FORTUNE — They had it narrowed down to three.

A few minutes after the final presentation at the Rice Business Plan Competition, 25 Texas angel investors called the OWL Investment Group had filed into an empty classroom to decide which team would get their $112,500 check.

The investors, mostly area VCs and entrepreneurs, had researched the companies beforehand, but they had only about a half hour to make their final decisions. The result was like watching the usually lengthy venture capital deliberations on speed. As the investors picked their winner, Fortune stayed to listen in on the deliberations and get an unvarnished look at how the VC sausage gets made.

“Though the technology is exciting,” one judge said. But “if we were to invest on the pure basis of the team … we wouldn’t invest in this team.”

“Everyone in this room, I’m sure, could identify a great VP of sales, great VP of marketing, and a great, established CEO for this company from just the people we know, right here, right now,” another added. “Put money behind that kind of endorsement, we could kick the shit out of this thing.”

“But that’s what board seats are for,” said someone else, referring to the requirement that funding would come with some control over the company and its management.

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Rice’s competition, a three-day business plan extravaganza, is famous for handing out real money to student startups. It gave away more than $3 million in cash, investment, and in-kind prizes this year. But for the 250-person judging pool, mostly area investors scouting for the next deal, it’s also pretty useful. It’s a way to make connections with universities’ tech transfer departments, network with fellow investors, and hear about startups that might otherwise fly under the radar. It’s “like a shopping mall,” one VC told me in a previous year.

What are they looking for? Judging from the OWL’s conversations, a strong team, or at least a malleable one. In VC parlance, that means finding a group that’s not just good, but “coachable.” They’re also scouting for a realistic business concept — that’s especially important at a student competition with many hyper-ambitious products still years away from fruition. And then there’s the return. Perhaps not surprisingly, a good chunk of the conversation revolved around the size of the market and identifying potential buyers.

OWL group co-founders Susan Hardin and Robert Winter stood at the whiteboard, walking the group one-by-one down the list of the three remaining teams. First up for discussion was EcoBreeze from National Taiwan University. The team had a small, efficient, magnetized fan that they planned to sell to IT companies for cooling hardware. The judges liked the technology. “I was at Compaq-HP for 16 years,” said one. “And cooling these computers is a big problem. We even had a patent on water-cooling. That did not go anywhere, but the point is it was desperate.”

The technology may have been great, but the competition was stiff. EcoBreeze received just three votes. Last place.

Next up: Medical Adhesive Revolution, two graduate students out of Germany with a glue that could close wounds, both external and internal. During their presentation, the team demonstrated the latter point somewhat gruesomely with a video showing a surgeon cutting into the lung of a living pig, an attendant gush of blood, and then the product almost instantly closing the wound. (The pig was fine.) “Johnson & Johnson loves to buy companies like this,” Winter said. “There are real natural buyers in this space.”

But the rest of the group wasn’t sure. “Why would Bayer with all their Ph.D.s and this great big technology let it go?” someone asked. (It was outside of Bayer’s focus, it turned out.) Another judge mused: “What I can’t get my head around is if I’m Medical Adhesives, and I have venture investors, why haven’t I signed some type of distribution deal to bring in early revenues if you really are where you say you are?” And there were other concerns, like the fact that the company valued itself at a lofty $15 million.

Medical Adhesive Revolution won Rice’s overall competition, plus $507,500 in cash and investments, including $112,500 from the OWLs for taking home the first prize. But it narrowly lost the OWL Investment Prize, getting 10 votes. Second place.

The victor: A-76 Technologies from Rice University, with 12 votes. The company had produced an eco-friendly chemical it said could prevent rust on heavy equipment. The target customers were refineries in the Gulf. The investors were impressed that they had a jug of the product, ready to go, already with them, and that they had sales leads. “If I had to invest for an earlier return,” one judge said, “this is the deal I would do.”

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While the OWLs finished their debate, a few doors down the hall at the competition another group of VCs at the Houston-based Mercury Fund were doing their own deals. During the competition, they had identified two teams with technology they liked: TheraBracelet from the University of Louisville, which offers a medical wristband aimed at lessening the effects of neuropathic disorders; and BetaGlide, from the Indian university IIT Kharagpur. BetaGlide has a technology that tracks online consumer sentiment and was already working with the Times of India, one of the Internet’s most trafficked sites.

In the sparse Rice breakout room, Mercury Fund investors peppered BetaGlide with questions about its product and customers. The night before, investor Aziz Gilani had spent six hours on the phone calling potential customers and co-investors who might be interested in the company. Many were. The result was “one of the easiest deals we’ve ever done,” Gilani says. As the investors picked over boxed lunches and listened to BetaGlide, they realized the finalists were being announced with great fanfare in the main hall.

One of the company’s team members dashed outside to see if they’d made it into the final six — they hadn’t. “Don’t worry,” said Blair Garrou of Mercury Fund. “You’re in our finals.”

Indeed, BetaGilde landed a $1 million investment in an oversubscribed round led by Mercury. (The OWLs signed on as well.) The funding was the most money ever awarded at the competition. Now, the founders just have to graduate.