Most people I know that are interested in starting a company need help near the beginning, within 6-12 months of setting out on their own. Almost always pre-revenue, and very early traction (if b2b, maybe just a few users evaluating).
Where are these kinds of entrepreneurs supposed to go? Is it still YC, when they have to compete with already-successful applicants?
Kudos to GitLab bootstrapping to $1M ARR though. That's truly incredible. They should write a story about that part. :)
I agree - It really feels like YC is now geared towards more later stage companies. Companies that are in the growth phase vs. finding product market fit. Also you have to be full time on your idea in order to be taken seriously.
YC is still very much accepting companies that are still finding product market fit. But as far as I know you it really helps if you're willing to commit full time.
YC is very helpful in the beginning, I wish we would have applied earlier. Many people in our batch where pre-revenue and pre-launch. You can always apply again the next batch when you have the numbers.
Thanks for the kudo's. If someone wants to interview me to write that story I would love that. BTW I think the $1m number it was our last month multiplied by 12 instead of being true ARR as I know it know.
My understanding is that YC combinator is either for companies which already made it and any VC would love to invest (like GitLab) or they are in very early stage (pre-revenue).
If your company is so so (i.e., you are making money but growth is anemic, etc.) then YC is not for you. But you can always close the company and start a new one and apply to YC.
But YC knows very well that there can be many reasons for slow growth. Many times easy to make changes can have big effects on product/market fit and growth rate. And YC is great at helping with that. So don't be afraid to apply even with flattening growth, it is called an accelerator for a reason.
I've thought the same as well...it's an opportunity for someone to invest in early stage startups. It's not just YC that's changed. Pretty much all the accelerators have decreased their risks.
Reading through your YC application, you were already so successful ($1M in rev, 60% growth rate, 1M users), did you ever have second thoughts about going through YC? If you had not gotten in, what would you have done otherwise?
Thanks! We never had second thoughts about YC. We did talk a lot during YC if we wanted to take outside investment. If you take investment you need to work to a liquidity event (acquisition or IPO). Since we would like to stay independent the only option is an IPO. Not many companies make make that.
But we also wanted to make GitLab a great and popular solution. For this we need the best marketing and sales people. When we tried to hire those they wanted options in the company. It is not fair to give options if it will take very long to cash them. So we needed a liquidity event in any case. In that case it was better to take outside investment so the chance of getting to IPO was higher than without it.
If we would have not gotten in we would have continued GitLab and probably applied again for the next batch.
I'm very curious about the part where prospective employees wanted options, implying you need a liquidity event anyway. Aren't there other models for that? For instance, a partnership track setup, or paying dividends on shares, or some other sort of revenue sharing? Equity in profitable privately owned bootstrapped companies must be valuable, or there would be no incentive for the founders of such companies, so why not offer a share in that value?
Great question, I'm sure there are multiple models possible. One complication is that our priority for next few years is to grow as fast as possible. This means that you're not making a profit but investing back in more growth.
Since we took outside investment that period is about 5 years. Without outside investment it will take longer, maybe 10 years. Many potential hires don't want to wait that long. They might wait 10 years but only if you get a substantial windfall at that point, not the first small profit share.
Partnerships are more common at consultancy and finance firms where labour generates direct profits. I think they are less suited for product firms where the labour comes years ahead of the revenue. A liquidity event is a great way to bring the 'windfall' forward.
Of course things are not black and white. We choose a 4 year vesting period https://about.gitlab.com/handbook/stock-options There are startups now doing 6, 8, and 10 years. We didn't have a good reason to deviate from the norm, so with our vesting time we stuck to what is usual in order to be an attractive employer and hire the best executives.
Got it. Thanks! How did you think about the standard terms - 7% of your company for 120k. Seems like you would've had a higher valuation already, so 7% would have been costly. Feel free to not reply, I understand if you can't disclose terms.
I hoped for another valuation but we got the standard terms. In hindsight it was a really good deal for us. It is not about the $120k. They way I look at it now is, did it make us 10% more successful and valuable? For sure it did. The money is secondary, it is more like a full scholarship so you can attend the program than an investment.
