My Seven Attempts to Get Into Y Combinator

Desiree: Hey everybody. I'm Desiree Echevarria, here with Close, and today I'm talking to Steli Efti. He's our fearless founder and CEO. Steli, how you doing today? 

Steli: Pretty good. How about you, Desiree? 

Desiree: Thank you for joining me on the first of many videos where we're going to talk about how you built Close over the past ten years from the ground up. From zero to 30 million in ARR. And it's just been a huge year for milestones for the company. So we wanted to take a look back to see how you got here and to share some tips for founders who are currently where you were 10 years ago.

Desiree: It's experiment time. Right. And so I think for a lot of these SaaS founders, their first instinct is to try to get into a startup incubator, like Y Combinator, which you are an alumni of, But it took you seven tries to get in. So your resiliency levels must be off the charts, and I want to hear about it.

Desiree: Can you go back in time and tell me about the Steli who applied to Y Combinator the very first time? Describe that first attempt for us. 

Steli: The first time I applied for YC, I was the most clueless version of Steli, but not just of Steli, I was the most clueless version of any sort of startup founder that applies to YC.

Steli: I had no background in tech. I had no background in building apps or building anything product related, really no product background. I didn't know anybody who did have any experience or expertise in that. And so I had zero background, zero knowledge, zero skill, but what I had were big dreams and some hubris.

Steli: And I thought I will change the world and that should be enough. Knowing that should be enough to apply and maybe I get lucky and get accepted into my wild Hollywood version of life and entrepreneurship could start. And, what I got instead was reality, which was just a nice generic rejection email from YC.

Desiree: What was the Idea that you went out? You were like, what, 22, 23, a green little guy, living in Germany or somewhere in Europe. And what was your grand idea? 

Steli:  It was around 2007 and web 2. 0 was just happening. So blog started, Wikipedia was a new thing. YouTube, user-generated content was kind of all the hype.

Steli: And I had this idea to revolutionize education; sort of build a world school where everybody could teach and learn from everybody else. And since I had no background in education, and I barely made it through kindergarten, I thought who better than me to change the world of education? Of course. So it was a very early online education platform.

Desiree: That was the idea. Your heart was in the right place, but nothing else was in the right place. So Y Combinator, or only Combinator, only takes applications twice a year. Every six months. What are you doing in the meantime? Just sitting around twiddling your thumbs, waiting for applications to open up again, six months later. What are you doing between those attempts?

Steli: Just wasting time, doing the fun stuff of entrepreneurship that feels like you're accomplishing something, but it's absolutely a total waste of time and energy. I would do the fun stuff, the designing a logo, creating merchandise and then meeting with other startup founders that had zero users, zero traction, zero product or zero clue and discussing a future partnership potential for these two non existent companies, with no absolute traction in the real world.

Steli: And then telling all my friends and all my family and everybody that I knew about this idea and getting a lot of people excited, which is one of the few skills that I had. And then I would get like all these people that had, again, no skill that could be useful to the thing that I was trying to accomplish to want to participate and work in it.

Steli: And, most of them also wanting to do that by contributing things like their ideas and their energy and their enthusiasm and their contacts in industries that had nothing to do with what I was doing to set up meetings with people that couldn't help me at all. That's what I was doing mostly is like wasting time.

Desiree: Just living in the future. Just getting a lot of satisfaction from imagining your future success. When I win the lottery, here's what I'm going to buy with all my weddings, I'm going to buy jet skis. 

Steli: And you know what it was? It's like playing entrepreneurship. It's playing business. It's like being busy all day long, doing fun things with low risk, low consequences, but that are sort of make pretend make believe work.

Steli: I was at a design agency and we're designing logos. That seems like an exciting, important day, right? But logos for what? Instead of building a prototype and going to the actual users and getting feedback, you're designing logos for your future empire and you're showing it to your mom and you're putting it on a t shirt because it's fun and it's cool and it allows you to dream about everything that's possible without having to face reality.

Steli: The harsh reality is that once you actually show people the real thing, they're rejected, they don't care, they ignore you, or they tell you that it sucks. That stuff is not fun. So you do the fun stuff. And that's, that's what I was doing is many inexperienced founders do. 

