The startup world is full of not only excitement but also uncertainty – after all, the early-stage venture failure rates are around 90%, with 21.5% of businesses failing in the first year and 30% in the second year. While there’s no one magical formula for success, we believe there are certain opportunities and hardships that most founders will eventually come across, regardless of the industry they’re in and the solution they’re planning to deliver. And what better way to identify them than by talking to successful entrepreneurs?
When working on our State of early-Stage Startups 2021 report, we sat down for a chat with Noor Akbari, the co-founder and CEO of Rosalyn. We discussed the importance of participating in accelerator programs, the risks that launching a startup involves, and the impact that COVID-19 has on Rosalyn. So if you’re looking for actionable insights and pro tips from an experienced founder… you’ve come to the right place!
Congratulations on the recent seed round funding from Brighteye Ventures and Fyrfly Venture Partners! What does this investment mean to you, as the founder, and to Rosalyn as a business?
Thank you very much. Well, it was after a long time of us trying and trying. But it finally happened, which is very exciting because now we get to do the things we want and hire the team we need.
It all started in 2018 when we got accepted into the Alchemist Accelerator program. At that point, we were a service company with a proctoring tool. It worked really well, it automated exams, recorded test sessions, and conducted analysis using AI computer vision. What we were trying to do was to market it as a SaaS product, but we didn’t know anything about SaaS when we got accepted to a B2B-focused accelerator program. Together with my co-founder Martin, we spent a couple of months there in San Francisco going through the program and getting our first customers.
We quickly realized that the old product wouldn’t work for the certification market. That was when we engaged with you at Merixstudio. The vision was to build the product for the certification market. As I said, the core product was focused on proctoring, how to deliver exams autonomously, have AI monitor the test-takes, and allow universities to scale-up. Once we went into the certification market, however, we realized that we need to build around the product.
In April 2019, we attempted to secure a round. We met with about 130 investors, we went further into the diligence process with a few, but never got closer. We raised an angel round, but as this wasn’t enough, I went back to the market I knew and raised more from there. Then, COVID-19 happened. Suddenly, large companies like Coursera, Udemy, and a bunch of titans started knocking on our doors. They were interested in our core product, not the builds around it, so we paused the development of additional features and refocused on AI proctoring.
All of a sudden, investors and customers were more interested in Rosalyn. We seized the opportunity and started to raise funds again. This time, we met around 25 investors and got 2 top hits: one from VC in the UK, and one from San Francisco; we ended up going for the latter. We went through the due diligence process, which wasn’t easy. They interviewed every employee and customer, looked at the market, asked at least 200 questions – but eventually, they decided to invest, which was exciting for us.
Not only a VC but also Coursera invested. Now it’s interested in marketing our product to their customers and partners. Coursera has around 70 million students using their platform and 5 thousand universities using their content. The investment was because they wanted our platform to solve their problem. Currently, we completed the two phases of the pilot and are entering the third phase, which is customer-facing. Once it’s done, they’ll potentially put us in front of all their partners.
Was participation in the Alchemist program key in arriving at the point you’re in now and in finding investors?
It was vital. Without Alchemist, we would have failed early on because we didn’t really know what we were doing. The program gave us hands-on experience and steered us in the right direction. We had access to mentors, curriculum, peers. On a daily basis, we were immersed in the startup world, learning from peers, talking to mentors, getting advice. It shaped our thinking and allowed us to go into the right market. I honestly don’t know how a first-time founder could be successful without going through a program like that. It’s tough.
You founded two more companies before Rosalyn, so you weren’t the first-time founder yourself, right?
Those two companies were different stories. These were lifestyle businesses, and right now, I’m building a billion-dollar company. There I had a business and a customer base, the service we offered wasn’t innovative. We hired people, and profit was there.
In the case of a business like Rosalyn, you don’t think about profit in the first 3-5 years. You build something that’ll be used by a massive amount of people. You’re not satisfied with a million dollars a year because you’re practically building a rocketship. It requires a fundamental shift in thinking. If you applied the things you learned doing a traditional lifestyle business to a startup, it wouldn’t work at all.
And VC firms usually expect at least 8-10x return out of the investment. So like it or not, you need to go mainstream at one point during the cycle, correct?
The 10x is a minimum, more of a failure than a win. They invest in companies, 70% of which fail, 20% are ok, and 10% or less are unicorns. They’re making money from unicorns. Right now, Coursera is potentially interested in buying us, and our VC is saying, no way, there’s a potential for Rosalyn to become big.
