Here’s a story many in Minnesota have been waiting to hear — including several of you out there in the local developer and ad communities who knew something was up. 
Yes, our friends at Minneapolis startup FanChatter have finally gone public with what they’ve been doing for the past four months. FanChatter is a site that “helps sports franchises and other businesses create a more profitable level of fan involvement through real-time content sharing.” (More on the company’s About page.) In April, it was chosen as one of the lucky few to be accepted into the summer program of Y Combinator (YC). Though the actual numbers aren’t announced, I’ve heard only 30 startups were chosen out of almost 1000 that applied. YC is an organization founded in 2005 that does seed funding for startups. Here’s how it explains what that means:
“Seed funding is the earliest stage of venture funding. It pays your expenses while you’re getting started. Some companies may need no more than seed funding. Others will go through several rounds. There is no right answer; how much funding you need depends on the kind of company you start. At Y Combinator, our goal is to get you through the first phase. This usually means: get you to the point where you’ve built something impressive enough to raise money on a larger scale. Then we introduce you to later stage investors or occasionally even acquirers.” (More on Y Combinator’s About page.)
YC’s application process is well explained on their site, a process FanChatter went through earlier this year, before their selection in mid-April. After sitting on this story for some time, waiting for the TechCrunch post to break first (which is the normal way YC companies get announced), what follows is the result of a phone and email interview I did over the past few days with FanChatter founders Marty Wetherall and Luke Francl, who remain in Silicon Valley through August. (The third founder, Norm Orstad, was not available.)
Minnov8: Tell us about how you came to apply for the Y Combinator program. Why did you think a MN startup would stand a chance, and why did you decide to do it this year?
Luke: It was pretty much my idea, but it was basically for the hell of it. I figured “why not?” We made a pact that if we got in, we would do YC for sure, no matter what. Being from Minnesota didn’t figure into my decision at all; YC doesn’t really discriminate based on geography. As for the timing, it didn’t occur to me to apply sooner. I think that worked out for us, as YC expanded somewhat for the Summer 2009 class, due to the $2M investment they had raised. [That was primarily from Sequoia Capital.]
Marty: I’d always heard about Y Combinator as this program where only the best and brightest startups were allowed. It just sounded cool like that, even though I wasn’t very knowledgeable at the time about Paul Graham or Hacker News. All I knew was that FanChatter needed something big to happen, so we went for it.
Minnov8: Give us the quick story on the process — starting from when you applied, to when you were invited to make the trip to Mountain View to pitch, and then how you were chosen as a finalist.
Luke: The application is straightforward. The most challenging part is the video. We spent more than two hours working on a one-minute video. The first inkling we had that we might get selected was when Paul emailed me to say our video didn’t work. Crap! But that showed they were interested. April 6th was nerve wracking as we waited to hear if we’d gotten an interview. Finally, at 7:30 that night, we got the email that they wanted to meet with us. We picked a time and flew out the morning of the interview. Afterward, you have to wait around until YC calls you that evening. We got called about four hours after our interview. YC has standard terms which everyone knows in advance, so you pretty much just have to say “yes” or “no.”
Marty: Couple things. First, I’m a film and TV guy with well-known Super Bowl spots on my list of credits, and this video was the simplest thing I’ve ever done. That’s because I didn’t have the brain space to make it into anything more than dudes talking into a web cam — but we must have said something right because they told us it was good! Second, there’s a photo on our blog of Luke getting the call that we were in. It was a great moment. It felt like FanChatter had arrived. [Here’s that photo of Luke taking the call from YC’s Paul Graham, shot by Marty.] 
Minnov8: The amount of seed capital each Y Combinator startup gets is not huge, but give us your take on the other benefits of being selected.
Luke: Yeah, the money is not really the main benefit of Y Combinator for a company like ours. I think if you were fresh out of college and used to living on ramen, $15,000 or $20,000 would go a long way, but we all have mortgages. On the flip side, we already have customers and so we can afford to take a little time and try to make this work. For the company, we get an incredible inside view of how Silicon Valley works, and a chance to pitch to the best angels in the Valley on Demo Day. For me personally, I knew I couldn’t turn down this adventure, even though I’m giving up income and living apart from my wife for the summer.
Marty: Definitely a once in a lifetime opportunity. I’ve lived and worked in LA and felt how the film industry runs that town. Colors everything about it. It feels like that in Silicon Valley, but it’s tech. In coffee shops, what you overhear is tech talk. Startups, angels, and VC. It’s been fun to experience this.
Minnov8: Once you were accepted into the program around mid-April, how were you able to keep it such a secret — and why did you have to?
Luke: Keeping this under wraps has been incredibly difficult, because we wanted to shout it from the rooftops. But we were advised not to blog about being accepted to Y Combinator, because then it wouldn’t be news when we launched, meaning we’d have a difficult time getting covered by tech blogs. This was a tough row to hoe for us because we’ve been around for a while. I kind of wish we’d announced it sooner — we could have easily been the first YC launch of the summer, but that honor went to our friends at Bump.
Marty: Once we knew we couldn’t talk about it until we launched, we decided we’d use a new piece of business for our coming- out party. We got that with the debut of our new ChatterBox feature on the homepage of the Minnesota Timberwolves.