Desiree: So, tell me about attempts number two through six. Like, were you trying new things every time? I'm sort of picturing Wile E. Coyote from the Looney Tunes cartoons trying all these different hacks and schemes to get at the Roadrunner. Are you trying different attempts every time? Or how are you evolving your approach?

Steli: To some degree, I was learning and evolving very slowly. I would look at these applications almost like lottery tickets. It's free to apply. Why not? Maybe I get lucky. That was sort of my grand strategy. But then there were some steps that I was taking after, I don't know. Like a year or two of trying to put something together in Europe. I decided to finally sell everything I owned, buy a one-way ticket to Silicon Valley, move to the US and start my big adventure there. So I got closer and closer to YC in terms of proximity. Once I was in the Bay area, I started meeting more founders, more tech people, going to more tech events, once in a while running into like a YC.

Steli: I still remember running into the founders of Airbnb, running into the founders of Dropbox, and actually arrogantly, I've talked about this many times before thinking, I'm trying to change the world of education. Here's somebody who's doing file sharing and somebody that's doing air mattresses on people's bedrooms.

Steli: Like, who cares? I'm actually trying to do something impactful in the world. So, as you can tell, not very smart, not learning very quickly, but at least I was getting closer in terms of physical proximity to YC. And so eventually, you know, I went from no money, no investors, no team, no traction, no product to a small prototype and to other developers that were incredibly inexperienced and not that good, but well intentioned just like myself and some investors that were not that great, but I got investors, so I started to assemble a little bit of traction, but it was still at the very bottom of the total talent pool that was applying at YC.

Steli: I was just bubbling higher and higher, but I was still firmly in the bottom 20 percent that's safe to ignore for YC and, and a good idea not to invite to interviews. 

Desiree: So how did you deal with every rejection? Becauseto hear so many “No's” in a row without any possibility of a yes in the future.

Desiree: Like, what is your mindset? Dealing with each of those rejections; you think your idea is as impactful as Airbnb and Lyft and Uber and all these things. And so every time you're hearing a note, how do you deal with that? Not everybody can do that. 

Steli: Yeah. So, that is probably the defining characteristic of one of the few. Strengths that I had that I used mercilessly to make something of myself, which was that, although I also hate rejection, I probably invited it more than most people into my life, and then I handled it probably a little bit better than most people do. I didn't like getting rejected. Never felt good. I'm sure I ate a bunch of chocolate YC just to like build back a feeling of some positiveness inside of me, but you gotta have a little comfort; here's the way that I looked at these rejections, number one, I did feel like an outsider.

Steli: I did feel like I didn't fit in. I did feel like I was not a great developer coming from a great elite school. I wasn't American. I was not part of the cool kids. I did feel very much like an outsider looking in, but it never created feelings of bitterness. Like I never sort of expected to be an insider and I've expected to be accepted.

Steli: I didn't think I deserved anything. And I firmly also believe that I sucked. And so I was in agreement secretly with YC. I was like, I probably suck. I was just trying to get better. Anyway, I knew how, and, you know, and along the way I thought, “It's an application”; the worst thing is they'll reject me.

Steli: I've already been rejected. Like that's not that big of a deal. I can still keep applying, trying to make my application a little bit better. Hoping to get a little lucky; hope was definitely also kind of part of the formula. But ultimately, when those rejections came, I sort of expected them and I thought, all right, that seems fair to me onwards and upwards.

Steli: I’m just going to try to get better and better and see what happens, as a final outcome. So I think I was taking it in stride from YC for sure. 

Desiree: Right. Also, maybe a taste of like imposter syndrome of like, well, yeah, of course I was rejected. Like, I don't know what I'm doing. Like, yeah, I'd reject me too.

Desiree: So, tell me about the 7th attempt. That's the attempt that got you in. What was different about this one? You know, by this time you've been in the Valley for a while. You've met a lot of people. Have you met the right people? That sort of seems like, the way and tell me about attempt number seven.

Steli: Yeah. Seven was very different because like I had been in the Bay Area for five years with my first startup. Finally, I admitted defeat with that idea, and that company. And then, I experienced almost a rebirth. Once I'd let go of that old idea, all of a sudden, a lot of the learnings I wasn't willing to accept bubbled up.

