Part 2 : how we did 15 startups in 21 months.
I wrote the medium article “How we did 15 startups in 21 months” on Jan 3rd 2014. Its June 23rd 2015 now. Its almost been a 1.5 years since then. I wanted to write an update for everyone.
I can’t spell, so there will be plenty of spelling and grammatical errors in this article. Please control the urge to correct.
First half of 2014, we spent trying to build a business focused chatting application called BizChat. We developed simultanoeuly for iOS and Android — and launched it in the summer of 2014. We were counting on viral methods of SMS marketing (milder versions of what PATH did), but none of that seemed to work.
After all was said and done, we were experiencing a higher virality rate over email invites, than SMS invites. Part of the issue is once you get someones address book, about 70% of the numbers are wasted due to formating issues (to add +1, or 001 or 0044 etc etc). Rules are different by country and its hard to figure this out programtically. Without a growth channel, there was no point in continuing this any further.
This really sucked since we invested so much time and energy into creating high fidelity apps for both iOS and Android. App development is a whole other ball game vs. web development.
While doing BizChat we got good at creating Node.js real time apps and connections. We decided to give chrome extensions a shot. We tried to build out high quality Chrome extensions focused on an enterprise use case.
Email Cherry allowed you to see who opened your email in real time and notify you in under 1 second. We built out a pretty impressive backend on Node.js that handled millions of concurrent connections with extremely low latency. We even got 50K or so users. But then we discovered the ugly truth behind chrome extensions — no one freaking pays. Even for a business use case. Our upgrade rates ($19.99/mon) were under 0.30%. I think Yesware has built a really nice business around this use case, but they sell through a traditional sales force. We were trying to do the opposite, get people to adopt it organically and then upgrade. Seems like unless their company is paying, most professionals just don’t want to pay out of their own pockets.
In trying to figure out how to monetize our own chrome extension, we figured, lots of other extensions must have this same issue. Lets try and build out an ad network that helps monetize this space.
Turns out a lot of other people, over the last decade have been down this road. There are several (mostly Israeli) companies that do over $100M in revenue in the space. Heck they even have place in Tel Aviv called ‘Download Alley’ — named after all the downloadable software (aka-ad/spyware) companies based there. Its a fascinating, highly questionable space that makes cash flow like there is no tomorrow. Ali and I were facinated.
We found lots of desktop based ad networks but no one had quite figured out how to do desktop to mobile ads. Mobile to mobile ad networks are a dime a dozen, but desktop to mobile — now there was a gold mine. We built technology, filed some patents, and were off to the races. The core of this was we figured how out to do 1 to 1 attribution for a install originating on the desktop (for a mobile app).
We spent the next 3 months integrating our technology with all the major attribution providers in the space. Very painful to do 10+ custom integrations, but we did it and we did it fast. Then came along, getting advertisers on board. By Nov, we had over $15M in I/Os. We also did deals with many of the large publishers in the space to get the inventory.
And then we launched — first few days were great. We were on track to deliver on our I/Os by the end of the year. Finally, Ali and I were like we got this… Finally. Heres our break. Final(fking)ly! After 3 years of experimentation, we finally found some thing that can scale.
And then we had oh-fuck moment. Turns out, users, even though they had expressly opt’ed in and installed our chrome extension, did not realize / forgot that the app on their phone — came from their desktop. Most users have never installed an app on their phone using the Desktop google play store. They were confused and thought the app (they had expressly clicked to install) had installed itself.
They started complaining — not a lot, only 20 or so, but some how Google took notice and decided they did not like our attribution model. It was based off matching the users google play email from desktop to mobile and decided to ban us and delisted one of the apps we were promoting from the app store.
Losing out on our revenue is one thing, but having one of our friends apps get de-listed. Well…. That really broke us into pieces. Words can not really describe how hard that was. Mad respect to those guys for supporting us during this and standing by our side. You know who you are — thank you. We will never forget.