Minnov8: Tell us what the process was like to apply and, then, once selected as a semi-finalist, get up in front of the four judges to pitch FanChatter.
Luke: We spent a lot of time crafting the application. Every time I looked at the instructions, it seemed like there was some facet I’d missed, and I tried to hew very closely to the instructions, especially around answer length. I also paid close attention to the basics, like spelling and grammar, so there wouldn’t be any excuses to put our application aside. Paul and his partners look at hundreds of applications, so I didn’t want to give them a reason to pass ours by.
Waiting around at the YC office for the interview was the hardest part. I’d read horror stories about how you’d be able to get out two sentences and then Paul was just going to savage your idea. So, I practiced our demo, and Marty practiced our two sentences. There were a few other people waiting around so I showed them the demo, and I got to see theirs.
Once we got into the interview my nervousness was lifted right away. Paul was excited to see our demo. Paul, Jessica, Trevor, and Robert came around to the other side of the table and crowded around my laptop. [There’s more about the four YC partners on YC’s People page.] Then Paul sort of riffed on things we could do — I think he came up with about two years’ worth of work in about 10 minutes — while Jessica tried to bring things to a close so they could stay on time.
Marty: It’s true. Luke kept grilling me the whole trip out here. “What are you going to do?” over and over. Not in terms of the interview, but in terms of the company. So, we were ready. The interview was easy once we got in there. It’s definitely the closest I’ll ever get to feeling like a contestant on American Idol.
Minnov8: Being chosen as a winner required you to move to the Valley for the summer. How did you, Luke, and Norm handle that, with respect to your “other” lives, and how long are you out there?
Marty: My wife and two-year-old daughter came out here with me, which has been both good and challenging. Startup life is round the clock, but we’ve made it work. In many ways, it would have been easier as a young guy just out of college, as many of our YC classmates are.
Luke: I was already doing independent contract development work (hey, if this startup thing doesn’t work out, let me know if you need a good Rails developer!), so I finished up the contracts I was working on and that was about it. My wife and I had planned to take a trip to Italy this summer (that was “Plan A”), so I had to pass that up. We’re out here until sometime in September, and then we’ll see after that.
Minnov8: Describe a typical day for you this summer in the Y Combinator program in Mountain View. Where do all these company founders work? Are there events where you all get together?
Luke: For me, a typical day is programming, programming, programming. We have a quick stand-up meeting in the morning, and then I try to hack away at our products. I don’t see the other startup founders much, except on Tuesdays when we all get together for the YC dinner. That’s the social highlight of the week. Almost everyone works out of their apartments, though I know of one group that’s living out of their office!
Marty: Our apartment is in Mountain View, just a few blocks from YC’s offices. Those Tuesday dinners at Y Combinator really define the program. That’s where we meet and listen to amazing speakers from the startup world, including successful YC alums. It’s interesting to check in with the other founders in our class to see what they’ve accomplished since the previous week. I think it pushes all of us to keep up the momentum. 
[Here’s a photo of Luke and Marty, center, at one of the Tuesday night meetings, from a Flickr set by “socialmoth” – a YC alum named Paul McKellar.]
Minnov8: We’ve heard the mantra Y Combinator puts forth for its companies is to “Make something people want.” What did FanChatter, which is not a brand-new startup, propose to “make”? Did you essentially propose to improve your offering for consumers in order to be selected? If so, how are you coming with that new work? And when will new features be available to your existing users?
Luke: I think an increasing number of companies coming into YC already have products or working demos. They liked that we had customers — that was very attractive. We sort of pitched it as, “Look how far we’ve come working on this in our spare time. Imagine what we could do if we did this full time.” We’ve been rolling out new features to our existing customers all summer, as well as creating the new ChatterBox product. Paul’s been very helpful in helping us figure out the “big picture” of where we should be going: making more revenue for our clients (and getting a piece of that).
Marty: In our case, we’re making something that sports teams and other businesses who have fans want. More engagement so they can make more money. I’ve always believed that content sharing is the path to engagement, so that’s what we’re doing with Scoreboard Photo Sharing and the ChatterBox — and that’s just the beginning.
Minnov8: So, what is yet to happen in the Y Combinator summer program, as you’re now about two months into it — and what does the future hold for FanChatter?
Luke: “Demo Day” is what it all leads up to. [That’s in late August at YC’s offices, attended by many VCs and angels.] After that, we’ll see. We’re working on becoming ramen profitable, but also looking to raise some angel money.
Marty: Who knows? Hopefully we’re on to something and fan engagement can carry us beyond sports and into music and TV and anywhere fans come together around a common interest. There’s so much potential for interesting things to happen, and that’s where we want to be.
We at Minnov8 certainly wish the founders of FanChatter all the best as they go forward. And we love the fact that they just happen to be doing great things for our sports teams here in the Twin Cities! For more, see the news release the company did on August 4. The TechCrunch story that broke August 1 is here: YC-Funded FanChatter Takes Social Media To The Ball Game. And another good story followed that on MediaPost’s Online Media Daily.
If you’re a startup thinking of taking a run at applying for the Winter 2010 Y Combinator program, there are some great tips on YC’s site, and a FAQ page provides even more insight into how you might be able to take advantage of this excellent program.
What’s your take? Will you apply? If not, why not? What are your picks for other promising startups here in Minnesota who should apply? Tell us in the comments.