How I Got Kicked Out of Y Combinator and Then Raised $6.5m for My Startup

In 2008, I founded Storenvy, a social e-commerce platform that gives people free and easy online stores that look great. The unique thing about it is that it’s all built around community, and we combine all the stuff from the stores into one big social shopping marketplace for everything. Think of it as “Tumblr for e-commerce”. (We’re hiring!)

In 2010, I got accepted and kicked out of Y Combinator, lost my cofounders, and raised $1.5M from A-list investors. This is my story. *Law & Order sound effect*

Update!! We’ve since raised a $5M Series A as well. Read more: Storenvy Goes From Getting Kicked Out Of YC To Raising A $5M Round

The Out-of-Towner

In the Spring of last year, I started to think seriously about raising money for my startup. I’m a Ruby on Rails hacker and product guy, and at the time, I didn’t know much about venture capital. Storenvy is my first startup, and I lived outside of Silicon Valley in Kansas City, MO. But since we had a good product, some great early traction, and a few connections, I headed out to the Valley to pitch some big fancy VCs that I met through AngelList.

The meetings went well – all positive feedback and “let’s talk again next week”, but no commitments. One of the few people I knew in the city at the time invited me to a breakfast while I was in town. It was with 4 other startup founders, a few of which were Y Combinator alums. I hadn’t really considered an incubator like YC because we already had a product, customers, revenue, and whatnot and I thought I really just needed cash to hire a bunch of people. But one of the guys at breakfast really liked what we were doing and wrote an intro email to Harj, one of the partners at YC. It was mid-May so the application deadline for the Summer 2010 session had already passed. But Harj and I had coffee the next day, and he liked what he saw so he invited me to come interview for late acceptance.

A week later, I flew back into SF for just enough time to drop down to Paul Graham’s house for an hour and drive right back to the airport. Hanging out with Paul and Harj in Paul’s garden backyard was an experience. Paul asked hard questions and interrupted almost every answer I attempted to give, but he was also supportive of the vision and trajectory of where we wanted to go. Since he was the creator of what became Yahoo! Stores (Viaweb), it seemed like a space he had a personal affinity toward. “It’s interesting, we’ve never funded a store builder before”, he said. I stayed and chatted for nearly an hour which I found out is pretty rare since most YC interviews are barely more than 15 minutes. Then, on the way back to the airport, I got a call from Paul. He said, “Sooo, we like you guys. We’d like to fund you.” I felt like a freaking gangster! I just got into Y Combinator – one of the most elite honors for early stage companies in the world. And I’d done it without even having to fill out that terrifying application! Achievement: Unlocked!

I sent out a few celebratory tweets but mainly kept the news to myself. I’d been given the advice that you may want to save the announcement for a press release on a big news site. Either way, I was stoked and could barely keep it in! I’d been a total Silicon Valley outsider and was just given a ticket to become a total insider. The only problem: The summer session started in 7 days. Out of nowhere, I had to move to the Bay Area in 7 days!

It’s important now for me to give you a little backstory. I started Storenvy with two other guys. The three of us built the site into its basic form while being a distributed team (Kansas City, San Diego, and Orlando). The other two guys were both smart, creative, and hardworking, but they weren’t interested in the startup scene – they hadn’t even heard of Y Combinator until we were already accepted. They both had families, so I knew that moving to the Bay Area would be hard for them, although they were totally willing to do it. But that week, we had several long discussions, and two days before YC started, we determined that moving to SF and living the startup life wasn’t their dream. Instead, they wanted to hang back and run just the t-shirt printing service that we’d started as a revenue source for Storenvy as its own company. See my interview on Mixergy about the t-shirt business. I spent the next 36 hours packing and figuring out how it would work to separate out the printing service from the online stores.

The Meltdown

So the day before YC started, I sent Paul and the gang an email letting them know that my team was changing. I didn’t think it would be a huge problem. I (naively) thought that they’d just give me advice on how to navigate the new situation. But alas, Paul was not happy with the changes and told me it might put us in jeopardy of getting funded by them. My stomach sank! This seriously can’t be happening! I was only doing what I thought was right for my startup! Still, a couple hours later, I boarded a plane with my wife, dog, and all the necessities for the summer stuffed into a suitcase and flew to SFO and hoped for the best. Seven days isn’t nearly enough time to find a proper housing setup in SF, so we checked into an extended stay hotel where we would end up living for an entire month.

The next morning, Paul emailed and arranged a meeting with the entire YC team for us to discuss the future of Storenvy in YC. Since we didn’t have a car, and I didn’t have enough time to figure out something better, Janette and I took a $100 cab ride down to Mountain View. Walking into the YC office felt amazing. It felt a little bit like college for startups. I could just feel the energy and smarts oozing out of the place. Janette and I sat patiently waiting for Paul, Harj, Jessica, and the rest to finish their lunch before going in. I tried to fiddle with my phone, but really couldn’t focus on anything. What were they going to say?? My nerves were through the roof.

