The idea was audacious from the start.

In 2011, Meredith Perry and Nora Dweck took the stage at a high-profile tech conference and demonstrated how you can charge your phone wirelessly by beaming ultrasonic rays at it.

Since then, the company has amassed over $23 million in venture funding to get rid of the power cord altogether.

The only problem? The company likely won't be able to deliver on the promise, according to some of its former engineers.

In a tell-all blog, uBeam's former VP of engineering, Paul Reynolds, has been harshly criticizing the company. He left in October 2015 and didn't sign a non-disparagement agreement, nor is he sharing proprietary information, he told Business Insider.

Another former engineer stood by Reynolds' take on the company, and a third confirmed his expertise in ultrasound acoustics without commenting on uBeam specifically.

These people say that the root of the problem is that what the company has been selling to the press and investors is years ahead of what's actually been worked on. It may be entirely impossible to build.

If it sounds like what's been happening at Theranos, the biotech company whose technology has been called into question, then it's because the engineers feel that the parallels are all "too similar."

Creating the story

Perry first demonstrated uBeam's potential onstage at a conference in 2011. Her idea wowed the crowd, and she and her cofounder, Dweck, started working on what would become uBeam. But that cofounder relationship quickly disintegrated with both parties suing each other.

By 2014, though, Perry had already raised a small seed round from investors like Andreessen Horowitz and Founders Fund and begun work with new CTO Marc Berte, Reynolds, and other engineers. Berte, Reynolds, and Perry hit the road to raise a Series A fundraising round. Upfront Ventures partner Mark Suster wrote at the time that Berte and the MIT group of engineers were one of the reasons he was sold on the company.

"Could we produce this at cost? At scale? Here is where having Marc Berte and a team out of MIT who have designed systems like this for years gave one confidence we could do something others couldn't copy and at price points that could make us market leaders over night,"Suster wrote.

Yet two years later, all of uBeam's original engineering team have left the startup, with some engineers leaving before they even vested their stock.

"I do not know of any engineers who have left after me who have exercised their stock," Reynolds told Business Insider. "Some have left two to four weeks prior to their vesting periods."

Most recently, uBeam's CFO, Monica Hushen, also left just a year after being touted as a key hire for the company.

Shaky science

While the tech press and investors lauded the startup's gusto, skeptics of the company have long questioned uBeam's technology.

Over time, the startup has claimed that it can charge devices as far as 20 to 30 feet away, even in your pocket at a café.

"The technology makes it possible for a device to move freely around a room, in a pocket or purse, while constantly charging," The New York Times wrote about the company.

It has since walked back all of those measurements when it published its "confidential secrets" in TechCrunch.

The real range, uBeam proclaims, will be 4 meters, or 12 feet. And it can charge devices that are only out in the open — not in a pocket or a laptop sleeve or around any obstruction.

The company has never published articles in a peer-reviewed journal.

Reynolds' blog argues that the math, using uBeam's public-facing numbers, just doesn't add up.

The company fails to address the problem of saturation, Reynolds' post says. At the frequency, decibel level, and distance that uBeam claims, its ultrasonic waves will quickly distort, emitting a lot of heat. But at that level, the air also becomes saturated with the ultrasonic waves — it could keep pushing waves to generate power, but it would be doing very little more.

Other industry leaders have previously doubted the company, saying that they'll believe it when they see it, even after uBeam asked them to weigh in for a TechCrunch article.

"I have had an overview of their technology. While the physics of ultrasonic wireless power transmission is indeed possible, whether it will be useful in a practical application depends on details of the implementation including factors related to the receiving technology, which I could not assess,"Dr. Babur Hadimioglu told TechCrunch in November.

The company has said that it would have products in 2015 and, more recently, late 2016, but even that seems questionable to the people Business Insider spoke to.

In a now deleted tweet, Perry posted a photo of an application-specific integrated-circuit chip in March with the caption: "Peekaboo. Keeping silicon relevant in the Valley. Our 1st ASIC has officially been birthed. Cowabunga mother fu*%ers!"

It immediately drew comments from engineers who claimed that the chip meant uBeam was in fact way behind on its timeline. Normally, an ASIC chip takes about a year to perfect before it's even put into a prototype. And it's unknown if this chip was the transmitter or the receiver or both. If the company has to create a second one, it could push the timeline back even more.

In a statement to Business Insider, uBeam's Perry said:

[T]he company is hands down developing our wireless charging technology. We understand that with new products there will always be a natural skepticism and ultimately we hope that the community will judge us by the product we release in the market. We look forward to engaging with the market when we ship and having a healthy discussion about how we can all reduce the numbers of wires involved in our daily lives.

The hype outpaced the reality

The trouble between engineers and uBeam CEO Perry stems from the outward facing image of the company versus the internal reality.

Since the demo on the All Things Digital Conference stage, Perry had been lauded in the press and delivered a TED Talk. One Fortune headline questioned if Perry is the next Elon Musk.

None of the people we spoke with doubted that Perry had a passion for her invention and for getting it right. Former engineers described their colleagues as talented and hardworking.

But some say that the problem came when Perry moved the goal posts of what the technology could be capable of or misrepresented the company to the press. One former engineer described not knowing if her actions were purposeful or simply not understanding or believing the limits of the technology.

That hasn't stopped Perry from continuing a press tour where she continues to expand the boundaries of what uBeam might one day do, however. Two months ago, Perry stood onstage at the Upfront Summit in Los Angeles and added that the company would be able to transfer data with the ultrasound waves, even though there's still no working prototype that could be shown to the public.

I see this entire ecosystem and nobody vets it.

To one former uBeam engineer who requested anonymity, the break inside of uBeam is all "too similar" to the tale of what Theranos is going through.

Unlike uBeam, Theranos did have a working product and a partnership with Walgreens. So far, none of uBeam's rumored partnerships with coffee stores, hospitals, or restaurants have come to fruition. Perry is hailed as a great storyteller like Theranos' Elizabeth Holmes with a big vision to change the world — but it's a vision that the company's former engineering staff worry the technology will never live up to.

"I became disillusioned with the company and moved on," Reynolds told Business Insider.

He started his blog six months later.

"I see this entire ecosystem and nobody vets it. This is huge amount of money and huge amount being burned on it. If you're not in there, you don't understand what a bunch of bulls--- it is. It's the whole system is rotten until people speak out about it," Reynolds told Business Insider.

SEE ALSO: The steroid era of startups is over — here's what 8 top VCs think will happen next

Join the conversation about this story »

Restaurant food delivery service Deliveroo will be available in 30 to 40 more UK cities by the end of the year, according to the company's UK boss.

Deliveroo is already available in 38 UK cities but the company wants to roughly double that figure by the end of 2016.

Dan Warne, managing director for UK & Ireland at Deliveroo, told Business Insider on Wednesday: "We’ll launch another probably 30 or 40 markets across the UK before the end of the year.

"We just launched Milton Keynes. Lemington Spa next week. We've expanded in Glasgow."

Warne did not state which towns and cities he plans to launch Deliveroo in next.

Some of the UK cities that Deliveroo is available in already can be found on this page on its website.

