while it might me tough if you were to start now, together with possible holiday obligations - but it's still possible.