Steli: And I realized, Oh, this is how you have to do things. And I was just like bogged down by being, you know, so sort of like, um, you know, It's after many years of banging my head against the wall. I couldn't see clearly anymore. And then, with the final attempt, well, it was a new idea. It was a new team, two friends of mine that were great developers, great hackers, great builders, had this cool idea.

Steli: I instantly was passionate about it, and I felt like I could help them and contribute. We very quickly built a prototype. We very quickly got out there and got user feedback and generated learnings and insights, and we just moved very, very quickly. And I knew having a strong team, building something that seems promised moving quickly, focusing on users and customers and really learning and generating new insights that are based on reality and feedback versus just daydreaming and creating PowerPoints.

Steli: I knew that all these things were things that YC liked and prioritized. And then we were meeting a lot of YC founders that I had met over the five years that had all told me that I suck again with this idea and this team. And a few of them was still not that excited, but a couple were like, no, we're encouraging us.

Steli: You should absolutely apply this team, this idea, what you've done so far. This is YC, to a T like this fits in so well. And, and one of the founders that we've met was so excited that he said, you know what, I'm going to write Paul Graham an email right now. Recommend your application, uh, and tell him that he should invite you guys to an interview.

Steli: And lo and behold, he sent that email. And, two hours later, we got an email from PG saying we're invited. And I think that that was very clearly, at least to a large part, based on the sort of strong recommendation that we got from somebody that was an insider. 

Desiree: But you had to like work that whole time to build that relationship to where you could even reach out to an insider like that. So, you know, that's, I'm sure huge learning. Once you were inside YC, what was the experience like? Like, what did you get out of it? 

Steli: I mean, it was truly magical. It was one of those few times in life where, you know, you have very high expectations and then they still are being exceeded.

Steli: For us, the three months there were really formative. They really imprinted on us a lot of the foundational knowledge that we had in building Close today. I mean, we got a lot of time with Paul Graham back then, PG every week. And we really learned to get very good at prioritizing, get very good at saying “No” at everything that isn't essential and really hyper-focus on a few metrics or one KPI at the very beginning, that was the best manifestation of traction and progress and make that number move every week, week by week, make that number grow and focus on, based on all ideas that we have, which of these ideas do we believe has the highest chance within the next seven to 14 days to get us to move this KPI up. So it helped us learn to be laser focused and helped us learn to be really great at prioritizing and moving very, very fast.

Steli: And then, we met just incredible people that were all very, very smart, that were very creative in how they were building their startup. And ultimately at the end of YC, really a big part of the value propositions that in one day, you'll be in front of the who's who of investors, instead of having to painfully knock on doors and get rejected and do fundraising.

Steli: That might take you months and months and months. You do it in one day. You got everybody to come to you, right? You get to present your coach and how to present yourself in the best possible way. And then you're able to raise money very quickly at way better terms from way better investors than you can usually on your own.

Steli: And all those things came true for us. We're able to very successfully fundraise just to give you an idea, the five years prior to getting into YC, I raised money for three or four years straight. And I traced 50,000, I was the world's worst fundraiser as a founder, but 50,000, like four years or something.

Steli: And then in YC, back then, this is a 2011, within two weeks or so we had raised 1. 2 million. Right. So, and, and a totally different valuation that I had. I don't like, it's not even it's day and night. So the experience from YC was great, both helping us to learn how to build a company and how to move faster and how to really generate a lot more traction.

Steli: They opened doors when it came to PR, when it came to like potential partnerships. But ultimately they helped us raise money in a much faster, much more successful way that we could have on our own. 

Desiree: So, all that money you raised for your YC startup, it was called SwipeGood, and it was like a sort of charitable giving platform, and that was all from investor money, like you just said, but the next businesses you launched after, your YC company SwipeGood, you pivoted to Elastic Sales, a completely different type of company.

Desiree: And then a couple of years after that, you start Close with Elastic Sales and Close. You bootstrapped those businesses. You didn't have that sort of fundraising YC company. And those bootstrap businesses that followed ended up being your most successful ones. And we'll talk about bootstrapping a lot more in our next video.