Deliveroo is a London-headquartered company founded by former investment banker Will Shu and Greg Orlowski. The business has raised over $200 million (£139 million) and expanded aggressively worldwide since it was launched in 2012.

It now operates in a total of 68 cities across 12 countries.

"We’ve been in that hyper, hyper growth phase," said Warne. "We still very much are in that stage but equally we’re focused on optimising the business now too, making sure that we can make money, which ultimately is something that every business has to do, unfortunately, but that is the reality."

Join the conversation about this story »

NOW WATCH: This 309-square-foot micro apartment has a home theater, full kitchen, and even a guest bedroom

As the funding climate in Silicon Valley cools, a lot of old-timers are looking on the bright side: at least this will wash out the startup founders who were only ever in it for the money — the "tourists" as Alfred Lin from Sequoia calls them. Another investor recalled that after the dot-com crash in 2001, investors joked that "B to C" and "B to B" stood for "back to consulting" and "back to banking.""

But these shifts between boom and bust have been cycling through Silicon Valley for years, as this 1995 video starring Apple founder Steve Jobs shows.

He noted that a lot of people would ask him how to become an entrepreneur, but that they didn't have an idea yet. 

He'd tell them, "I think you should go get a job as a busboy or something, until you find something you're really passionate about."

Then, "You've got to have an idea, or a problem, or a wrong that you want to right that you're passionate about, otherwise you're not going to have the perseverance to stick it through."

It's hard starting a business. If you don't have a deeper conviction that you're solving a problem that really needs to be solved, you'll never make it through the adversity.

SEE ALSO: The steroid era of startups is over — here's what 8 top VCs think will happen next

Join the conversation about this story »

For the last four years, many startups have been chasing after a billion-dollar "unicorn" valuation.

Now that the steroid era of startup funding is coming to an end, these richly valued companies are in the spotlight. Many will end up being worth a lot less than their last valuation. A few will surpass it. 

Business Insider worked with PitchBook to rank the companies that juiced up their valuations the most since 2012.

Here are the top 30 companies who saw their valuations rise by at least $1 billion during the past 4 years, ranked by how those valuations have grown:

SEE ALSO: The steroid era of startups is over — here's what 8 top VCs think will happen next

30. InsideSales.com increased its valuation by $1.31 billion between 2012 and 2016.

InsideSales.com provides a cloud-based platform for sales reps to predict and accelerate a company's revenue growth.

Post-money valuation pre-2012: $32 million

Pre-money valuation in 2016: $1.342 billion

Valuation increase: 3,941%

Total raised: $200 million from Salesforce Ventures, Microsoft, and Kleiner Perkins Caufield & Byers

29. AppNexus: $1.31 billion

AppNexus powers and optimizes online advertising spending.

Post-money valuation pre-2012: $191 million

Pre-money valuation in 2016: $1.501 billion

Valuation increase: 584%

Total raised: $313.17 million from Silicon Valley Bank, Venrock Associates, and First Round Capital, among other investors

28. Box: $1.49 billion (before it went public in 2015).

Box stores files online for personal and business accounts.

Post-money valuation pre-2012: $757 million

Last private valuation: $2.25 billion

Valuation increase: 97%

Total raised: $583.93 million from Draper Fisher Jurvetson, New Enterprise Associates, Andreessen Horowitz

It doesn't take a lifetime to build a super-valuable company. As this list shows, it's possible to go from zero to $16 billion in valuation in under five years.

Business Insider analyzed Pitchbook data to find the startups based in the US who reached the $1 billion mark in that timeframe — in other words, the youngest crop of the "unicorn" companies.

Here are the 17 privately held startups that have created businesses worth more than a billion dollars in the past five years.

SEE ALSO: The 30 startups whose value ballooned the most during the 'steroid era' of funding

Gusto: $1.07 billion

Founded in November 2011, Gusto is a cloud-based payroll system, formerly known as ZenPayroll.

Uptake Technologies: $1.10 billion

Former Groupon founder Brad Keywell started the secretive Chicago-based data-analytics startup in 2014.

Udacity: $1.10 billion

Udacity launched in February 2012 to provide free classes online. It has since teamed up with Georgia Tech to offer a master's program through the online education portal.

Startups shouldn't implode overnight, but it happens. And when it does, they leave an ugly debris field of hurt feelings, broken promises, and people waking up with no financial security whatsoever.

These last-minute closures should never happen to a startup, argues Zach Ware, managing partner of VTF Capital, formerly known as the Vegas Tech Fund. 

"You should never run out of cash. Ever. I don't understand how it happens," Ware said.

He witnessed it with one of his portfolio companies, Zirtual, but he made sure that it didn't happen to his own startup, Shift.

The two experiences have taught him a lot about what happens when a company is in trouble, and the two paths it can take.

It's a 'selfish' decision

For Ware, the realization came when his company, Shift, had 10 months' worth of cash left in the bank. The company had reached the point where it needed to expand into a new city, but doing so would have scaled back its cash supply to five months. That would also have put Ware in the position of needing to raise capital immediately.

"If we moved to Denver, we'd have moved it down to five" months, Ware said. "We would have put the company at existential risk."

Ware realized that throwing a Hail Mary by relying on venture cash to keep the business going and fuel its expansion could have had devastating consequences for his employees if it didn't work. Instead, he decided to unwind the company and do the right thing for his workers.

In April 2015, two years after launching his car-sharing project, Shift laid off its employees with generous severance packages, helped them through the transition, and liquidated its assets to return some money to its VCs.

"There is absolutely no reason for a company to shut down overnight. That's a result of a selfish set of decisions a founder made," Ware said.

But it happens

Then, Ware went through it all again a few months later with Zirtual, a Vegas Tech Fund-backed company that shut down overnight and laid off its 400 employees by email.

Its CEO, Maren Kate Donovan, later blamed in a Fortune article an external CFO for numbers that were "completely f---ed." The CFO denies that his projections are to blame.

"There are very few times when you don't know that it's coming. You had less cash than the day before and the day before that," Ware said.

In her own explanation of its shutdown, Donovan said that she failed to secure the VC funding she needed to save it after a deal fell through at the 11th hour.

"And at the end of the day... 'burn' is what happened to Zirtual," Donovan wrote. "The reason we couldn't give more notice was that up until the 11th hour, I did everything I could to raise more money and right the ship."

To Ware, any startup shutting down overnight is unacceptable. Startup founders and CEOs should have a firm grasp on their numbers and how much longer the company has to live. Securing funding shouldn't be a Hail Mary to save a company because, at that point, the CEO has already selfishly chosen to put his or her employees at risk.

"Every founder should have a real-time understanding of their business. It doesn't matter who does it. You have to know it. You have to know your horizons," Ware said.

"I have absolutely no tolerance for that situation at all," he added.

SEE ALSO: Tech layoffs have doubled in the Bay Area, but the real number could be much higher

Join the conversation about this story »

NOW WATCH: This startup is trying to take down the diamond industry with Leonardo DiCaprio

MUMBAI/NEW DELHI (Reuters) - Apple is set to announce plans to expand its Indian software development center and build an accelerator program for local start-ups, two sources aware of the investment said on Tuesday, hours before Chief Executive Tim Cook's maiden visit.

