Y Combinator applications open today

Last year, I wrote about why applying to Y Combinator was a good idea for all startups.

This year, I am going to try to help with another issue.  Many startups have no idea what to do on a YC application or how to make a video.

Below is the full application and video from our application to Y Combinator. I’ve only redacted two sentences – neither of which is important for your application, I promise.  We’ve changed a few things since our application and gotten really good at some other things, but we are still on a mission to make payments better, faster, and safer.

If you are a FinTech company or if you are just starting a company and need payment advice, ping me. We’re always happy to help. We’re particularly good at helping companies whose payment models break with credit card fees, companies that require micro-payments or where margins are less than 8%.  

I’m @CanadaKaz on twitter.

The Video

The Application

What is your company going to make?

Venmo for Brick & Mortar Retail, not just P2P. Credit card fees are the single biggest pain point for retailers and can eat up to 50% of their profits. With our initial product, we’ve reduced the number of credit card transactions for our retailers by nearly 25%.

Regular ACH is slow to clear, so it doesn’t work in retail.  To solve this we link bank account and a credit card to user’s phone. Retailers get paid right away after a purchase. If the money is not in user’s account, we put a hold on user’s credit card. Then we collect funds via ACH. If that fails, then we charge the credit card.

We make money from retailers. We get users because retailers push our app to avoid credit card fees and because we offer users free P2P transfers and cash back on some purchases.

For each founder, please list (separate line for each item): YC username; name; age; year of graduation, school, degree (unfinished in parens) and subject for each degree; email address; personal url, github url, linkedin url, facebook id, twitter id; employer and title for previous jobs. List the main contact first. Separate founders with blank lines. Put an asterisk before the name of anyone  not able to move to the Bay Area.

Kaz Nejatian

2005, Queen’s University, Bachelor of Commerce
2008, University of Toronto, JD

no github

Director of Strategy, Citizenship & Immigration Canada
Associate, Ropes & Gray LLP

Danny Su

2007, University of Waterloo, Bachelor of Applied Science, Computer Engineering


Software Developer and Project Lead, Well.ca
Software Development Engineer II, Microsoft

Geoff Flarity

2003, University of Waterloo, Honours Bachelor of Mathematics, Mathematical Sciences


Systems Architect – Well.ca
Team Lead, Software Developer – OANDA Corporation
Software Developer – Morgan Stanley, Fixed Income and Credit Derivatives

Please tell us in one or two sentences about the most impressive thing other than this startup that each founder has built or achieved.

CanadaKaz designed Canada’s Startup Visa. Paul Graham once blogged that this policy was “the single biggest thing the government could do to increase the number of startups in the country.” Many people agreed and for nearly a decade people had tried to make it happen.  CanadaKaz became interested in the file in early 2012. Less than a year later, it was the law of the land.

(https://twitter.com/kenneyjason/status/336716401819652096 <- proof)
(https://twitter.com/paulg/status/335632601618452484 <- Paul Graham liking CanadaKaz’s marketing campaign)

DannySu wrote an app during spare time that got over 150,000 downloads and later bundled with all Huawei C8300 phones

GFlarity led the development of a system capable of simulating 20,000+ active electronic traders trading simultaneously on an electronic trading platform.

Please tell us about the time you, CanadaKaz, most successfully hacked some (non-computer) system to your advantage.

In 2011, I used math to help end the decades-long political disadvantage that my party had among immigrants to Canada. (To use an American comparison, imagine if the majority of the African American community voted for the next Republican candidate for President.)

My party had lost 10 out 13 elections since the 60’s because we kept losing the votes of immigrants. In 2011, we reversed that trend, won the immigrant vote, and handed our opposition their biggest defeat in history.

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.

Our first start-up idea was a loyalty program that works without requiring cashiers to verify. We took the idea of a RSA token combined with the idea of Foursquare check-ins to produce a device that validates whether someone is really in a store. We built the hardware together beginning from breadboard prototypes to fully enclosed and polished product. We did this so that we could scale to more locations with lower cost. We learned a lot from doing this but ultimately had to do a pivot because it didn’t solve a painful enough problem for retailers.

Pictures of the AvidTap box evolution:

How long have the founders known one another and how did you meet? Have any of the founders not met in person?

Almost three years. GFlarity and DannySu met when they both worked at Well.ca in 2011. CanadaKaz met the two of them through FounderDating in summer of 2012. We’ve been working together full time since fall of 2012.

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?

The first product the three of us created was a mobile loyalty solution.  It didn’t work. We pivoted to add an Android based point-of-sale with integrated mobile payment app. When this product hit the market, we saw a surprisingly high percentage (8%) of customers paying via our platform.  We talked to lots of retailers and realized they were pushing their customers to download our app so they would avoid credit card fees. That’s why we’ve picked this idea.

CanadaKaz started working as a retailer when he was in high school at his family’s stores. He is also a former lawyer who has represented banks and is well versed with the regulations around the payment industry. Our dev team is 100% from University of Waterloo. They have 9 patents to their names. They’ve built North America’s first mobile virtual store and operational tools for large banks and financial institutions.

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)?

We marry the the advantages of ACH (ubiquitous and affordable) and the advantages of credit cards (fast) and put them both in the same product. Our payment system is therefore fast, secure, and affordable.