We decided to exit the chrome extension space all together. Did we leave too soon, perhaps? Could we have made an alternate model work. Maybe. But dealing with google’s (or rather lack of) compliance team, just left a bad bad taste with us. We were 100% legit, trying to do the right thing, and yet no one (including people we know), at google would give us the time of the day. Ah well. Fuck this. Move on….Shutting it down, was a very hard, painful, public defeat.
Sometime last year, we got this cutie. Benji. Rubbing his belly somehow makes every thing better :)
VULCUN.com — Daily Fantasy for eSports
After the ad-network, Ali and I were spent. We had hired a great team, (Aaron, Marilyn, Jared). Salman had been through hell and back with the technology and integrations with 30+ companies. We were all burnt out. We let the team go and decided to take 3 months off. No work. No stupid startups. No ideas. Just focus on ourselves. I pledged to surf daily. Ali wanted to bike. Trying to bring balance back in life.
So all of that lasted 3 weeks. We came across Fanduel.com and thought, we should do this for eSports. We know eSports -we ran the #2 League of Legends team in North America. We got this. We promised ourselves 3 months off. But I guess we really can’t help ourselves.
Problem was the League of Legends season was starting in 4 weeks. This business is very season dependent — if we had to launch, we had to do it in 4 weeks. So Ali cancelled his Hawaii trip, I ended up working on mine (surf+weather was shit anyways). In 2 weeks, Salman and I built the site. We launched on Jan 12th this year.
This is me in Hawaii while we launched. Total FML mode.
Here is what we built and launched.
And then magic happened. Given our connections in the space, we were able to scale very quickly. So did the top line. Magic was all around. Finally product market fit. Finally…
This was our last shot. We were running on fumes (few months of cash left). We decided to increase our marketing spend for us which brought us down to 2 months of cash. If this had not worked, we would have folded the company.
And then the VCs came calling. We literally had our pick of the valley. Initially we decided, oh lets not raise too much. $3–5m would be fine. After 2 weeks of meetings, we ended up raising $12.2M from Seqouia. We met them for the first time on a Thursday, and signed on Tuesday the next week. They literally moved faster and were more decisive than any other VC i’ve seen. The term sheet was signed at 10:30pm at our office. We included a host of other folks in the round that we really liked (full list here).
And if you’re thinking, yes, this is still the same company, same investors as Higear. We brought everyone onboard. No investor has ever lost money with us, and we’re very proud of that. Short term it means more dilution for us, but reputation is everything, and people tend to always remember such things. Always make investors whole (or better) no matter what.
I’ve been around long enough to know it wasn’t really us. These things are based on hype cycles and we’re definately in a hype cycle right now. Right after we raised our $12M, our #2 competitior raised $4.2M off our tail wind. I don’t think our business deserved the valuation we got, and neither did theirs. Fanduel and Draftkings each have raised over $300M at this point. We just got lucky getting their tail wind + eSports is blowing up and everyone wants in.
There are some serious issues with the model.
- Its extremely low margin — hard to build a big business when you’re running sub 5% gross profit margin. Ours is much higher, but long term will trend towards the same margin as Fanduel and Draft Kings. Especially Draft Kings — after accouting for promotions, they’re running at sub 5% margin. Investors haven’t figured this out yet / or are in denial. Scale will solve things. Or once the competitive pressure eases. Ya right. Lets see how this plays out.
- The DFS business is built on high rollers, and in this case, they are very price sensitive. Any new site offering a lower margin will attract users, especially if it has liquidity. These users have very little loyalty. Hard to build out enterpise value when your most power users are so fickle.
Jury is out on how the DFS space will play out. We’re doing whatever we can on our part, not to get into the low margin high volume business. But lets see how it all plays out.
So heres the scorecard for the last 1.5 years since I wrote the first article. Failed at another 3 startups — and finally got 1 to work. So total of 4 in 15 months.
Vulcun is off to a great start. We’re at 30 employees now (up from 3, few months ago) — $12M in the bank and a booming top line. To the outside world it certainly must seem like overnight success. But you know the real story.
All in all, 19 startup attempts in the last 4 years. Probably more to come.