Cook, who arrives in India late on Tuesday, is making his Indian debut just as the country emerges as one of the last large growth markets in the smartphone world, while sales in the United States and China begin to taper off. 

Among other officials, he is due to meet Prime Minister Narendra Modi later in the week.

Over 100 million smartphones were sold in India last year, a number that is expected to grow by 25 percent this year. Sales of Apple's iPhones - which have a two percent market share in the country - grew 56 percent in the first three months of 2016.

Earlier this year, Apple opened a development center in the southern Indian city of Hyderabad, also home to Microsoft's first India office, where engineers are working on Apple Maps.

The sources did not detail the size of the fresh investment.

The company is also expected to announce plans for a startup accelerator in India to work more closely with the Indian developer community that works on Apple's iOS and OS X software platforms, one of the sources said.

An Apple spokesman declined to comment.

"Cook's visit shows how important India has become for Apple and will likely set the stage for the expansion of Apple ecosystem in India," said Vishal Tripathi, research director at Gartner.

Indian government sources said Modi is likely to press Cook to set up production facilities in India, as part of the government's plan to find jobs for millions of Indians joining the workforce every year.

Apple is in separate talks to open its first official retail store in the world's third-largest smartphone market.

Cook's India visit, which one of the sources said could run into the weekend, also includes meetings with industry partners.

On Friday, Cook is expected to meet Sunil Mittal, the billionaire founder of India's biggest mobile operator Bharti Airtel, a separate source said.

(Editing by Adrian Croft)

Join the conversation about this story »

NOW WATCH: Apple’s new ‘true tone’ iPad feature changes the display color based on the light around you

Many startups are starting to put the materials together to go public, but that doesn't mean the IPO market has warmed up to tech, says venture capitalist Sandy Miller of IVP.

For now, those companies are content watching from the sidelines, and very few have even taken the steps to confidentially file, he added. 

If anything, he doesn't expect the IPO window to open until Q3 at the very earliest.

"It's really quiet right now. No one wants to wade in," Miller said during a dinner with reporters on Tuesday. 

More likely, companies will wait until Q4 or even 2017 before going public — and this is after a year when the first quarter saw no IPOs from a tech company whatsoever.

Why the chill? Simply put, there's no need for many tech companies to go public now in the face of rocky market headwinds and a rollercoaster of an election that could introduce more uncertainty into the markets. 

As a result, many will wait until post-election — or at least once it's more clear who will win — to know how the markets will react, IVP partner Eric Liaw added. 

While much of the focus has been on the billion-dollar "unicorn" companies, which have been grazing from buckets of cash for awhile, Miller predicts that the industry is more likely to see smaller, profitable companies go public first. Companies like Yelp, OpenTable, and Zillow are examples of companies that went through a smaller offering, Liaw said.

Meanwhile, startups that are trying to raise money through venture capital instead of going public will find a different atmosphere than the last few years. 

"It's not a bad market, but nowhere near where it was in 2014 and 2015," Miller said. "[Capital] is available, but it's not cheap and easy."

SEE ALSO: If a startup shuts down overnight, it means the founder was 'selfish'

Join the conversation about this story »

NOW WATCH: Peter Thiel's 3 Keys For Building A Successful Startup

Venture capital fund e.ventures has raised $150 million (£102 million) to invest in early-stage technology startups.

The company, founded in 1998, has already invested over $1 billion (£680 million) in 170 companies around the world but this new fund is specifically for tech startups across Europe.

Investments made from the new fund will typically be made at the Series A stage and range from £1 million to £5 million.

Luis Hanemann, partner at e.ventures, told Business Insider that e.ventures aims to be seen as a "more approachable" venture capital company.

"We're not all [former] investment bankers," said Hanemann, adding that e.ventures often goes to companies instead of waiting for them to come knocking on e.ventures' door.

Some of the money that e.ventures invests come from the European Union. Hanemann explained that it might become harder to invest in UK tech startups if the nation was to exit the EU.

Join the conversation about this story »

NOW WATCH: Uber is making customers pay for having drivers wait

In most social settings, it would come off as crass to proclaim your love of money, and your ambitions to make lots of it.

Better to talk about your passion for your job and how it allows you contribute to society at large.

But if you're an entrepreneur trying to convince an investor to get behind your business idea, a sense of passion and purpose is hardly enough.

That's according to David Rose, a serial investor and entrepreneur who's founded or funded over 100 companies. Rose is the founder and CEO of Gust, which runs a platform and community for entrepreneurs and early-stage investors. He's also the author of two books, most recently "The Startup Checklist."

Rose told Business Insider that, when deciding whether to invest in an entrepreneur's business, he looks for someone who has passion and wants to make money.

"You can't be in it just for the money," Rose said. "There are a lot better ways to make money than being an entrepreneur."

On the other hand, Rose said, he sometimes sees entrepreneurs who are well-intentioned but lack a solid business plan — and almost always passes on them:

I give them lots of props for trying the heal the world and do good things. But all too often they come in with a very fuzzy business plan that doesn't make sense. And they say, "Oh it doesn't matter if it makes sense. This is all for a good cause, and I don't care about making money; I just care about doing good."

He added: "If somebody tells me they're not in it for a profit, I do not want to invest — because I'm in it for a profit!"

Instead, he looks for a balance between passion for the job and financial ambition: "What I want it somebody who says, 'I'm doing this because I love doing this. I love starting a company; I love the business that I'm doing; and I'm passionate about doing it. And yeah, by the way, I really hope this makes me a billion dollars.'"

SEE ALSO: An angel investor who's helped start over 100 companies reveals the No. 1 thing he looks for in entrepreneurs

Join the conversation about this story »

NOW WATCH: 'Shark Tank' investor Robert Herjavec reveals the one trait successful entrepreneurs share

Fintech isn't the only kind of technology startup that thrives in London. The capital is also home to a collection of fashion startups that mix technology with fashion products.

Some startups are focused on creating new clothing using technology, while others let people find clothes to buy online.

We ranked some of London's fashion startups, taking into account total amount raised, headcount, and originality.

15. Stylect — Tinder for shoes

What it is: Stylect calls itself the "Tinder for shoes." It was launched in 2013 and lets users find what shoes they like by swiping through different pairs using a Tinder-like interface. The company says that its app has been downloaded over 1 million times, and that it sees 60 million swipes per month for the shoes from 10,000 brands that are on the platform.

CEO Giacomo Summa previously worked as director of business development for online fashion retailer Dafiti. He moved to London and started his business helping women find the perfect pair of shoes.

Total amount raised: $2 million (£1.3 million)

Headcount: 11

14. Wool and the Gang — an online network of knitters

What it is: Wool and the Gang is an online store for wool and knitting supplies that doubles as a network for people who like to knit. The company can use its network to produce goods to sell either on the website or directly to the fashion industry.

Wool and the Gang says that around 70% of its users are between the ages of 18 and 35. It's that young, engaged audience that has made the site so popular, and also helped it raise £420,000 in a crowdfunding campaign in September.

