#Asia Lessons learnt from a startup rejected by 500 Startups, Techstars and Y Combinator

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The ups and downs, excitement and frustration, of being part of the selection process of the world’s top startup acceleration programs — and being rejected by all of them

Startup rejection

By reading this article’s title you probably think my business is just bad — and it’s fine I won’t judge you — but please read the full story before reaching a conclusion.

Our little venture

After accumulating 12 years of experience working on the software industry, I decided to venture myself on the startup world, completely on my own. I already had some entrepreneurship background running a startup backed by a large tech enterprise, but that’s a whole different story.

I’m talking about betting big on my own idea, with my own resources. Turning down a few amazing job offers to work on something I believe, that could be both a huge business opportunity and generate a small fortune.

Saasmetrics is a subscription analytics solution. We help subscription businesses around the world to grow their recurring revenue and retain customers by providing business metrics and insights.

Nowadays you can buy almost any kind of good, product or service, on a subscription basis. Think of Google Apps, Spotify, Netflix and all the things you pay recurrently. That’s not just a trend, it’s a new way to do business, and we call it the subscription economy.

After a few months working on the company, more than 500 business across 44 countries have signed up and are using our product; a couple dozen of these are actual paying customers, and we’re growing at a 30 per cent month over month rate.

I know that can seem irrelevant, but it’s real progress. Real users, real money. Real interest and usage of a real product. That’s the thing you want to do as an early stage startup. And we did.

Accelerate or bootstrap, that is the question

As startup founders, we’ve prepared ourselves to live for a while without a pay check. Meaning we don’t need to worry about money for basic things like rent, food, etc — by the way, that’s what all startups founders should do.

As any other startup out there, we wanted to grow big and fast. Our goal was to acquire as many users as possible, and then convert them into paying customers. Get some traction. And that’s what we did in the beginning.

We developed a very crappy first version of the product, lacking tons of functionality, and delivering what we thought was our core value. People started to signup and try it out, some even converted into paying customers. But guess what? The product was just awful. It was full of bugs, providing a terrible user experience, and delivering barely 10 per cent the value we expected.

We decided it was time to stop trying to sell sh*t, and build a good product. We sought advice and heard the same thing over and over again: build something people want and love. That was our new goal. A small number of customers were loving our product. Instead of tons of people just signing up for it.

Now things were different. Support tickets dropped significantly. We were not shipping new features as fast as before, but they were much better, polished and bug free. People started to like the product better, use it more, and give us more space to interact with them. We learnt a lot.

Users started to talk about us on the Internet, refer Saasmetrics to their peers. We felt people were really starting to like what we were doing.

It was time to accelerate again.

The crusade of raising money

We decided it was time to raise some initial capital. Let me spoil the end of this article again: we failed. Miserably.

As Sam Altman likes to say, the first check is always the hardest.

When it comes to raising angel/seed rounds, there are only so many options you can pursue. You can either find a prominent entrepreneur with a lot of money willing to risk some capital with you, or you’ll end up applying to a accelerator/incubator.

In the very beginning we actually tried everything, including talking to venture capital funds. But we learnt a lesson quickly: VCs won’t invest in ideas, they’ll invest in traction. They give you money so you can grow your existing business, not create a business from scratch. And the worst thing is: they won’t tell you “no”. And the reason is simple: they don’t want to loose the investment opportunity in case you succeed in the future, so they keep a minimal relationship with you, neither saying yes or no. And that’s much worst than hearing “no”.

Side note: We received two investment offers along the way, and refused both. It was good money, but from people we didn’t really admire nor knew. It might have been a mistake, but we don’t regret it.

After a few weeks talking to potential investors, we decided to apply for an acceleration program. From the beginning we wanted to create a truly global business, and the US was certainly the right place to be. No matter if we wanted to be in the Silicon Valley or not, over 40 per cent of our traffic and users were coming from the US, and the fact we were doing the whole thing in english and billing in US dollars were determinant.

I knew about pretty much all the good programs out there, but I spent a few days researching on every acceleration program in the world with a good reputation and a decent investment offer.

Needless to say, we decided to apply for 500 Startups, Techstars and Y Combinator. Not all at once. Each one has a different story, and I’ll share them with you.

Techstars

I’ve been involved with the startup ecosystem for a while now. I always loved the sense of giving first, and therefore I interacted with Techstars multiple times.

I’ve been both a mentor and judge in numerous Startup Weekends along the way, and also organised and facilitated a Startup Next (Techstars pre-acceleration program). Some of it was before Up Global was acquired by Techstars, but I always admired their team and mission to foster local ecosystems.

In a very fortunate occasion, I realised I was a speaker on the same event this Techstars Managing Director was also speaking. A few weeks later we decided to apply for Techstars.

We had some very healthy and productive conversations, and I really thought we stood a chance of getting in. We interviewed multiple times with different Managing Directors and mentors, and were really excited about it. Specially because we were applying to Boston, one of the best Techsters programs, with a great SaaS ecosystem, and mentors like David Skok.

