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He bought a start collecting box to start with the escalation league my LGS is doing.. It starts at 500 points

I am not rich, but I am gonna buy him something ~20$ from the store so he can get more points..

What upgrades should he use on the Box set, and what can I buy him to start him on his army, and help him be a little more competitive?

You're a good friend, that's a kind thing to do. What's useful to him depends entirely on what sort of force he wants to end up with. I believe the Start Collecting! box comes with Boyz, Nobz, Painboy and a Deff Dread - it's not a bad deal but the units aren't great. To expand beyond this formation he'll need some more troops for sure, so either Boyz or Gretchin fit the bill there. Personally I would say that Boyz or a Mega Armour Warboss (the Ghazghkull model) would be your best bet.

Make sure the boyz squad has a powerklaw nob. (If your friend is doing hoard orks, don't bother giving them any upgrades, if hes doing boyz in trukks etc eavy armour and shootas) And remember keep the dread cheap. The shooting weapons arent really that good with bs 2. The painboy should go in the nobz squad because they need him most. The nob squad itself should have eavy armour and at least 1 powerklaw and maybe a fee big choppas. Alternatively, a good idea might be to convert one nob to a warboss so you have an hq besides the painboy.

With gw's prices you can't really get much. I would either look for a second hand boy squad or trukk for cheap, because every ork army needs a trukk or at least 2 boys squads. Alternatively you could get him a box of grots or give it to him for his hobby fund.

Agree with shieldbrother on the powerklaw Nob. I'd probably invest in more boyz, after all they're the core of every Ork army, and don't get too heavily invested in shooting for Orks.

See if you can split a Battle of Vedros box set with someone.

Battle for Vedros $50
1 Space Marine Captain
6 Tactical Space Marines
1 Space Marine Terminator
1 Space Marine Dreadnought
1 Ork Warboss
5 Ork Nobz
12 Ork Boyz
1 Ork Deffkopta

For $20? go on EBAY and buy him some Bikes, basically the only unit that is borderline appropriately priced in the entire codex. The Deff Dread is useless, The Nobz are garbage and boyz are simply outclassed in this edition.