Lessons Learned by a Startup Rejected by 500 Startups, Techstars, and Y Combinator

By Leo Faria on Startups.co

EDITOR’S NOTE:

Ah, rejection. The early-stage Founder’s bread and butter.

When you’re building a company from the ground up, you kind of get used to hearing the word “No.”

But Saasmetrics Founder Leo Faria: he didn’t just get used to it. He broadcast it for everyone to see.

A few weeks ago, Leo published a post on Medium that he called “Lessons learned from a startup rejected by 500 Startups, Techstars and Y Combinator.” In the post, Leo digs into his experience applying for the US’s three most prestigious accelerators — and (spoiler alert) getting rejected by each and every one. He even goes as far as to include the actual text of the actual emails he received from each accelerator, and you can just imagine what it must have felt like to see those messages sitting in your inbox and have to click “Open.”

Ultimately, though, Leo’s post is about so much more than how much it sucks to hear the word “No” a ton of times.

It’s about listening to mentors. It’s about listening to customers. More than anything, it’s about listening to your gut, and what it’s telling you about the kind of company you want to build — and the kind you don’t.

We were so impressed with Leo’s story, that we decided (with Leo’s blessing) to republish the Medium piece in its entirety here.

And we’d love to hear more stories like Leo’s: stories of Founders in the trenches, making tough decisions about the future of their company and the kind of company that they want to build.

Got a story like that? Hit us up at submit@startups.co.

And now, without further ado, here’s Leo.


Lessons Learned by a Startup Rejected by 500 Startups, Techstars, and Y Combinator

From reading just the title of this article, you probably think my business is just bad. And that’s fine, I won’t judge you — but please read the full story before reaching a conclusion.


OUR LITTLE VENTURE

After accumulating twelve years of experience working in 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 this time I’m talking about something totally different. 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 in, that could be both a huge business opportunity and generate a small fortune.

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 in.

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. 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% 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 it.


ACCELERATE OR BOOTSTRAP, THAT IS THE QUESTION

As startup founders, we’ve prepared ourselves to live for a while without a paycheck. Meaning we don’t need to worry about money for basic things like rent, food, etc.

But like 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, but delivering what we thought was our core value. People started to sign up 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% 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.

All of a sudden, 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 learned 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 or 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 an accelerator/incubator.

In the very beginning we actually tried everything, including talking to venture capital funds. But we learned a lesson quickly: VCs don’t invest in ideas. They 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 lose 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 worse 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 know. It might have been a mistake, but we don’t regret it.

It was good money, but from people we don’t really admire or know. 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.

I knew about pretty much all the good programs out there, but I spend 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 YCombinator. 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 what turned out to be a very fortunate coincidence, I realized 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.

I really thought we stood a chance of getting in.

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 — especially 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.

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 decide 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 at 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.

They were great people, doing awesome stuff, and I was super-excited at the chance of being part of that.

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 five people on the other side. A lot of questions 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 realized 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 myself clear. Maybe they were right. Anyway, that was new information we need to process and incorporate to our strategy.

Interesting 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.

Humm. 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 didn’t really think we stood a chance and 2.) I had great connections with both 500 and TS — I didn’t want to be a simple form submission among thousands YC receives.

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 didn’t want to be a simple form submission among thousands that YC receives.

I applied and expected nothing out of it.

Until I received an email that started like this:

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.

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.

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 learned, 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.

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:

You apply for YC online: they receive over 15,000 applications and select about 500 for an interview in person. If you’re one of the 5000 chosen, you participate in a ten-minute (that felt more 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 whether they’ll fund you or not.

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.

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.

After my interview was over, I waited outside the room for another five minutes before this guy came out and 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, the 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% of their questions were around our customers and things we’ve learned 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 had kept pushing our crappy product out the door and accelerated on sales, we could have over a hundred paying customers at this moment… But at what cost?

Maybe if we had kept pushing our crappy product out the door and accelerated on sales, we could have over a hundred paying customers at this moment. And if we’d gone that route, who knows? Maybe we would have made it into one of those acceleration programs.

But at what cost? 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.

All the time we spent talking to investors or filling out application forms was driving us away from the things we really should have been doing: writing code and talking to users.

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

So what’s next for Saasmetrics? What are we doing now, after being rejected over and over again by some of the biggest tastemakers in the tech universe?

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 $120k 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 try to rush things and apply 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 learned here is: do things at your own pace. Don’t be discouraged because you’re not raising $10M from Sequoia or Andreessen-Horowitz. Don’t get caught by TechCrunch headlines.

The one thing I’ve learned here is: do things at your own pace. Don’t be discouraged because you’re not raising $10M from Sequoia or Andreessen-Horowitz. Don’t get caught by TechCrunch Headlines. The only ones you need to impress are your customers.

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.

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