Total amount raised: $2.8 million (£1.8 million)

Headcount: 42

13. Nuji — stylish online shopping

What it is: Nuji is an e-commerce site that sells clothing and lifestyle goods for men and women. It was started in 2011 by cofounders Vincent Thome, Dean Fankhauser, and Anton Meryl Nithianandan.

The company raised $2 million (£1.28 million) in seed funding in 2014 from investors including  TAG, Seedcamp, Samos, and an unnamed retail investor. Later that year it launched a new shopping app, which for fun, features an animated woman that makes faces at you. 

Total amount raised: $2 million (£1.28 million)

Headcount: 7

Abhay Parekh is the co-founder and CEO of recruiting startup Lytmus.

As every entrepreneur knows, an idea is only as good as the team executing it. However, building the right team is often even harder than finding the right idea. So how does one build a great team quickly?

The most common approach is to treat early hiring like a resume prediction game. The founders decide (or are told) that there are certain variables (for example, college attended or last company worked at), that correlate well with future success.

The addressable pool of candidates is simply reduced to those who match these criteria. Resumes become the basic tool of the screening process. The winnowed down pool is then vetted through a series of interviews, and the emerging finalist(s) are offered a job.

The hope is that the combination of resume screening and time consuming interviews will result in the best future employees: ones who will help make the company a big success.

Unfortunately, things don’t usually work out so perfectly. Here are four reasons why:

1. Resume-based variables don’t actually predict as much as they are supposed to

Numerous studies, most notably one from Google, establish that even something as concrete as the college attended, and college G.P.A. are effectively “worthless” predictors for all potential employees except for recent graduates.

So what about the parts of the resume that deal with work history? Again, one would assume at least those would be very strong predictors for top hires. Well, the issue and reality here is that there are the doers and there are the posers. Distinguishing between these two kinds of employees is hard without very careful reference checks.  You shouldn’t focus solely on candidates who have worked at hot companies since you will tend to overlook great people from lesser known companies.  You might be better off putting your faith in a person from a lesser known company who is a verifiable doer.

2. Since everyone is going after the same set of people, especially for technical jobs, the candidate pool can often be overfished

Thus the chance that your startup is going to snag a real “star,” is extremely small. You may just end up with someone who barely made the cut, and since the cut was based on variables that don’t predict success, your winning candidate may ultimately be a mediocre performer.

3. Resume-based thinking leads to poor diversity

The danger here is that highly qualified people often aren’t considered at all. There are numerous studies that show there is a high degree of bias introduced by an over-reliance on resumes and a tendency for interviewers to simply look for people much like themselves. Taking ethnicity and background completely out for a moment, in a dramatic demonstration of bias, in one study researchers sent two versions of the same resume to employers. One version had a male name and the other a female. Guess which one got a significantly better response from male interviewers!

4. Interviewing well is hard!

People tend to ask standard questions that can be prepared for beforehand. It is no surprise then, that asking brainteaser-like questions (for an engineer these might be standard coding challenges) is just not effective! The same Google study established this definitively. Too many interviewers ask “trick” questions that have very little to do with what the candidate would be doing on the job.

So where do we go from here? How do we avoid common pitfalls and improve our accuracy in identifying and ultimately hiring the best candidates? Or simply, what predicts future performance better than the contents of a resume?

The answer, and the single best predictor is the quality of “work sample”. This isn’t just an opinion but verified over and over again in carefully conducted experiments. In fact, on reflection it seems quite obvious. Would you rather fly with a pilot hired based on a multiple choice test or see how they perform in a flight simulator?

Regardless of the position, this means putting every candidate in a situation that mirrors something they would be doing on the job. Once the work product is in, interviewers should heavily weight their evaluation on that result/performance.

While job requirements vary greatly, even for small teams at early stage startups, there are two simple rules that will help drive you to better hiring across any open positions. First, cast as wide a net as you can. Its simple math: the larger the pool the greater the chance of identifying a top hire. Second, keep the evaluation real. Since the single best predictor of job performance is the evaluation of a work sample, the more that sample represents real, on the job, day-to-day work, the stronger the predictor of success.

In the end, resume reliant recruiting is the norm, to be sure. However, it’s also the limp that just about every industry has learned to walk with. Ultimately investing a little structure and objective evaluation into your hiring process from the outset can greatly improve the chances that your startup can succeed. After-all, any good VC will tell you, it’s not just the idea they invest in, but also in the team that will carry the idea forward.

Join the conversation about this story »

NOW WATCH: Apple’s new ‘true tone’ iPad feature changes the display color based on the light around you

When Tim Brown was playing professional soccer in New Zealand, he used to get tons of free shoes, especially from his sponsor, Nike. There would be shoes of all sorts: from athletic powerhouses to more casual fare.

And he began to notice a trend, he tells Business Insider. While there was startling innovation going on the high-performance or fashionable footwear, the shoes marketed for everyday wear were uninspired. They would just stick a Nike swoosh onto a subpar shoe made in Vietnam, he says. It was all celebrity marketing.

Brown had gone to school for design on a soccer scholarship, so the wheels started turning in his head. He began to experiment with making his own shoe designs, and eventually hit on the idea of using wool, an aspect that would set him apart. Brown's tinkering eventually led him to found Allbirds, a startup backed by US venture capitalists with the goal of creating the most comfortable sneakers in the world.

I got to try out Allbirds' first shoes, the $95 “Wool Runners,” and they certainly live up to the hype. They are the most comfortable shoes I’ve ever worn besides slippers and are stylish to boot. They do have their flaws, which we’ll get to later.

The start

But first, let’s talk about the origins of Allbirds. New Zealand has some of the most famous wool on the planet, but the industry is in decline, Brown says. There are 30 million sheep in New Zealand, but people just don’t grow up wanting to be a sheep farmer.

That’s part of the reason why Brown was able to get a research grant to create a wool-nylon blend strong enough to be used in shoes.

The idea was that the sneaker industry was overlooking certain natural materials because they were harder to deal with. Wool has imperfections, like naturally pilling, but it’s a mainstay. "Think of a cashmere sweater,” Brown says. There’s a reason why it’s at the peak of everyday comfort.

Brown thought there was a market for this, and plunged into it after retiring from soccer after the 2010 World Cup, but he wasn’t fully convinced until Allbirds’ 2014 Kickstarter campaign smashed his expectations, selling out with over $100,000 in pre-orders. That success meant Brown had to get serious about the supply chain, and he enlisted San Francisco renewable-materials entrepreneur Joey Zwillinger to help launch Allbirds as a viable startup.

The pair raised $2.7 million from venture capitalists like Lerer Hippeau Ventures, with participation from Warby Parker cofounder David Gilboa, whose glasses startup Brown sees as philosophically similar to Allbirds.

Allbirds' put out its first wide release in March: The “Wool Runner,” a simple sneaker made out of a superfine merino wool upper and a sole of rubber and foam polymer.

Here's what they are like to wear:

SEE ALSO: Apple CEO Tim Cook reveals his three keys for personal success

Allbirds uses wool from New Zealand and a mill outside Milan, Italy. The result is an incredibly comfortable fit, which stretches out a bit after a few days (you want the shoes to be tight when you first try them on).

