After the market meltdown, the real estate bust and the worst recession in a generation, is this a good time to start a business? Minnesota entrepreneur Scott Litman thinks so.

“Recessions are great times to build a business,” he said. Difficult times drive necessity and innovation, and starting a business in a bad economy forces an entrepreneur to bootstrap his or her way in a tough environment, he said. “So you’re ready for it when the market improves.”

Litman, a managing partner at Minneapolis-based marketing firm Magnet 360, is also co-founder of the Minnesota Cup — a statewide contest designed to “find Minnesota’s newest and most innovative business ideas.”

The sixth annual competition was recently announced, inviting Gopher State entrepreneurs and college students to compete for a share of $130,000 in prize money across six divisions: biosciences, high tech, clean technology and renewable energy, social entrepreneurship, general and a student category.

This is only the second year that the Cup has expanded beyond business and student categories, Litman said. Creating the divisions “allows participants to have their business plan reviewed by a professional in their domain and space,” he explained. It’s a benefit he thinks is as valuable as the prize money. “It’s a heck of a reward,” he said.

Competition and entrepreneurship are familiar to Litman. As a student at the University of Minnesota, he placed third in a national business competition sponsored by Apple Computer. As a result, he met business people locally and nationally. He also “gained a bit of a reputation for success at a young age,” which he described as “incredibly important” when he launched his first business a few years out of college.

Inspired by that experience, he and business partner Dan Mallin launched the Minnesota Cup six years ago with initial support from the state of Minnesota and the U of M. The competition has grown steadily and attracted nearly 1,100 entrants last year. In addition to the two initial backers, this year’s event is also sponsored by Wells Fargo and the Arrowhead Growth Alliance.

Litman proudly points to the success of past participants. Even in the midst of the credit squeeze last year, 2009 competition finalists secured more than $8 million in capital financing. A 2005 finalist, HealthSimple, sold its business, which is based on nutritional advice for diabetics, to McNeil Nutritionals, a division of Johnson & Johnson. The 2006 winner, VAST Enterprises, has grown its composite paving brick business by partnering with Shakopee-based building components manufacturer Fabcon.

His biggest concern is not that the economy will discourage sponsors or participants but that individuals will hesitate to enter the competition because they think their ideas are not ready.  “Far too many people self-select out ... find reasons not to join,” he said. Whether someone has an early idea, is in the middle of writing a business plan or already in the in the market, he sees advantages to the competition.

 “The real advantage of the Minnesota Cup for participants is the experience of the contest itself,” Litman said in a prepared release. “We have built a strong program that connects budding entrepreneurs with the business community. All participants will emerge from the competition stronger than when they began, and those who are among the semi-finalists, finalists and winners are provided the tools and support needed to not only write a business plan, but to take that business plan and turn it into a viable business entity.”

The deadline for online applications is May 21 at www.minnesotacup.org. After a semifinal round of judging, the top three finalists in each division will present their ideas to a panel of executives, investors and entrepreneurs who will choose this year’s division winners. Each division winner will be awarded $20,000 - with the exception of the student division winner, who will receive $5,000.

The winner from each division, including the student division, will then compete for the grand prize of an additional $20,000 on Sept. 9 at the sixth annual Minnesota Cup awards event at the University of Minnesota’s McNamara Alumni Center.

The competition is open to Minnesota residents. Student entrepreneurs submitting their ideas must be between 19 and 25 years old and be enrolled full-time at a Minnesota college or university.