A few weeks later I received the following email:

Hi Leo,

By now, you should have heard from Techstars Central with an invitation to another interview. I am sorry you did not make the final cut to the Techstars Boston Spring 2016 class. It was just too competitive. But we liked your team so much, that we’ve recommended you to other programs. We wish you the very best and if it doesn’t work out this time, please reapply to our program.

We’ve reviewed ~500 applications and your team made it to the top 20. That’s huge for such an early stage company like yours. We loved the team and the space, so you stand a real chance of making to another awesome program such as Boulder, Austin or Seattle, for example. My recommendation is that you try your best during this upcoming interview.

Wishing you the very best next week!

What?! They selected 14 companies and we made it to the top 20? Damn. That was close.

Long story short, we applied for Techstars New York with Boston’s recommendation, met some other amazing folks, and were rejected again. 2x rejected by Techstars. Similar feedback: no traction, too early stage.

500 Startups

Joining 500 Startups was what I really wanted, to be honest. I had a few close friends that went through the program and they’re building great companies. The fact that I saw people like me doing very well, made me want to be part of it too.

I also like their mantra of growth & distribution. By the way that’s what we really need at the moment.

After some research and conversations, I decided to ask this close friend to introduce me to this 500 Startups Venture Partner. He did, and it was in person. I couldn’t be happier. They were great people, doing awesome stuff, and I was super excited with the chance of being part of that.

We applied to the San Francisco program (they have another one in Mountain View), and waited anxiously for a response. A couple of weeks later, we got an invitation for interview! Yes! We were super happy and excited about it.

We did our best to prepare ourselves for the interview, polished our demo, did mock interviews with each other, and talked to people that had been through it before.

The day came and the interview was super awkward. No video, voice only. Me and my Co-founder on Skype, about 5 people on the other side. A lot of questions were asked in about 25 minutes, and I couldn’t really understand everything they were saying.

A couple of weeks later, I received the following email:

Hey Leo, hope you’re doing well.

Just wanted to drop you a line and let you know that the 500 team was really impressed with you and your team at Saasmetrics, but we decided that it’s not a good fit for our accelerator program.

With early traction, the main reasoning was our concern around differentiation in the space. If you create any significant changes, please do let us know. Again, I can’t tell you how awesome I think you are, and we wish you the best with your company. I hope we can hang out again some time.

Have a great day.

Ok, so the feedback was different now. They realised we had some early traction, but the problem was we were not so different from other solutions out there.

Of course, I’m biased to say, but I didn’t agree with that. Maybe I didn’t make my self clear. Maybe they were right. Anyway, that was new information we need to process and incorporate to our strategy.

Curious fact: early this year I visited San Francisco to participate the SaaStr Annual conference and had the chance to met this other 500 Startups Partner. He kindly invited me to visit their office and talked with me for 15 minutes. The feedback he gave me was different: you’re simply too early. We need to see more traction.

Hmm. Ok, I’ve heard that before.

Y Combinator

While talking to friends and mentors about Techstars and 500 Startups, I kept hearing the very same question over and over again “Why don’t you apply for Y Combinator?”

My answer was always the same: 1) I don’t really think we stand a chance; 2) I had great connections with both 500 and TS, I don’t want to be a simple form submission among thousands YC receive.

But after being rejected 2 (or 3) times already, I could see no harm in applying for YC after all. I honestly thought we were no YC material and didn’t really stood a chance of getting in.

I applied and expected nothing out of it. Until I received the following email:

Thank you for applying to Y Combinator. Your application looks promising and we’d like to meet you in person. Please click here to learn how YC interviews work and to schedule an interview slot. Interview slots are booked quickly. If you have scheduling restrictions, please move fast.

We encourage you to read What Happens at YC because it answers most of the questions applicants have had about YC in the past.

Instructions for reimbursing your travel expenses can be viewed here. Please submit your reimbursement by May 31.

If you want to learn more about YC or our interviews, feel free to ask founders of YC-funded startups. They’re usually happy to answer any questions, although bear in mind that most of them are busy trying to run their companies.

See you in California!

— YC

At this point our excitement level went through the roof!

If you’re not familiar with YC, here are some facts to help you understand how good they are. Since 2005 they’ve funded over 850 companies including AirBnB, DropBox, Stripe, Mixpanel, Twitch TV, and many other very successful tech startups.

They’re also probably the most well-connected people in Silicon Valley, and host weekly dinners with founders and incredible folks like Peter Thiel, Mark Zuckerberg and President Obama.

I can say I never prepared better for something in my life. We had roughly 2 weeks to get ready, and I did everything I could.

We listed over 100 questions on a document, and wrote a succinct and direct answer to each one of them. We did mock interviews with each other dozens of times, polishing the responses over and over again.

The questions covered pretty much everything they could ask us, including things about our company purpose, why we decided to start working on it, our business model, competitors, revenue and metrics, legal, equity, incorporation, customers, things we’ve learnt, etc.