"...to create and grow a competitive open source offering you need to have a proprietary commercial version to generate scalable revenue, support income alone is not enough."
I've often wondered if you can make money selling an open source software product that isn't dependent on support or services. In your application form, you're essentially saying this isn't possible.
Do you have any advice for people creating open source products regarding this view of open source vs closed source for sales and revenue?
Do you still feel that anyone with an open source product should also be providing a closed-source commercial version which will actually be the main source of revenue?
How have people in the Open Source field reacted to this viewpoint given that there is a strong negative reaction to closed source in some quarters.
I'd love to find a way of selling an open source product that didn't have to rely on a service contract or support for revenue. Is it impossible without a closed source offering?
Of course some products and markets have been able to make the support model work, like RedHat.
But it is very hard to pull off and I think it used to be easier in the past when companies where very worried about support and licensing. Nowadays they are much more comfortable with open source.
What we are seeing is that companies that pay for our premium support tend to cancel that after the first year because they didn't need it.
We want to make a product that is easy to install and maintain. This reduces the demand for support. There is a incentive for companies selling support to be a bit less aggressive documenting everything.
An open core model needs a very careful balance between being a good steward of the project and the need for revenue. We documented what we learned so far on https://about.gitlab.com/about/#stewardship and keep our ears open on forums like these.
We've had conversations with board members at most of the major open source companies (eg: large and private or public)
and the consensus has been that you need a lot of components for the support contract to work.
One difference we've found for example that seems to work pretty well is providing support for deep learning models. Each "model" solves a problem like "face detection" "cat finder" "fraud detection" and we charge for the platform used each time for each model. This reflects the amount of work we do for customers but also provides an SLA for deep learning they might not otherwise have.
Source control has a wider user base and tends to favor an easy to install integrated experience.
Machine learning applications tend to have fewer people who know how to build them but they are just as critical for the business.
Eg: points of accuracy in a model can directly map to revenue or profits. That's easy to explain to an enterprise customer.
So despite the smaller potential user base "data scientists" in this case, we've found it fairly easy to go to market.
One thing I think people miss is that the bulk of open source infrastructure companies
tend to be devops or operating systems with lots of moving parts.
They don't tend to be applications or machine learning.
I think what a lot of us are finding is that you have to innovate on the business model itself in order to really capture value for both your user and the customer as well as your startup.
Yes, please coordinate with kirsten@gitlab.com for a 25 minute Google Hangout with me, please link to this comment in your email to her. If the advice is generic enough we might work with you to publish it https://about.gitlab.com/handbook/people-operations/ceo-pref... (you have a final say in what gets published). This process was also used to produce the OP.
I got curious too; in the Berkeleyside article about it, they say "right now, posts come from a combination of community users, Wildfire staffers and local news partners, including Berkeleyside. To verify information, and decide whether or not to push out an alert to the community, the team checks posts against what is released by authorities and the local media, too."
If possible, private would be better for us. I'd be happy to make literally any 25' slot you have over the next 2 days. This is really generous of you, and we really appreciate it. Thanks!
No problem, please email kirsten@gitlab.com to coordinate a time, please link to this comment, if you want it the next 2 days my preference is Sunday 4pm Pacific but I'm not sure that works for you. I propose we do https://about.gitlab.com/handbook/people-operations/ceo-pref... (you get to redact the notes)
We learned many things. The two most important ones:
1. You can do more than you think. We came in wanting to grow into a 30 person company in 2020. Now we're 100+ people and plan to IPO in 2020. You realize that you have only so many years left and you want to make them count. And that with some help you can aim higher. Not every company should take VC and I love companies like Basecamp. But YC helped these two EU founders be more ambitious.
2. You can ship faster than you think. Seeing what is now https://www.wayup.com/ and other people in our group achieve much more than us every two weeks made us question how we worked. We learned to iterate and launch the minimal iteration as soon as possible. It was a counter-intuitive lesson that greatly increased how effective we are.
Where are these kinds of entrepreneurs supposed to go? Is it still YC, when they have to compete with already-successful applicants?
Kudos to GitLab bootstrapping to $1M ARR though. That's truly incredible. They should write a story about that part. :)