I don’t remember too many specifics of the meeting. I remember forcing myself to stay calm and trying to take the bad news with poise and maturity, but I felt like someone had died and I was trying to bring them back to life. I tried to convince Paul that I could rebuild the team and that the company still had all the same potential. His main objection was that it was just too much change and that they don’t like single-founder startups. Jessica just kept sympathetically saying “The timing is just really bad.” They were right, the timing was terrible, but it’s what I had to work with. So I kept selling them on myself. I think at one point I even confidently proclaimed “I am Y Combinator. This company was created for guys like me.” (Impressive, huh?) And for a minute there, it looked like they may change their minds. They asked us to step out of the room while they discussed. A couple minutes later, they called us back in and said they weren’t going to fund us but invited us to re-apply in the Winter. It felt like I’d just lost a patient on the operating table. I’m sure all the color had gone from my face. How do you get accepted to YC only to get kicked out on the day it starts?? I understood their decision, but I was devastated and completely freaked out.

I slumped back to the extended stay hotel that would be our home for a month and started firing off emails. I was hoping, PRAYING that someone in my network could tell me something to do to hopefully change Paul’s mind. But one day turned into five and the situation didn’t change. It was over.

Dammit.

Here I was in a city I didn’t know – no team, no funding, living out of a hotel room with no clear trajectory for my life and my startup. To go from King of the World to this in a week. Well, it sucked. Hard.

This is where a lot of people would have given up. But I’m extremely stubborn. When I really want something, I don’t know how to give up. Now, I definitely took a breather for a few days. I even had thoughts like “Hmm… maybe I should go visit my mom for a few weeks.” (Hi, mom! Sorry I didn’t visit!) But that quickly wore off. I had a few months worth of cash, and I decided I wasn’t going to give up until I absolutely had to.

The Hustle

I knew that if I still stood any chance of taking this company to the level that I knew it could go, I needed to stay in the Bay Area, so we started looking for a place in the city. We moved into a temporary furnished apartment in July and I started networking like crazy. Breakfast, lunch, dinner, constantly hanging out with cool San Francisco peeps to begin creating a network for myself out here. I’ve always been a pretty outgoing guy with a great network online, but now the network was starting to shape up in person too, hitting events, conferences, happy hours, parties, etc. My wife really stepped up her game and started functioning as a cofounder (she’s awesome, you should follow her: @janette). We got more serious than ever about our online community and spent a lot more time investing in Facebook and Twitter marketing, blogging, and viral giveaways. But we did it in a much more personal way than a lot of companies go about it. Since there were only a couple of us, it only made sense. We put our actual faces out there and let our community get to know us. We’d do weekly giveaways and make a funny video to announce the winner. People loved that. Here’s a thread where I linked up a crazy animated GIF of myself doing ninja moves in an alley. Our people really connect with us just being ourselves. And when you’re that transparent and real with your users, it’s just way more fun.

So after a few months, YC Demo Day had come and gone, and we were still moving right along. I could see that the website was showing month-over-month growth, so I could tell it was a good time to get back out there for Fund Raising Round 2. I could write several blog posts on the tips and tricks I used when raising the round, but suffice to say, it came together relatively seamlessly. Read the TechCrunch article. I had the entire round committed in about 4 weeks and decided to more than double the size of the round so more people could participate! In total, I raised more than $1.5M from A-list investors like Spark Capital (Tumblr, Twitter), First Round Capital (Path, Get Satisfaction, Mint), KP (Twitter, Groupon, Google - met through AngelList), and CRV (Twitter, Blippy - met through AngelList) and a list of outstanding angel investors. I’m thrilled to be surrounded by such a great group.

People have asked me how I did it. I had studied the process for almost a year, and I’d learned everything about “what not to do” through my first set of pitches and the YC meltdown. I used all the friendships I’d developed over the past 6 months to get fantastic introductions to investors. But I honestly believe the factor that got me where I am is the fact I had already failed and wasn’t afraid to fail again. Resilience is a quality investors love. You might even say that getting kicked out of Y Combinator actually helped me close my round. It seemed like a huge selling point for many of the investors that I’d already survived the emotional lows of “The Trough of Sorrow” while still managing to grow the Storenvy user base.

I want to make it absolutely clear that I have the utmost respect for Paul, Harj, Jessica and everyone affiliated with Y Combinator. It’s an amazing program that produces amazing companies. Paul made the right decision to not fund Storenvy, given the circumstances. I wish it had worked out, and I recommend that every single startup apply. But I hope people reading this realize that there can be life after a YC rejection.

It’s been an amazing year full of experiences I never knew to expect. A year ago, I had no idea I would ever live in San Francisco and now it feels like second nature. Over the holidays I moved all of my stuff out here, got a long-term lease right across from the Full House House (Alamo Square), and I ride my bike to our office in SOMA. It’s full-on Silicon Valley startup life. I’m living the dream and loving it!

The funny part is that I don’t feel like I’ve necessarily achieved much yet. I just feel like I’ve finally got the resources I need to get there. Now let’s get to work!

My friend @micah says that “a company is built on three things: Vision, Team, and Traction”. We have Vision and Traction and now I’m looking to build a great Team. If you feel like e-commerce is best built around community, if you think selling online is traditionally boring, stuffy, and too expensive, then I’d love to meet you – especially if you’re a UI designer or a Ruby hacker. You can read about the jobs on the Storenvy Jobs page or email me at jon@storenvy.com. I’d love to hear from you.