We also reached to as many people we could to do mock interviews with us. From past YC founders to VCs, asking them not to be easy and ask the hardest questions they could think of.

We read pretty much everything available on the Internet about YC and it’s interviews. Testimonials from people that were both accepted and rejected, videos from YC office hours and it’s partners.

The day came and there was I in California for the 5th time in less four months.

We arrived at the YC campus 4 hours before the time our interview was scheduled to happen. We explored the place a little bit, reached out to other founders, and even asked a few of them to do more mock interviews with us. People from all over the world, hoping for a chance to join the program.

Here’s how the selection process works:

1- You apply for YC online.

2- They receive over 15,000 applications and select about 500 for an interview in person.

3- You participate in a 10 minute (that looked like 30 seconds to me) interview with 3 partners. When your time comes you’re invited by this guy to enter a room, and before you expect he knocks at the door. Time’s up. The partners spend another 5 minutes discussing wether they’ll fund you or not.

4- After the interview 3 things can happen: 1) They ask you to stay a little longer to do another interview and ask you more questions. 2) You receive an email with the feedback why you were rejected. 3) You receive a call to announce you were selected to join the program.

I waited outside the room for another 5 minutes and this guy told me I could go home, and should “stay tuned for tonight”.

Needless to say, after leaving the YC campus I spent pretty much the rest of the day staring at my phone. I tried to relax but it was impossible.

About 3 hours later I receive the following email:

Hi Leo and Paulo,

I’m sorry to say that we decided not to fund Saasmetrics. This was a difficult decision because you have an impressive team and are meeting a real need for subscriptions services. However, our concern is that your business is still very early, and it is not yet clear if you will be able to profitably acquire a large customer base. That said, we could easily be wrong, and would be happy to hear from you again in the future.

Thanks for coming and spending the day with us and we wish you the best of luck.

Too early. Ok. I’m starting to think that might be true.

At this point I’m incredibly disappointed with myself. Thinking what I could have done better or different.

The whole YC process was extremely valuable. Although the feedback was pretty much the same, they interviewing approach was much different.

Instead of trying to find the flaws on our business like investors usually do, these guys were trying to look at the big picture, and identify if we were really working on something people wanted. Over 80 per cent of their questions were around our customers and things we’ve learnt interacting with them.

And that’s not surprising, YC have some incredibly smart people. The guy who interviewed us and sent the rejection email was an early employee at Google and created Gmail.

Now what?

Remember when we decided not to rush things and stop trying to sell sh*t? Was it a good decision? Totally.

I’ve heard the same advice a bunch of times “it’s better to make something a few users love, than something a lot of users like”. But at the end of the day, everyone wants to see traction.

Maybe if we kept pushing our crappy product out of the door and accelerated on sales, we could have over a hundred paying customers at this moment, and maybe joined one of the acceleration programs.

But what would have been the consequences? Part of these customers would probably hate us, another part would certainly have churned.

We simply don’t want to be the company that pushes bad products to customers just for the sake of selling and getting traction.

It’s also interesting to notice the fact that I know companies that joined these programs without making a single dollar on revenue. Maybe they have a stellar team. Maybe their idea is just better than mine. Go figure.

The worst thing about raising capital and applying to accelerators is: it takes a lot of time and energy. And that’s the thing we as founders have the less. All the time we spend talking to investors or filling out application forms are driving us away from the things we really should be doing: writing code and talking to users.

After being rejected over and over again, here’s what we’re doing next:

STOP. RUSHING. THINGS. FOR GOOD.

We’re done applying for accelerators, or raising money from VCs. At least for now. An angel round would be more than enough.

We’ll do things at our own pace. Build the product our customers want. Grow our customer base on a consistent and solid manner. We don’t want to grow at all costs, and in fact we need no one else but ourselves to do that.

Here are my main takeaways from this whole process:

  • Do we need an investor/accelerator to succeed? No.
  • Do we need anyone’s permission to build our business? No.
  • Would US$120,000 have come in handy? Yes.
  • Will we keep hustling no matter what? Yes.
  • Can a competitor execute better/faster than us because they’ve raised capital? Definitely.
  • Are we going to apply again or raise capital in the future? Probably.
  • Did we tried to rush things and applied too early? HELL YES.

I still admire all the three programs we applied to, and would like very much to have joined any of them. I still think we’ll need VC money some day. Nothing really changed that perspective.

The one thing I’ve learnt here is: do things at your own pace. Don’t be discouraged because you’re not raising US$10 million from Sequoia or Andreessen-Horowitz. Don’t get caught by TechCrunch headlines.

The only ones you need to impress are your customers. They’re willing to give you money repeatedly, without asking for equity, and give you all the feedback you need to improve your product and grow your business.

This article first appeared in Medium.com.

The views expressed here are of the author’s, and e27 may not necessarily subscribe to them. e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested in sharing your point of view, submit your article here.

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The post Lessons learnt from a startup rejected by 500 Startups, Techstars and Y Combinator appeared first on e27.

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