Desiree: But what would you say right now to a first time SaaS founder who is trying like hell to get into YC just like you did? Would you tell them to keep trying the same way you did, or would you tell them, knowing what you know now, you know what, forget YC, just bootstrap your business, because that's what I did. What is the advice you would give that founder?

Steli: I think the advice is always, it depends. It depends on who you are and what you want. Because there's not one way to build a company. There's not one way to find success. There's many incredible YC companies that are very, very successful. There's plenty of companies that became pretty successful that were rejected by YC or that decided never to apply to an incubator or never to raise money.

Steli: So it's not just one path to success. I think the most important thing in terms of mindset is that you need to realize that your success should be independent of anyone out there, except you, your mindset needs to be, “we're going to make this company successful.” And there's multiple options on how to get there.

Steli: And we're going to take what options we can get, but nobody external to the team on myself as a founder is going to dictate if this company can succeed or not. So it's not like “if we get into YC, we're going to be successful. If they don't accept us, then we cannot be successful.”

Steli: Nobody wants to fund a company like this. And for very good reasons. So you need to be in a mindset that says that you're succeeding. This train is going. And like, if YC joins, that makes it better, but if not, that doesn't matter. That doesn't deter you from your success. The other thing is the question of fundraising, right?

Steli: If you think that you are building the type of company that will need to raise more and more and more money, potentially to raise, you know, 50 million, a hundred million, 150 million, and need to do so in a very short period of time over maybe two, three, four years, then applying to an incubator, specifically to YC might be a very good idea because they're going to set you up for fundraising success. They're going to set you up with the best investors with the best terms. And so they're going to put you into prime position to be a successful fundraising startup that scales very quickly and has a need for venture capital very aggressively.

Steli: Now, if you're not in an industry or don't have an idea that necessarily requires you to raise a hundred million over the next three years, super aggressively, then it's optional. Then maybe you should or shouldn't, depending on what other benefits you think you might get from it.

Steli: And many businesses today don't need to raise money. And so it would Combinator because a big chunk of the value proposition is setting you up for fundraising success and you might not need it. We had to learn when we applied with SwipeGood, we thought, and for that idea, I think it was correct to assume that we would have to raise a lot of money, but also to be honest, we want it to be a startup that raises a lot of money.

Steli: A lot of founders just glorify that it's. They romanticize it. It's like, if I raise money, that means I'm successful. When I first came to Silicon Valley, I thought if I ever raise a million, that's it, I'm made, I'm now a success, right? 

Steli: It means something. It must mean I'm important. I'm significant. I'm successful. But as you go through the experience, as many other experiences in life, you realize, “nah, it's not really true.” That it's just somebody loaned you money. That doesn't make you successful. It doesn't make you wealthy necessarily.

Steli: So, I think that today, I'm not interested in going and raising a ton of money. Because I love building a company with my own principles, with the freedom to decide how we want to run the business, what we want to do, and not have sort of outside investors that, set the tone and tact and push the pace for their agenda and their sort of needs and goals of their portfolios, but being able to serve our employees, our customers, and ourselves.

Steli: It is a better fit for our personalities and for what we want out of life. But when you're 22, 23, you don't know what you want out of life. You just look around what everybody else says is cool. And that's what you also want to do. So I think that, if you need to raise a lot of money, YC is still like an incredible platform, launching platform for you that might make a big difference to your success.

Steli: Many, many tech companies don't need it anymore the way that they might think or used to, so it's a question of what's important to you as a founder and also what is accessible and possible for you. 

Desiree: Right. And you mentioned the differences between like a bootstrap business and a VC business in our next episode, episode two, spoiler, it's called “The case for bootstrapping.”

Desiree: And we're going to talk all about how Steli bootstrap his company. Turned a 0 company into a profitable business. Now raking in 30 million in ARR without investor funding, and how SaaS founders can do that as well. So, join us. Thank you so much, Stelly, for all of your insights. We're at time now, but next week we're going to get all into bootstrapping.

Desiree: So join us then. Thanks everybody. Bye.