To participate in an accelerator program, you and your team needed to commit full-time. Usually, a company at that point has no revenue, so is it worth taking a risk like that?
That’s why startups are hard. It’s worth it, in my opinion. Unless you have an alternative way to educate yourself and access mentors, accelerators and incubators are a must. You learn so many things at college, university, or previous business – but ultimately, you have to throw it all away.
For us, taking part in the Alchemist program was vital. I was prepared to drive Uber because we barely had revenue. You need to be prepared to work hard to go through this program, but in the end, it’s a must.
I remember that at Alchemist Accelerator’s Demo Day, you mentioned a couple of companies that were already your clients. How did these collaborations come about?
In that program, they take you through the entire process. They help you decide on the market and tell you to find early customers. They give you all the tools so that you can start calling, emailing, and meeting people. They set goals and steer you in the right direction. So it’s a well-put-together program, so by the time the Demo Day happened, we landed one of the largest companies. That’s why I said it’s valuable.
Coming back to investors, what do you think was a decisive factor that made them say yes to you?
Generally, they look at multiple things. One, whether there’s a big enough market for your solution that will allow you to get big. Two, are you solving an important problem that’s big enough for people to pay for the solution. Three, is your team able to take the idea to a billion-dollar company. Beyond that, it’s a judgment call. Investors also compare your vision with other opportunities. Something else can be more enticing, and they simply can’t invest in multiple things simultaneously.
In our case, I think Julie, our investor, was passionate about democratizing education. Then, there was a personality match as well, but she did all her due diligence as well. So I’d say investors are looking at a couple of things, and they’re doing due diligence to check if your claims are valid.
I read that back in the days, you approached your current employer with a proposal that they support your effort to set up a separate computer testing service. Can you tell us a bit more about that?
I was working with Mission Essential where I was heading their language testing program. The vendors I was managing were mostly old family-owned companies that couldn’t scale their services. I approached the president, told him about challenges, and proposed a solution, which required setting my own business. He was excited and said it makes sense. I gave up my lucrative, six figures job to start the assessment company, and Mission Essential became my first customer.
Sounds great! And what would be the lessons learned from meetings with investors that you could share with early-stage founders?
To begin with, if you have an idea and are passionate about it, give it a try. There’s a lot of uncertainty, but you don’t want to have any regrets. Just give it a try.
Be humble enough to know that 90% of what you’re thinking is wrong. Don’t get married to your ideas but find mentors early on and develop your idea with their help. When new information is available, you must be able to throw your old vision away quickly. Otherwise, you’re going to fail because you don’t and can’t know everything.
Get into an accelerator program like Alchemist or Y Combinator – without them, it’s very difficult to be successful.
I also believe that if you’re thinking about a problem long enough, you’ll eventually figure it out. You must be ready to fail multiple times and get up, brush it off, and learn from failure. In the last 2.5 years, we got closer to getting crushed probably over eight times. We lost a huge contract, all of a sudden our revenue went from 100 to 12 thousand dollars. How do you fix that? Quick pivots and turning things around quickly is important. You’ll fail, but you need to get up. Does that make sense?
Yes, totally. I also wanted to ask you some more questions about Alchemist. Did you know from the start that you want to get into their program, or did you try with other accelerators as well?
I did try. It’s related to the loss of contract which made 80-90% of our revenue. Before, we weren’t thinking about the SaaS business, we were still building our core product. Then, we lost that contract. What were the choices? Shut down or find another way.
I was familiar with accelerators so I knew we had to quickly get in to get early investment, around 60 thousand dollars. And so we started applying to multiple accelerators. YC didn’t even get back because our application was so bad. By the way, it was our first application. Then, we got an interview with LAUNCH, another famous accelerator. I also met with Jason Calacanis, one of Uber’s early investors, a very successful guy. We got into the top 12 but didn’t make it to the top 8, which was a bummer. Eventually, we applied to Alchemist, and we got a call that we’re in. They looked at around 600 companies and picked 24, including Rosalyn.
If we didn’t get that investment, we would have died. Sixty thousand dollars took us through the next six months and we got up again.
You said you got a lot of mentorship from Alchemist. What would you advise other founders who look not only for money but also for this mentorship? What do accelerators that provide such support look for?
The money isn’t the most important part, mentorship is. You need to crisply describe your value proposition, why you have a good team, and why there’s a good market in a short application. Accelerators look at 600-700 companies and they don’t have time for going through each and every one in detail.