There isn't much structure to the shoes, which makes your feet feel free, but also means you shouldn't do heavy sports in them. Jogging is fine, though the risk is that they will break down over time if you use them for a lot of athletic activity.

The wool breathes well, and is totally fine for summer wear. You can also wear them comfortably without socks, and they didn't get stinky with mild use (they certainly could eventually, however, and I wouldn't recommend going sockless all the time).

Joe Zadeh is obsessed with one Frank Lloyd Wright house on the outskirts of LA.

As a bioengineering student wrapping up his doctorate at Caltech, Zadeh would walk by and hold onto the gates, imagining what it was like to own or even step foot in one of those homes, he said.

Years later, Zadeh clicked on a Hacker News job listing. It took him to the homepage for Airbnb.

"The first thing I saw was this Frank Lloyd Wright house that you could rent for $300 a night. Everything changed for me then," Zadeh said.

It wasn't the Ennis house, the one he loved in Los Angeles, but one in Wisconsin. And instead of only dreaming about what it would be like to live in an architectural wonder, he could actually stay in it.

Zadeh realized in an instant what incredible moments Airbnb could unlock for people. As its VP of product in charge of 40 project managers, he's one of the key executives in charge of making that experience happen again and again.

The artist meets the scientist

Unlike the "typical" programmer stereotype, Zadeh didn't drop out of college or move to Silicon Valley straight out of undergraduate school. Instead, he spent six and a half years studying the intersection of biology and computer science. He thought programming could help find the cure for diseases, but he soon realized that the science industry moved too slowly for his temperament.

He wanted to be doing, building, creating, so he moved to Silicon Valley to try out the startup life.

His first go-round ended up being a bust. The small startup he joined was swallowed by a big company he had never even heard of moments after he joined. That's when he started hearing about a company called Airbnb.

His first interview with Airbnb was in the founders' loft apartment. "I remember walking up to my first interview and thinking this cannot be the right place," he said.

Along the way, Zadeh worked through the weird curveball questions startups like to ask.

His theme music? "Boogie Oogie Oogie" by a Taste of Honey. His ideal superpower? Teletransportation, or in his words, "to travel like a photon."

His science background showed through, but Zadeh's years in academia ended up being the perfect balance to the design-school training of its founders. He brought the science to the team, and its founders showed him that design was more than just Photoshop.

"I'd always felt like a creative trapped in an engineer's body," Zadeh said.

On the wall during his interview, he saw a note from a host who had saved their home in the 2008 financial crisis by renting it out.

It hit him hard: He had moved to San Francisco after years as a student, racking up credit-card debt in the transition from Los Angeles to Silicon Valley.

He joined the company as its third engineer and started hosting on Airbnb to try to pay off the bills he owed. Zadeh also picked up the name "Joebot" to distinguish himself from the cofounder Joe Gebbia.

"The most striking moment I ever had as a host was the first time I handed my keys to someone. That was a very foreign feeling to me because it's like, 'Alright, here's the keys' to someone I've never met before," Zadeh said. "That was an 'aha' moment for me to realize how important was to the future of our platform."

It also taught him an important lesson: "Don't f------ break it."

Art meets science

To build a better Airbnb, Zadeh starts by looking for people who can use their imagination and then go and build it.

"The company I most admire is probably Pixar. They start with a beautiful story that speaks to your emotions, and then they use technology to tell it the best way possible," Zadeh said.

Airbnb's founders have the design backgrounds to craft that beautiful story. It's Zadeh who approaches building the product like a scientific problem. His team starts with a hypothesis, a grand vision of what the future could look like, and then tries to prove it. Ultimately, though, it's the data — or the science side of Airbnb — that has to support the idea.

"We form hypotheses and we learn from them when they work out and when they don't work out. Learning from what didn't work out is just as good as when it does work out because we learned something new about the world," Zadeh said.

Being able to think bigger and bigger about the future though is a key to the fast-growing company. Now eight years old, Airbnb has grown to be worth more than $25 billion and is just beginning to hint at becoming more than a booking platform.

Zadeh's challenge is turning a spark of wanderlust into someone booking a life-changing trip.

"The vision that we want for the booking process should be it's incredibly easy to find the right match, the prices are unbeatable, and you can book instantly," Zadeh said.

In April, Airbnb unveiled an updated mobile app that is starting to better match hosts with guests.

Playing matchmaker is a difficult challenge in an industry where people might be traveling for work or with family and need different accommodations each time. But Airbnb is getting better at learning someone's inherent preferences — some hosts claim that they're open to guests staying any length of time, but really only accept ones that stay at least three days — versus specific needs of a vacation, like wanting a pool when you visit Florida.

"The challenges Airbnb is dealing with at scale are challenges most people have never seen. How do you bring millions of people together every night to trust each other? That is something that at our scale has never been done before," Zadeh said.

SEE ALSO: If a startup shuts down overnight, it means the founder was 'selfish'

Join the conversation about this story »

NOW WATCH: The 9 most sought-after Airbnb properties

Conference calls can drone on if you're not the one doing the talking — but most people can't afford to tune out in case they miss something. 

Based in Shanghai, Josh Newlan often finds himself on his own fair share of calls, often at odd hours of the day because of the time zones too, according to a report in CNN Money.

So, the program manager at Splunk came up with a small program called "Say What?" to do the paying attention for him. 

While Newlan is on the call, his computer microphone listens in while a python script runs on his computer. IBM Watson's speech-to-text service also transcribes what's happening on the call. 

When Newlan's name is mentioned, the program automatically sends him a transcript of what was said a minute before and a little bit after so he has context.

That could create some awkward pauses for people awaiting his response, but Newlan thought it through. He has time to read the meeting notes quickly because the script waits 15 seconds before playing a recording of Newlan saying "Sorry, I didn't realize my microphone was on mute" to make up for it.

By then, he should be able to catch up.

"I do run the risk of losing credibility as to whether I'm actually listening in meetings now, but I'm not too concerned about that. I made this as a joke, and my coworkers know that," Newlan told CNN Money. 

Newlan, a self-taught programmer, was able to build it in a day during a company hackathon, so his employer is at least in on the joke. As for his other meetings, most of them are in Chinese, so it will be awhile before Newlan finds a Chinese speech to text translator that will let him totally space out of a call.

SEE ALSO: Airbnb's top product guy has a Ph.D. in bioengineering — now he's making travel dreams come true

Join the conversation about this story »

NOW WATCH: An Israeli startup invented a compost bin that converts kitchen waste to cooking fuel

There’s a lot of noise about what’s happening the private startup market. It’s easy to just say X and Y are happening and read the headlines. Today, I got an email from Industry Ventures (IV), which acts as an LP into various VC funds and invests in “special situations.” They’re not known to most founders but sophisticated in their broader knowledge of the private and public markets and how funds are moving.

Their most recent post, titled “The Elephant In The Room: Hedge Funds and Mutual Funds,” can be read in its entirety here.

