Case Study: Behind The Fundraising And Founder Success with Instabug's Omar Gabr

The SF-based mobile SaaS company recently raised $5M from Accel amid the COVID-19 pandemic.

Jun 12, 2020

Author’s Note: My apologies once again for the delay in this edition of the newsletter. There will be no Founder File today due to unforeseen circumstances as described here. The next Case Study will be published on June 22nd as originally scheduled.

Executive Summary:

The Problem - Building A Solid Business And Nurturing Investor Relationships Simultaneously

Instabug’s Series A fundraise went well based on two main factors: a strong prior relationship with their lead investor, Accel, and the fact they were disciplined in building a solid business from Day 1. Their focus on free cash flow/positive unit economics left them largely unaffected from COVID-19 on both the operating and fundraising fronts.
Action Item: In difficult times like these, cash is oxygen. Cash allows you to weather the storm best - you have to make sure your business is generating cash so your startup is not at the mercy of external factors beyond your control.
The Solution - Proactive Customer Research Driving Product Development

Gabr and his cofounder took their time to understand what pain points that their customers are experiencing. Their extensive customer outreach both before and during building their product set the stage for large, organic growth of their product among consumers.
Action Item: Customer research is the underlying foundation to fast-growing products and services. If you know what to build because you understand your customer’s problem, your customers will become your best advocates and naturally speed the word about your product or service.
The Takeaway - Being Sensitive With Customers And Aware Of Investor Sentiment Is Important

Beyond reaching product-market fit, Instabug was still focused on listening to customer needs for new features or fixes to old bugs. More importantly, their focus on customers enabled them to scale, which attracted the attention of investors even as COVID-19 spread.
Action Item: Reaching product-market fit is not the holy grail or an end in of itself, it is a means to an end. Fundraising is as well, for if you build a great business, customers and investors will come to you, and not the other way around.

Founder File: N/A

In absence of a Founder File, check this out: How Superhuman Built an Engine to Find Product/Market Fit

Omar Gabr is a Computer Science Graduate from Cairo University in Egypt. He built Instabug right after college with his cofounder, Moataz Soliman. Instabug currently serves 25,000 apps and running on over 2.5B devices around the world. Instabug raised investments from top-tier investors including Accel and Y Combinator. Gabr was chosen to be part of Forbes 30U30 List for 2019 and has been selected as an Endeavor Entrepreneur to join Endeavor's Global network.

Instabug cofounder Omar Gabr.

The Problem: Building A Solid Business And Nurturing Investor Relationships Simultaneously

What was the core challenge of fundraising amidst COVID-19?

I think we are pretty fortunate that we've started our fundraising process after the COVID-19 outbreak, yet managed to close in a couple of weeks.

That's because of a few things; we've already been working with Rich Wong and Accel since 2016. Last year has been an excellent year for us. We doubled our revenues, captured a lot of enterprise companies, expanded our team, and shipped great features to our product. Also, we've always been running a disciplined business; we're almost profitable for some time now, so we didn't need to make many adjustments because of COVID-19. And most importantly, Instabug's usage has grown more than 45% since January. More people are spending their time at home, so there are more app downloads and usage. Also, Instabug is designed to streamline the communication between QA and Developers.

Describe the nature of the problem. What are the critical constraints?

The main problem is that there are so many new apps launching every day; all of them are competing for users' attention, so the race for app quality is getting tight. Users are striving for the best experiences and are becoming less tolerant of buggy apps. If an app is crashing, they'll delete it and rate it 1-star.

Initially, Instabug started as a straightforward way for testers and beta users to report bugs by shaking their phones and gaining popularity quickly among developers, then the product evolved.

What was your initial thought process in solving the problem?

Initially, my cofounder and I were launching a mobile app that helps people create events; it was part of the social apps bubble around the Instagram launch. We wanted to test this app before it launched, but we didn't find a website where we could hire a few beta testers to beta test our app and provide feedback - I'm sure there was something out there that does this, but luckily we didn't look hard enough. We thought it's a good idea to build a crowdsourcing website for beta testers to connect early adopters with developers. We created a quick version of it, and part of it was an SDK that enabled testers to report bugs in-app by shaking their phones. Everyone that used the website loved this shake-to-send-feedback part. So we stripped all the features and pivoted to Instabug short for Instabug Bug Reporting.

The Solution: Proactive Customer Research Driving Product Development

How did you evaluate your initial solution(s) before trying to implement them?

We just recorded a 1-minute video and placed it on the landing page then posted it on HackerNews. That was it. We got tens of interested people to try out our SDK, so we knew we're onto something. We then started reaching out to developers working at different companies to get their feedback on what we're building. We wanted to make sure that what we're building solves an actual pain point before entirely investing into it.

When you were working to implement them, what else did you discover that either confirmed you were on the right track or opened your eyes to a new facet of the problem?

We discovered a lot about the problem we were trying to solve along the way. We found that massive companies still report bugs in an old-fashioned way. At the very beginning, we decided to meet every single mobile developer we could find to get feedback on what we're building. Many of them had very manual processes that took 20X more time compared to doing it through Instabug. I think the main thing that pushed us forward are the signals we got from these early users.

When did you realize that you arrived at the right solution?

I think that was probably by the end of 2015 when we realized that we hit product-market fit. Developers from different company sizes started to come in organically, and this number started to grow monthly. More prominent companies began to depend on Instabug in all their development cycle entirely. When we launched our paid plans in early 2015, it took us nine months to hit profitability by September.

The Takeaway: Being Sensitive With Customers And Aware Of Investor Sentiment Is Important

Did that solution come with its caveats or tradeoffs? If so, what are they?

For sure! The product was very permeative at the beginning. We only supported iOS at first (Android came later). We also didn't optimize for scale at that time. I still remember when a company released our SDK with its production app and got a few million installs in a few hours, that was a thrilling moment! There were many things that we needed to cut to make sure we have an MVP ASAP. Then after validating our value prop, we've invested way more in our stability and security.

What is your general advice for founders on how to face the challenges related to COVID-19's effect on the fundraising environment?

Again, I think we were pretty lucky that we're able to close in a couple of weeks, so I'm not an expert here. I understand that there's a lot of founders out there that could be facing challenges in their business and finding a hard time raising money. The good news is that most investors I talk to are still heavily investing, maybe they're more cautious and do more diligence, but they're still investing. Plus, everyone is at home, so everyone has more time now, which is a good chance for founders to talk to investors.

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