Accelerator programs invest a lot of time and effort into your startup. They want you to succeed, but they don’t want to waste their time either. Leading accelerators have carefully crafted their application to provide maximum insight about the prospects of your startup.
Accelerator programs are a fantastic way to rapidly build your product in a focused environment with access to great mentors and other ambitious startups. Y Combinator is one of the world’s leading programs, having funded around 1,000 companies with a combined value over $65 billion. Hundreds of startups apply to each batch, but only around 3% are successful.
The application form is the first step in determining who gets in to the program. They’ve refined the application over many batches and the questions they ask give an investor a view of how promising your idea is, how effective your team might be and what unique insights and capabilities you’re bringing to the table. Whether you want to be in an accelerator program or not, it pays to have given serious thought to the questions they ask.
Describe your company in 50 characters or less
Whether you’re building ‘Airbnb for pets’, ‘Youtube for 360 degree travel guide videos’ or ‘The world’s leading online auto parts store’, being able to succinctly articulate what your business does allows investors to easily calibrate their thinking, potentially by comparing it with something they’re already familiar with.
What is your company going to make?
A great elevator pitch is so critical to give potential investors a clear, concise view of what you’re building. No jargon, just plain language that anyone can understand. Poor first impressions of a startup often involve a complex or long-winded answer to this question, so it’s worth spending a fair bit of time developing a great answer. After all, you’ll probably have to repeat it many times.
How far along are you? If you’ve already started working on it, how long have you been working and how many lines of code (if applicable) have you written?
If you’ve been working on the startup for 18 months and have nothing to show for it, that’s a bad sign. Understanding how far along you are gives a sense of your commitment to the startup, but also your ability to be focused and get things done. Founders have to be extremely resourceful, finding ways to keep moving forward despite the inevitable obstacles.
Do you have revenue? How do or will you make money? How much could you make?
Having paying customers is obviously a great sign for investors. But… that’s not to say you can’t focus on building a product people love and then work out how to monetise it later . Some of the most successful startups are focused on the mission for a long time before they start to bring in revenues – Google and Facebook come to mind.
It’s also important to have a realistic sense of your potential market – nothing spoils a pitch like having wildly unrealistic numbers which look like they’ve appeared out of thin air. Yeah, sure your new smartphone app could be downloaded by all of the world’s 2+ billion smartphone users, but what percentage of them are actually going to?
Why did you pick this idea to work on? Do you have domain expertise in this area? How do you know people need what you’re making?
Ideally you’re really passionate about working on this particular problem and it’s clear you’re committed to working on it for a long time. Even better you’ll bring a level of insight about the market or the customer need that other companies simply don’t have, showing that your better positioned than others working on a similar idea.
You need to be talking to potential customers… validating the idea, understanding what customers think is important and continuously seeking their feedback on the product or early mockups or whatever you can build to ‘make it real’.
What’s new about what you’re making? What substitutes do people resort to because it doesn’t exist yet (or they don’t know about it)?
If you haven’t thought about how your product is different, you may easily waste a lot of effort copying something that’s already out there, or re-learning the mistakes of others.
Thinking about what customers have to do in the absence of your product will help you understand how big the step change is in your solution and the possibility of a much better experience for them. Consider the superior search experience that Google provides. Or how easy Uber makes it to get a ride. Walking in the shoes of your customers, and spending a lot of time talking to them, is truly necessary to define your point of difference.
Who are your competitors, and who might become competitors? Who do you fear most?
While it’s important to understand who your competitors are, as they at least give you a baseline for what customers are already buying, your biggest competition may come from those you don’t even know about it yet – those other new startups that have spotted the same opportunity as you. Big companies tend to be busy working on their established offerings, and may not even be interested in what you’re doing until you have enough scale to prove there’s even a market.
“And in any case, competitors are not the biggest threat. Way more startups hose themselves than get crushed by competitors. There are a lot of ways to do it, but the three main ones are internal disputes, inertia, and ignoring users.” – Paul Graham
If you’ve tried being a customer of your competitors then you should have a good handle on what sucks about their product or service, whether they truly care about the customer experience and you’ll know all the ways that you could do better.