I wanted to draw out a few passages that caught my eye and draw a few conclusions from it. Before you consider this another saber-rattling post, please do see the points below and feel free to disagree and draw your own conclusions:

1/ Hedge fund and mutual fund involvement in the late-stage private sector has likely increased the number of “unicorns.” I guess we all sort of sense this by now, but IV writes specifically: “We believe growing mutual and hedge fund involvement has been one of the key drivers for the rise in the number of so-called unicorns—private firms with $1 billion-plus valuations…That said, the tide has recently shifted…When mutual funds and hedge funds cough, venture capital catches a cold.” For years, it’s been written VC money is fueling this price inflation. What if, in fact, it is also HFs and MFs, who have different objectives, and the companies themselves which accept this money?

2/ HFs and MFs are scaling back, but not going away. Writes IV: “[I]t appears more a matter of [HFs and MFs] being patient rather than losing interest, especially where they have dedicated pools of capital available for this type of investment.” So, this is interesting, they won’t “run for the hills” as many claim, but are taking a break to see how things shake out. Perhaps they want to make sure to avoid the situations which arose in 1/ above. Additionally, IV cites reports for HFs in particular that redemptions are up and could increase, sucking money out of the system further.

3/ The dislocation in private price vs public market prices could mean some companies simply collapse as a result of their own weight. Again, we all kind of sense that, but IV says it in a provocative manner: “Another concern is the fact that some of those investors we spoke with who dabble in private markets said they might not buy into the public offering of pre-IPO companies in which they had invested (assuming they do come to market). Depending on how widespread this view is, it could mean that the long awaited rebound in demand for small cap technology shares and IPOs is not yet at hand, further diminishing prospects for private-sector firms seeking a public exit.” Imagine any unicorn with a big HF or MF investor who, at the IPO, doesn’t buy more shares. It would be the mother of all signaling risks.

4/ M&A also could be impacted as private prices feel wrong to acquirers, who may elect to find comfort in public prices. As valuations got so high over the past few years, VCs and founders priced their companies beyond what the acquisition market would consider for their companies, thus shutting off one of two exits paths — the other path being IPO. As a result, we see more drive for liquidity in subsequent financing rounds, causing asynchronous liquidity events which potentially redistribute risk and reward unfairly. IV suggests that large acquiring companies wait and poach “smaller public companies, potentially creating pockets of demand that could be filled by private firms coming to market. That said, until IPO returns are seen as more attractive than those that have been garnered from investing in secondary issues, institutions have little incentive to step out of the publicly-traded safe zone.” This “safe-zone” is a way for the M&A market to gain leverage on price and, in doing so, call the bluff of their counterparts.

Whenever I write about the market like this, it is for me to internalize what I see on a daily basis and share that with you all. I do feel on this topic I have to add a disclaimer that I’m very optimistic about technology overall, that I am a very active investor and even invest in things that appear to be expensive. At the same time, I am trying to learn more about ecosystem overall and how market forces shape what we do. This post by IV does a good job of helping in that.

SEE ALSO: The startup that's looking to disrupt 'convenience food' just landed a deal with Whole Foods

Join the conversation about this story »

NOW WATCH: Apple’s new ‘true tone’ iPad feature changes the display color based on the light around you

Tech City (the organisation as opposed to the trendy part of East London) is in something of a transition.

Prime Minister David Cameron set up the Tech City Investment Organisation (TCIO) in November 2010 to turbocharge the already thriving startup scene in a small corner of East London. Today, the publicly-funded agency, which costs the taxpayer several million pounds every year, is called Tech City UK and has responsibility for supporting and growing the tech sector across England, Scotland, Wales, and Northern Ireland.

"We’re in a dialogue at the moment about the next iteration of Tech City and thinking about what the next step should be," said Ed Vaizey, Minister of State for Culture and the Digital Economy, during an exclusive interview with Business Insider. "Tech City has ambitions not just to do much more within the UK but also to do much more for tech across the globe."

The quango, which has undoubtedly helped to raise the profile of the overall London tech scene, has received its fair share of criticism since it was created.

Companies that Tech City UK was out to support in 2014 said they weren't benefiting from the organisation's programmes, with enterprise software firm Huddle going as far as to say Tech City UK is no longer needed during an interview with Business Insider in October 2015.

Tech City UK also has a questionable track record when it comes to giving out immigration visas to talented technology workers outside the EU, having handed out just seven of a possible 200 between 2014 and 2015. These numbers have since been improved upon but there's still work to be done.

Vaizey added: "There are two or three big issues that we really need to look at for Tech City to see how it can be maximised," without specifying exactly what the issues are.

Tech City UK needs to be kept "nimble and flexible" as it expands its footprint, Vaizey said. "You don't want to turn it into a bureaucratic government agency that takes ages to make decisions."

Following the interview with Vaizey, a DCMS spokesman added: "The government’s ambition is for the UK to be the default place for entrepreneurs to start new digital businesses.

"We will publish a Digital Strategy later this year to set out how we intend to unlock further growth and productivity in the digital economy, including how we will continue to support and champion the tech sector."

Business Insider understands that the Digital Strategy could be released as early as June.

A Northern satellite

In an attempt to support tech companies across the nation, Tech City UK — funded by The Department for Culture, Media and Sport (DCMS) — set up a satellite operation in the North of England called Tech North.

Vaizey said Tech North was a way to send a statement saying: "'We’ve still got Tech City,' and 'oh, by the way, it’s UK- wide.'" He added: "You don’t necessarily get the message across unless you set up Tech North. It was the first kind of proper HQ outside of London. So while Tech City does engage with the whole of the UK and identify clusters, Tech North was the first physical outpost."

Tech North — described by Vaizey as a political creation led by former Deputy Prime Minister Nick Clegg as part of the government’s "northern powerhouse" agenda— received £2.2 million in government funding last year, while Tech City received around £2.1 million. Tech North's aim is to join up the digital clusters across Liverpool, Manchester, Leeds, Sheffield, and Newcastle into one giant Northern England Silicon Valley.

Despite being unveiled in October 2014, and a planned launch of April 2015, Tech North did not launch until last September and it was criticised by Labour MP Chukka Umunna for a lack of early output.

Claire Braithwaite was appointed as Tech North CEO last year but she stepped down just six months into the role, with a report saying there was tension between Tech City UK and Tech North.

Two weeks before, Alex Depledge, an entrepreneur that sold her on-demand cleaning company to German rival Helpling for a reported €32 million (£24 million), resigned from her position on the Tech North board. She told Tech City Insider: "It was a tough call for me as I believe passionately in the North, but I do not support the new strategy for it being imposed by Tech City."

When asked about the possibility of giving Tech North more autonomy to do its own thing, Vaizey said: "I think it’s important we have a clear line of site in terms of who is responsible for Tech City as a whole. So, while we want Tech City to have a clear presence outside London and to work outside London, as well as around the world, I want it to be one organisation."

Grech was not available for interview but a Tech City UK spokeswoman provided the following statement:

With Tech City UK’s fifth anniversary this year, we are continuing to work very closely with the government to build on our programmes and campaigns such as Tech Nation Visa Scheme, Upscale, the Digital Business Academy and Future Fifty to ensure the UK remains one of the best places in the world to start and grow a tech company.

