American economy and quit his job about two weeks before Lehman Bros. collapsed, which was a good time to quit investment banking. I ended up deferring law school, and we used Bill’s first-year bonus to seed the idea, and committed full time.
But we made the mistake of trying to raise money too early. We were first-time entrepreneurs and had never raised money, but we had this idea about what it was like to go out and raise venture capital and then build a company around that. While we were unsuccessful, we got some great people on board as advisers who understood the business. We spent the first year beginning to understand the payment landscape and what we wanted to do with the product, but we made very little progress building it, so we ended up applying to Y Combinator about seven months after starting the company. It worked out pretty well when we were accepted, because that was when some of our banking relationships were falling into line, and it was a good time to move out to the West Coast and focus on getting some customers.
X: What gave you the idea for building a group payment system?
RA: What really made us say, ‘Wow, we should do this’ was my brother’s bachelor party. I was collecting a couple of hundred bucks per person from 14 people, and track who had paid what, and I realized that there was a very specific need that PayPal wasn’t addressing. They do a good job of helping people sell things online, but I don’t think they do a good job helping people collect money from other people, particularly in large groups.
With the bachelor party, which Bill went to, by the way, people started to ask where the money had gone. I was the one with the receipts. I realized that there are two problems that PayPal doesn’t solve—the whole collecting-money thing, and then transparency and accountability once the money gets spent. The basic idea is that we would make it really easy to collect money online and give you a secure place to put it, and give you a transparent way to spend it and share the information back with the people whose money you had collected.
I had that idea probably six or seven months after I graduated, and the first person I called was Bill, who has a computer science degree and is generally the smartest person I know. It was serendipitous because he had basically wire-framed a solution to a similar problem where he was running a ski house every year with six friends from college. Having independently thought of a similar problem and a similar solution, we realized it was probably a pretty ubiquitous problem.
X: What did you get out of your experience inside Y Combinator?
RA: We were basically running out of money, and if you’re out of money, twenty grand [the rough stipend provided to startups accepted to the program] is a lot. The whole focus of the time at Y Combinator is on product development—building a product and iterating it and getting people to use it. There is an overwhelming focus on writing code and churning product. So when we got accepted, Bill had a CS background but we didn’t have the Web experience we needed to build the product, so we brought on a third guy, Eric Stern, a 21-year-old from New Hampshire who had dropped out of Babson College after his freshman year. We actually met him through an Open Coffee gathering at Andala in Central Square. So it was the three of us. [Editor’s note: While they were still at Y Combinator, Clerico and Aberman also brought on a programmer named Karl Schults, who was then a 21-year-old sophomore at Olin College of Engineering; he “had a very big hand in building Version 1 of the product,” according to Aberman. Schults took a leave of absence from Olin and is still with the startup today.]
During Y Combinator there are three things that define the experience. The first is the network of other entrepreneurs—the people in your batch, all of the peers going through the program who are building products while you’re building products, fundraising while you’re fundraising. Then there’s the network of Y Combinator graduates, who have been through the Y Combinator experience and are doing great things, like Dropbox and Justin.TV and Xobni. The third thing was just access to Paul Graham, who in terms of sheer IQ is one of the most intelligent people I’ve ever met. And also this guy has seen