What do you understand about your business that other companies in it just don’t get?
Great founding teams bring a unique insight about the product or market that others simply haven’t considered or taken the time to understand. A promising founding team combines unique insight with the ability to execute.
How will you get users? If your idea is the type that faces a chicken-and-egg problem in the sense that it won’t be attractive to users till it has a lot of users (e.g. a marketplace, a dating site, an ad network), how will you overcome that?
Building a successful company requires resourcefulness and resilience. You might have to go to extraordinary lengths to get your first customers or overcome growth plateaus. The best answer to this question is very rarely ‘hire a sales team’. It really is a core responsibility of the founding team to learn how to acquire customers, as this is so fundamental to growth.
Just look at the example of Airbnb. Their growth had stagnated for months. Going back to basics, they reviewed all their listings and realised the photos were poor quality and unappealing to potential renters. They travelled to NYC and replaced their hosts’ photos with high quality versions. They immediately saw revenue double and never looked back. You need to be prepared to “do things that don’t scale” and to push the boundaries.
How long have the founders known one another and how did you meet? Have any of the founders not met in person?
Founder break-ups are a major cause of startup failure. If a founding team simply happens to get together over a weekend hackathon, there’s a good chance they won’t stay together. You’ll need to complement each other’s skills, be able to push each other through times of adversity and work productively at a high tempo for a long time. Are all the founders fully committed to working together on the same problem for several years? How well do you work together?
Please tell us something surprising or amusing that one of you has discovered.
While it’s lighthearted, personally I feel that questions like this serve as an insight into the type of person you are as a founder. Founders are the role models and tempo-setters for their companies. In the early days (at least), they are entirely responsible for how the culture of the business evolves, whether their actions are intentional or not. Its’ a heavy burden to carry, but comes with the territory.
Please tell us about an interesting project, preferably outside of class or work, that two or more of you created together. Include urls if possible.
Investors need to see that you have the ability to get stuff done. You want to show you’re a proven innovator, problem solver and master of resourcefulness. If a founding team has already worked together, has built/achieved something and come out the other side with their working relationship in tact – then that’s a really positive sign.
If you’re looking for a co-founder, it helps to start with someone who you trust and have worked with before. In some ways, it’s better to be a single founder than have a co-founder who you simply can’t work with. Founder break-ups are notoriously difficult to work through and may spell the end of your business. Vesting agreements are very highly recommended.
If you have not formed the company yet, describe the planned equity ownership breakdown among the founders, employees and any other proposed stockholders.
Many founders worry about giving away equity in their companies. The simple fact is that as you proceed through funding rounds, your ownership share will be diluted. This is the price you pay for having people believe you can succeed and help you along the way…
After all would you rather own 100% of nothing, or 10% of a successful company?
Update: AirTree Ventures has published their open source seed stage investment term sheet, which is a handy resource. You can find it here.
Are any of the founders covered by noncompetes or intellectual property agreements that overlap with your project? If so, please explain.
The vast majority of founders start their startups with the belief they are doing so on a sound legal basis. Unfortunately there’s lots of things that can go wrong – such as violating a non-compete clause in an employment contract with a previous employer, or unwittingly giving up your startup’s intellectual property rights to your current employer (as fictitiously occurred in TV’s Silicon Valley!).
Was any of your code written by someone who is not one of your founders? If so, describe how can you legally use it.
This is a common scenario for a non-technical founder who has outsourced the development of the product through freelancing sites, or who is enhancing an existing product that they’ve purchased or licensed. It’s certainly not a showstopper, but you need be sure you actually have the commercial rights to the code.
Outsourcing can be a reasonable approach to getting your prototype up and running, but you may really need to consider having a technical co-founder (or possibly employee #1) to carry on this work, particularly if your company is dependent upon the platform as a core capability.
Have you participated in an accelerator program? What were the biggest takeaways?