The first paragraph needs to be able to capture the essence of what you’re trying to do and be interesting enough so as not to be thrown away immediately. You need to do a very good job in the application process. Also, you have a higher chance of getting in if the alumni introduce you. For example, if I introduced a company to Alchemist, they’d pass the application process.
In short, find alumni to get you introduced and do an excellent job with the application. There’s a Silicon Valley Bank program that mentors companies on how to submit proposals or applications for accelerators like YC or Alchemist, so I’d recommend that as well. Then, it’s also luck from that point on.
Speaking of applications, do you remember your first pitch deck?
I do. My first pitch deck was the one I gave on the Demo Day. After that, we gave quite a few presentations, and we iterated on them every time. We listened to questions, and for some reason, our pitch deck didn’t answer them.
I wasn’t a business analyst so I struggled with financial matters. Lesson learned, had I hired a former VC or a business analyst, the problem would have solved itself, and we would have gotten investment earlier. At the early-stage, you often have to figure such things out yourself. It might work out for some, but for a person like me, and I’m not a financial geek, it would have been great if I hired somebody to help me out.
But we iterated and, as a result, we were better prepared every time. We hired Danielle Glenn, a former Goldman Sachs manager, who had all the experience we needed. With her help, we built a pretty compelling presentation.
So what would you say makes a killer pitch deck?
It’s how fluently and concisely you convince investors of 4 things: that problem exists, that it’s big enough, that it’s important because people are suffering from it and are willing to pay for the solution, and that the problem is wide-spread enough across multiple companies, industries, etc. Investors look at that and the team. I’d recommend any founder who’s pitching to read the book “Pitch Anything”. If you read it, it’ll help you a lot.
Generally, pitching is not about a presentation. Of course, you need to follow a format, but it’s the way you explain your value proposition, and how you can defend it, that matters.
Would you say that it’s important to have some solid proofs as well? I imagine that at the beginning, in some cases at least, you may not have the figures like revenue or the number of users, but you may have a prototype.
These days, it’s hard to get funded with a prototype unless you’re the second- or the third-time founder. You need to get some sort of proof that your idea is working and that there are signs of early market fit. Accelerator gives you some money to do that, and then you can raise the angel rounds to build an MVP and sell it to early-customers. Then, you can raise the seed round. You can raise funds with a prototype only, but if you’re a first-time founder trying to raise two million dollars, that’s not going to happen, in my opinion.
Let’s say we have a B2C product. I guess many founders will wonder how many users or paying customers they need to approach investors and feel confident about it. Is there any fixed number?
It depends. If you’re offering a Facebook-like platform, you’ll need thousands of users. But if your product is a project management app, you’ll need a handful. What’s important is that it doesn’t have to be paying users. As long as you have a number of users consistently using your product and the number is growing steadily, that’s what matters. Three months of 30% month over month growth, even if you start with 100 users, is fine. They don’t have to be paying users at all.
How about metrics? Are churn rate or monthly recurring revenue important? Should early-stage founders focus on them?
That depends on how early you are. If you’re a pre-seed founder, you’re looking at the number of users and monthly growth, other metrics come a bit later. Once you have secured a seed round, you begin to run analytics and check metrics like churn or retention rate. But early on, you should care about the number of active users and growth month over month.
COVID-19 affected a number of industries. How exactly did it influence Rosalyn?
To be honest, it was amazing for us. When we were trying to explain our value proposition to investors, they were like, yeah, it can be a need three of four years from now. Once COVID-19 happened, everything changed. Human proctors stopped working, and everybody needed a scalable and automated alternative.
Think about a company like Coursera coming in and investing a million dollars. Now, the CEO of Coursers is talking to me every two weeks, and they’re trying to get us to the point where we can take care of their 70 mln students. The way it looks is they’re going to buy us. But even that would be a good outcome.
So what are the plans for the next year?
Continue our efforts to hit the growth metrics, and onboard a few large customers. But as I said, there are a couple of buyers ahead, giving us a good offer. We’ll see what happens.
Wish you the best of luck! Even exiting this early with millions of dollars would be nice.
It would be life-changing, absolutely.
Pursuing the journey seems like an adventure as well.
It is like an adventure. It’s stressful but not boring. We work really hard, but nothing about startups is ever boring. There’s a very exciting year ahead of us. We’re at a good place.
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