Right now people are using credit cards, e-transfers, and checks. Credit cards tell retailers whether or not they are going to get paid for what they are selling. But in order to work, they require an asset-heavy and insecure process that costs merchants in the US alone $50 billion a year.

To the extent innovation has existed, it has been on top of existing credit card networks. Because of these innovations, credit card processing has become faster or more broadly available. But because innovations are on top of an obsolete network, credit card processing has also become more expensive.

Who are your competitors, and who might become competitors? Who do you fear most?

Venmo (now inside PayPal) is really impressive. As is Dwolla. We are different than both of these companies because we focus primarily on retail transactions. Our goal is to do this live, at retail locations.

We don’t fear Visa or MasterCard. We talked to a senior executive at MasterCard and they don’t worry about “interchange busting.” They want to become more mobile, but they see no risk to their existing way of processing transactions. We do worry about Square and PayPal. If they wanted to cannibalized their main revenue source in credit card processing, they could take us out. But that’s a difficult business decision for either of them to make.

We do fear Google and Apple. If they get their act together, they could really disrupt the whole industry.

Also, if Bitcoins become mainstream and replace government-backed currency, that would destroy the entire market we are aiming to disrupt.

What do you understand about your business that other companies in it just don’t get?

Others are trying to make it easier to accept credit cards or get rid of the physical card. But that whole process is useless. Credit cards work fine. They are just too expensive. Folks working on Bitcoin get it. And we get it. Unlike Bitcoin based businesses, we think government-backed money has redeeming features worth saving.

We have spent almost two years talking to retailers. In quick serve restaurants, for example, the average margin for a retailer run between 1 and 4%, and credit card fees often eat up to 1-2% of total revenues. Often, a reduction of fees by 25% would increase the bottom line by 25%. That’s why our existing retailers are pushing their customers to use our app. We have a direct impact on their bottom line.

How do or will you make money? How much could you make? (We realize you can’t know precisely, but give your best estimate.)

Card processing costs US businesses $50 billion each year. Like card processors, we’ll charge a transaction fee. Card processors make a lot of money, but their margins are thin. They can’t reduce fees to compete. Their high fees are caused by the structure of their network. We can charge 1% where they have to charge 2-5%.

Assuming our existing engagement rate, we will make $22 million a year once we reach 20,000 retailers. US has 1.1 million retailers. At our existing engagement rate, our total addressable market would be $1.2 billion a year.

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?

We’ve been working on our product for nearly 18 months. We’ve written just over 80,000 lines. We’ve processed 179,156 transactions already.

How far along are you? Do you have a beta yet? If not, when will you? Are you launched? If so, how many users do you have? Do you have revenue? If so, how much? If you’re launched, what is your monthly growth rate (in users or revenue or both)?

We have a retailer-side app and a user side app out on the market now.

We are making about $1500 in recurring monthly revenue now.

Our revenue is growing at about 30% a month. Our user transactions are growing at 75% a month.

Our user-base is growing at 20% a month.

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?

Right now, retailers prompt users to download our app and 12% of those who walk into our retailers download our app. We are in the process of significantly upgrading our user app. The new app will embed ACH/Credit transactions.  Our new, updated app will grow much faster because it embeds P2P transfers which give us both a network effect and a use case outside our retail locations. Users will now have a reason to download and use the app outside stores.  We will target users outside stores using Facebook ads. Our initial testing suggests that we’ll be able to acquire users for about $1 per user.

We have two channels of attracting retailers now. First, we pay for inbound leads. Second, we have sold our product to enterprise, multi-location retailers who make it mandatory for all their franchisees.

If you’re already incorporated, when were you? Who are the shareholders and what percent does each own? If you’ve had funding, how much, who from, and at what valuation or valuation cap?

We incorporated in Canada in November 2012. The only three shareholders are CanadaKaz , DannySu and Gflarity. We have raised $250K in convertible notes. The majority of these notes have a $3.5 million valuation cap.

If you have already participated or committed to participate in an incubator, “accelerator” or “pre-accelerator” program, please tell us about it.

We participated in HyperDrive out of Communitech in Waterloo, Ontario. The program is run by the same group that advised BufferBox and Thalmic Labs in their early days. HyperDrive gave us $40K in exchange for 7% of the company.

If we fund you, which of the founders will commit to working exclusively (no school, no other jobs) on this project for the next year?

All founders are full time and working exclusively on this project and will until it succeeds.

Where do you live now, and where would the company be based after YC?

We live in Waterloo and Toronto now. We plan to return to Ontario after YC.

Was any of your code written by someone who is not one of your founders? If so, how can you safely use it? (Open source is ok of course.)

Yes. We have two employees that work full time on the company. They are both University of Waterloo alumni and DannySu has known them both for over 10 years.  All of our code is covered by proper legal agreements. (CanadaKaz is a lawyer.)

Please tell us something surprising or amusing that one of you has discovered. (The answer need not be related to your project.)

Americans, each year, write roughly 25 billion checks. They use their credit cards roughly 22 billion times. While the number of consumer-to-business checks is going down, the number of consumer to consumer checks is going up. American consumers write on average 2.5 billion checks to each other each year.

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