Lessons learned from MorphL’s acquisition

My experience as a founder consists of two startups: the first one, Appticles, which we closed in 2018, and the 2nd one – MorphL, which Algolia acquired in January 2021.

The first startup was … let’s say that my co-founder Ciprian Borodescu and I made many mistakes. After raising a small seed round at the beginning of 2014, we failed to generate enough revenue or secure a follow-on investment. After nine months, we had to fire the entire development team. Those were tough times. We managed to bounce back after joining the Prosper Women Entrepreneurs accelerator in 2016. Still, in the end, it didn’t work out – the product started generating a steady revenue stream, but it was not enough to reach that growth curve required to bring an additional investment round.

After deciding to close Appticles, we started looking at other opportunities. As we have always been captivated by technology, we decided to create something in the Artificial Intelligence field – which was at the time beginning to trend. Thus, MorphL was born. The second time around, we were less prone to that “first-time founder” naivety. We still made a lot of mistakes, although if I may say so – they were of lesser importance and didn’t stop us from reaching a successful exit.

In retrospect, I believe it’s worth it to take a look back and summarize the things we did well and the things where we could have done better, in the hope that other fellow entrepreneurs may find these helpful.

What we did well at MorphL

Understanding our strengths

When we started MorphL, we knew we wanted to create a B2B product that was challenging to build from the technical point of view. While other founders feel more confident with sales or marketing, we felt positive that we could ship a deep-tech platform and do the “hard stuff” in product development. In addition, it had to be B2B. We never had the desire to create a B2C product – we understand how B2B works much better, and that’s where we wanted to be.

This also meant building a strong core team, centered around common values. We knew the kind of people we did not want in our team and we quickly parted ways when values didn’t align. 

Going back to your why – before you invest your time and energy into a startup, you need to deeply understand what motivates you and what are your core strengths (and weaknesses). Don’t go in a direction just because other people tell you so. You will quickly become uninterested and undermotivated.

Equity-free fundraising

We managed to attract funding from three sources: Google Digital News Innovation Fund, European Data Incubator, and Techstars Montréal AI Accelerator. Out of these, the first two were equity-free grants. There is no such thing as “free money”. Grants have their own requirements, and, among other things, they expect you to reach specific milestones both from the business and product development point of view. They do, however, offer an essential advantage – founders are not diluted. You keep your shares with the additional benefit of simplifying discussions with future investors.

To paint the complete picture, accessing these grants was no stroke of luck. Ciprian, who was in charge of fundraising, has actively searched for opportunities. We applied four times (!) to Google DNI before being accepted, to give you an example.

Attracting valuable mentors and advisors

The main reason we applied to Techstars was their network of valuable mentors. It drives me crazy when some founders say, “YC is the only accelerator I’m considering.” This statement completely underestimates how hard it is to get into a top accelerator. Yes, Y Combinator is famous and creates a lot of value, but it is not the only program that does this – we have Techstars, 500 Startups, StartupBootCamp, and others. If you’re interested in a YC – Techstars comparison, I recommend this article.

For us, going through Techstars meant becoming part of an alumni network (you’re a Techstars founder for life, even if your startup fails). We attracted valuable advisors, some of which had already been through an exit themselves. It was highly beneficial to have their support and advice while negotiating MorphL’s acquisition by Algolia.

I believe it’s essential for a founder to understand the value that mentors and advisors can bring. You may think that you have everything under control, and this can be true, for now – until you take that new road where you haven’t been before and start wishing that you had someone on your side that knows the way. After all:

“Everyone has a plan until they get punched in the face.“

Mike Tyson
Want to find out when we do a new AMA, Q&A, Office Hours or news about the pre-accelerator? Drop your email here.

What we could have done better at MorphL

This article would not be complete without mentioning some of the things where we could have improved. After talking with many customers, gathering feedback from a lot of mentors and pitching to 50+ investors during our fundraising efforts in 2020, we had a pretty good idea of our strengths and weaknesses.

Understanding our positioning

MorphL was launched as an open-source platform for publishers in 2018, and a large part of our effort (and funding) went into that direction in the early days. After going through Techstars and receiving the same reactions from mentors, over and over again, we decided to focus on a SaaS platform for mid-size e-commerce businesses. This, of course, came with additional challenges: would we focus on the commercial side of things, targeting the decision-maker – business persona or would we speak to the developer/engineer who would be the user of our platform?

Some (bigger) companies have the budget and workforce to invest on both angles simultaneously – as it’s the case now with Algolia. This strategy might not be the best when you’re an early-stage startup with limited time and resources. Starting with an open-source version allowed us to learn a lot. However, we did create an entirely new platform for the commercial version, which meant additional customer discovery and development time on top of what we had already invested. 

Sales strategy and execution

Our target markets were always the US and Western Europe. If you look at the numbers, it’s obvious why – we were targeting 10% out of the innovation budgets, which themselves represented 10% out of a customers’ revenue. This means 1% out of the customers’ revenue – and that 1% has to be big enough to pay for a ML platform. We all know AI ain’t cheap :).

Essentially, our ideal client profile consisted of midsize enterprises, which according to Gartner are organizations that make more than $50 million a year. Being located in Romania, targeting innovative B2B e-commerce companies of this magnitude was extremely hard before the pandemic. Since sales was never our strongest suit, in the early days, we set partnerships in place, but this process, while creating some traction, was slow. We always knew that having a solid channel partner in EU5 could have moved things along much faster.

Yes, this dynamic completely shifted during and after 2020 for the reasons we all know, and there’s no need to go into details here.

Explaining our technology better

Being so in love with AI, in the beginning, we had this unrealistic expectation that our customers will also fall in love with it and spend their time understanding how it works and how they can use it. It turns out our customers cared about one thing only – increasing their business KPIs (for e-commerce – conversion rates, average order value, and so on).

It sounds obvious now, of course. But it took us a while to get from “check out these cool predictions about what your users will do” to “if you implement exactly these actions, you can get an X% increase in your KPIs“. 

It was an important lesson, and we keep repeating it to all founders going through StepFWD – regardless of how fantastic the product is, customers will pay for it only if it solves their problem. It seems that no matter how many times we say it, it’s still not enough to get through completely – well until you hear it from your own customers :).

And there you have it. After ten years of entrepreneurship, I could probably write a novel about my journey but that would have to wait for now :). In the meantime, I’m looking forward to sharing more lessons learned with the upcoming StepFWD startups.

Apply until September 5th for the StepFWD 2021 cohort!