As we look ahead, we will continue to support entrepreneurs in every way we can, while positioning the UK right at the forefront of the next revolutions in tech.

Join the conversation about this story »

NOW WATCH: We dare you to oversleep with Dwayne ‘The Rock’ Johnson’s new motivational alarm clock app

Digital Shadows — a cybersecurity startup that searches the darkest corners of the internet looking for the chatter associated with threats against specific organisations — is looking for talented technology workers in Dallas, Texas.

The company, founded in London in 2011, helps close to 100 firms to protect their networks' from hackers. Investors have backed the company with $22 million (£15 million), which has helped it expand into the US.

Digital Shadows, which employs 82 people worldwide, opened its first US office in San Francisco last year, but a few weeks ago it opened a second US outpost in Dallas, Texas, where engineer salaries and living costs are significantly lower.

"America is a diverse country and there are some great centres of excellence," said cofounder and CTO James Chappell in an interview with Business Insider. "Dallas has a fantastic technology sector. We've got SXSW in Austin so that’s built a nice little hub there. Dallas’ role in the telecoms industry means there is a great technical community there also. Most large telecoms vendors have a presence. I started my career working for Nortel and that was where they based themselves."

The best engineers can demand salaries of $150,000 (£101,000) in San Francisco, with tech giants like Google and Facebook willing to pay vast sums to ensure the most talented developers don't go to the startup down the road. Property prices in the city are also among the highest in the world.

"I think San Francisco is a good place to burn money," said Chappell. "The cost of operating businesses out there is not insignificant."

Chappell added that the technical ecosystem in San Francisco is "unbelievable," saying that it's a particularly good place to be if you want to raise money.

Join the conversation about this story »

NOW WATCH: This 14-year-old makes up to $1,500 a night eating dinner in front of a webcam in South Korea

Dennis Pilarinos was frustrated and a little "pissed off" after his first day in a special program that teaches startup CEOs the delicate art of raising money.

The CEO of Buddybuild was eager to go deep into the specifics of his company, but he was told he was doing it all wrong. Instead, he was instructed to focus on what he considered big-picture platitudes.

"I was completely wrong," acknowledges Pilarinos, who now credits the program with helping him raise more than $7.4 million in two weeks for his startup.

Pilarinos is one of dozens of startup founders who have graduated from a two-year-old boot camp run by First Round, a venture-capital firm that focuses on early-stage tech startups.

The two- to six-week program drills its cadets in important lessons that are part Sales 101, part human psychology seminar, and part tutorials on practical tasks like creating slide decks. The goal is to help startup founders, who may have spent months or years engrossed in arcane product details, sell their vision to the people with the money.

And in a funding environment in which the easy money has dried up, the CEO boot camp, known as Pitch Assist, could become increasingly critical as startups fight to secure more financing.

Going straight for the jugular

The coaches at the boot camp, who are basically First Round partners, don't pull any punches.

On the first day, CEOs are put on the spot and made to answer the burning questions investors will have — especially the tough questions for which the CEOs might not yet have answers.

"Some of the questions are the sort of holes in the business," First Round partner Bill Trenchard said. "No company is perfect. There's always a weak point in the architecture."

Young CEOs aren't used to talking about those holes. No one starts a sales call by going over their weaknesses. When pitching investors, however, those weak points have to be addressed head-on in the presentation.

"If you try to play games or try to hide things, any reasonable investor will notice," Brett Berson, First Round's vice president of platform, said. "And once you've lost that credibility, there's no coming back from that."

Berson estimates that it takes about two hours of work to go through each question, but after that startup founders can step back and see the overall picture. The questions become the plot points — the market potential, the technology advantage, the sales prowess — and the story of the startup starts to take shape.

The startup trap

Quickly apparent is that First Round partners usually describe a company very differently from the way the company's founders do.

"It's the trap of every startup — it's a story that revolves around you," said Frank Bien of Looker, which went through Pitch Assist ahead of its Series B round. "When you're living your startup and you're so focused and drinking your own Kool-Aid, that becomes hard to do, to have you step back and tell that story in a broader way."

The idea for the pitching boot camp came from Berson, who noticed that CEOs had coaches for skills like management and media appearances but not for raising money.

"One of the things that you notice about founders when they pitch is that three to four weeks into the process, they're three or four or five times better than the first meeting they take," Berson said. "And it's always a bummer because it's like, if you did that before, you'd be three or four times better for your first meeting."

Berson wanted some way to turn the First Round partners' experience of seeing its companies close more than 1,000 finance rounds into more than just a sheet on best practices. CEOs had to set aside the time to go through the boot camp, but it has worked.

"It's understandable why founders are bad at this," Trenchard said. "In the life of their company, they probably do it once every two years. It's just not something that is a regular, repeated skill, but it just makes such a big difference."

Since the program was created, more than 25 startups have honed their pitching skills and gone on to raise roughly half a billion dollars in follow-on rounds, according to First Round.

Don't stack your strengths

The program's instructors teach startups to stay away from some common pitching pitfalls. For one, they will never start with an executive summary that shares what they will talk about throughout the pitch.

"We found it's like if you're going to the movie and you have the whole story line in front of you," Berson said. "You take out all the interest away and you know what's going to happen."

Also, they don't stack all of the company's strengths at the beginning of the presentation. Instead, what makes the company stand out should be bread crumbs throughout the presentation — otherwise you'll be left with a story that goes nowhere at the end.

CEOs spend a week practicing their pitch with a plain blocking deck that tells the story.

Once most of the tweaks have been made, First Round's Pitch Assist team makes the finalized slides, sparing a startup's user-interface designer from wasting hours in PowerPoint.

From there, the golden rule becomes one hour of practice for every minute of the pitch.

CEOs can practice their pitch in front of the Pitch Assist team first, followed by individual First Round partners, followed by all of the partners. By the time a CEO gets to the all-partner meeting, the person should know the ins and outs of his or her startup's story.

It took Pilarinos two weeks to get from a frustrating first meeting to presenting to the partners. In another two weeks, Pilarinos had signed a term sheet with Kleiner Perkins for a $7.6 million Series A round.

All in, it took the startup one month to go from dissecting its burning questions to pocketing its next round of funding. Moreover, Pitch Assist has changed the way Pilarinos explains his business to everyone from friends to potential partners.

"I was super impressed," he said. "The benefits of that conversation has paid off numerous dividends since then, in presentations I’ve done, in conversations that I've had with people."

SEE ALSO: An online dollar store sounds like a terrible business. This CEO wants to prove it's not

Join the conversation about this story »

NOW WATCH: Why new companies have it way easier now than a decade ago

Unless you live with a teenager, you've probably never heard of Musical.ly.

If you do, then you've probably already appeared in one of your kid's music videos.

The DIY music-video app first came on the scene in 2014, but exploded to the top of the App Store charts last summer. It hasn't fallen below the top 40 since. Often, it's swapping top places in the app store with Snapchat and Instagram.

The 15-second videos are typically people lip-syncing or dancing to some of the top hits. More recently, Musical.ly stars have started launching their own careers, and traditional music stars, like Jason DeRulo, are now pledging to debut their videos on the platform first, a coup over YouTube.

Today, more than 10 million people use the app daily and produce around the same number of videos every single day. All in, 70 million people have registered as Musical.ly users, says its cofounder and co-CEO Alex Zhu.

While the music videos have drawn people to the app, Zhu knows that's not why they stay. He's building Musical.ly to be the next social network — one based on videos that only entertain people and keep them coming back. 

"Today the very proposition of the app is not about creating music videos. It’s not about lip-syncing. It’s about a social network," Zhu said. "It’s a community. People want to stay because there are other people. " 

'Doomed to be a failure'

The idea for a make-your-own-music-video app was a desperate pivot away from an education app. 

Zhu had been interested in education during his time as a project manager at enterprise software giant SAP, even earning the title of "education futurist." He thought massive online courses, also known as MOOCs, were great, but no one finished them.

In 2014, he believed he'd come up with a billion-dollar idea: short-form education videos.

Zhu and his cofounder and co-CEO Louis Yang raised $250,000 from venture capitalists and spent six months building an app called Cicada. The idea was that experts, whether for coffee or calculus, could create short three- to five-minute videos explaining a subject. But there's a reason you've never heard of it before. 

"The day we released this application to the market we realized it was never going to take off," Zhu said. "It was doomed to be a failure."

It was doomed to be a failure.

His team had missed that the videos took too long to create. Lesson planners had a hard time condensing their expertise into three minutes. Content creation and consumption needed to be within minutes and seconds, not hours. It wasn't entertaining, and it didn't attract teens. 

At that point, Zhu's team only had 8% of its money left, he says. Instead of giving it back to investors and walking away, they scrambled to come up with a new idea.

'We got lucky'

Open Musical.ly today and there's no trace of its failed-education-app roots. 

The 15-second videos are long enough to draw a laugh and tell a story, but not too long that teens get bored and move onto the next one. It's a mix of teenage boys thumping their chests to a song, to gymnastics routines set to music, to acting out funny lyrics from songs.

Zhu first landed on the idea when he watched a group of boisterous young teens on the train in Mountain View, where Google is based. Half of the teens were listening to music while the other half took selfies or videos, covered them in stickers, and then shared the results with their friends. 

That's when Zhu realized he could combine music, videos, and a social network to attract the early-teen demographic. 

The team turned Zhu's new idea into an app in 30 days, and launched Musical.ly in July 2014. Immediately, they saw the numbers were great. Around 500 people were downloading it a day, but more importantly, they kept coming back. 

"You can buy the users, but you can't buy the user retention," Zhu said.

For the next 10 months the app kept growing, but too slowly to save the company.

"We got nervous. What do we do? We didn’t have much cash left," Zhu said. "Sometimes quick failure, like that education app, is good because you can turn around other ideas quickly. But having this slow growth is bad, you don’t know if it will take off or not and you’ve invested a lot of time into it."

In April 2015, the company made a few small design tweaks to the app, including moving the logo in the videos. They had realized that when people shared the music videos, the logo was cropped out on Instagram and Twitter. The repositioned it so now it was easy to see what a Musical.ly video. 

It exploded:

Two months later, on July 6, it hit the No. 1 app in the iTunes app store. Since then, the app has never fallen out of the top 40 apps in all of iTunes.

"Now that I look back, I think the initial slow growth was actually a good thing. We got lucky because we had time to build the product, to make it ready, to build every feature around community," Zhu said. "If the growth came too early, it would probably just stay as a fad."

'This could even be like the next MTV'

To Zhu, Musical.ly isn't just another lip-synching-video app that could go the way of Vine or Dubsmash. The team believes it's building the next social network to revolve around videos. 

Instead of taking follows and followers, Musical.ly came up with BFFs, or "Best Fans Forever." Only BFFs of Musical.ly users (or "Musers") can do things like a duet.  In the Musical.ly world, that means two people record videos to the same song and the app automatically combines them. 

It's done the same thing with a new Q&A feature where someone can ask a question of a Muser via video, and that person can respond in their own video. Musical.ly combines the two.

"Especially in the social-media area, it’s usually winner takes all. You have to come up with something radically new. You shouldn’t be a me-too product," Zhu said. 

A lot of these ideas aren't just Zhu's genius ideas. Instead, they're outgrowths of how teens were already using the app. Musical.ly taps into their suggestions by having giant chat groups on Messenger and WhatsApp to test features with its users from the US, Brazil, or the Philippines every day. 

Musical.ly is also one of the few apps to come out of China to become a smash hit in the US. Most of the company's engineers are based in Shanghai, with only a handful of business-development, marketing, and content-licensing specialists working out of a WeWork in San Francisco. 

"It’s the first company to be headquartered in China, designed in China, but popular in the US," said Greylock investor Josh Elman. "Finally we’re seeing talented people who live in that ecosystem in that world and actually transcend it and build products in the US."

T0 date, the company has raised $16.4 million from investors like Greylock and GGV, but it's rumored to be raising another $100 million. Its investors are bullish, even though the company is not generating revenue yet.

"This could even be like the next MTV," Elman said. "I think this can be really important platform for an entire generation that can be entertained."

Always be scared

The Musical.ly team is now watching as a generation of Muser stars is emerging.

A set of 13-year-old identical twins in Germany, Lisa and Lena, now have more than 2.8 million followers on Musical.ly. They've launched their own clothing line, and are considered to be one of the fastest-rising Instagram accounts in all of Europe. (They already have 1.8 million followers on that social network.)

Baby Ariel, a 13-year-old who wasn't even on social media before, now is the most recognizable star from the app.

Lately, Musical.ly has also seen a rising tide of demand from the traditional music industry. It's been proactive about working within the music industry — an area where a lot of startups ignore the complicated rules about legally licensing music. The company has a number of deals in places with major players in the music industry, says its president of North America, Alex Hoffman, and a third-party provider supplies the music and tracks everything to make sure the company is following the rules, he said. 

Its friendly stance to music already has some stars using Musical.ly to run their own campaigns. Musical.ly users made more than 164,000 lip-synching videos a day to Lukas Graham's new song. Selena Gomez is currently running a "Kill Em with Kindness campaign" to promote her new song. Musical.ly adds an iTunes link on the competition page so people know where to buy the song.

"We want to create more value to the music industry in the future," Hoffman said. 

Still, Zhu doesn't see Musical.ly's rise and staying power as a success just yet. Building a social network or the next generation of MTV is hard in an era when Snapchat, Instagram, and Facebook still dominate. In June, it will attempt to challenge those companies again when it launches Live.Ly, a Periscope competitor that's all about livestreaming. If anything, Zhu says the company needs to keep pushing and iterating faster.

"I think we have these scary moments all the time because you’re never safe. Even if you have tens of millions of users, you have to keep them always engaged," Zhu said. "I think it’s better for us to be scared all the time rather than feel content that we built a successful product and now we can lay back."

Join the conversation about this story »

NOW WATCH: A father-son team is creating the next viral YouTube channel by melting things