Why inDinero’s Jessica Mah doesn’t want VC funding
This post is part our interview series with founders who raised money on AngelList.
- How she successfully pivoted after running completely out of cash
- How she raised money on AngelList without a syndicate lead
- Why she doesn’t want VC funding
Julie Ruvolo: What is inDinero, and why did you start it?
Jessica Mah: inDinero helps small businesses manage their finances with accounting and tax services. We’re a one-stop-shop solution that takes care of all their back-office needs. We’re servicing businesses as small as two employees with no revenue, all the way up to 200 employees and 8-figure revenues. We think we’ve built the best solution in the market.
I was reading about your pivot story in the New York Times a couple of years ago. Having gone through the pain of starting a company (and failing) myself, I was interested to read how you came back from the dead.
Back in 2012, we realized the company was going nowhere, so we changed our course and said, “Let’s be a full-service accounting and SaaS company, and deliver accounting for companies we service.” We always wanted to build a big business, not a small mom-and-pop business.
When we ran out of money, I put in an extra $100K, as did my co-founder Andy Su, and we bootstrapped the new inDinero version.
We got to about $500K in revenue in maybe six months. Then we decided to raise some capital and took in $1.7M. It was the smallest Series A ever, but we didn’t need that much money and were super capital efficient — my living room was our office. I didn’t think about AngelList at the time, and my only regret now is that I didn’t do AngelList sooner.
So you went all in with your own money, and it actually worked?
We wiped out our savings. We were all in. We felt comfortable being all in, because this is either “go big, or go home”, and we think Indinero will either be big, or very big.
We took out a lot of the risk with how we decided to finance the company. We’re always going to grow, but we’re never going to run it like a VC-style business where it’s worth trillions or nothing.
But we were worried about taking in big VC money. It could work, taken at the right time, but I always worry about taking it too soon. Once you take it, the clock starts ticking, and you’re expected to go public in 4–5 years, or else it’s going to pose a problem for your shareholders.
People can debate that and tell me I’m wrong, but it comes down to founder comfort level. I don’t want to take someone’s money unless I feel very confident I can make them a lot of money.
A big perk of our business is that we don’t burn a lot of money. We had this near-death experience, and we know how to stay super frugal and lean. So unlike many of our peers who need to raise more money in the next 18 months, otherwise they’re screwed, we’re in a position where all the money we’re raising will pad our balance sheet, so when we’re profitable, we can do more. It’s a very different story.
We had a number of big investors say they wanted to invest $10–20M, but I go back to the point that I didn’t want to bring in VCs yet and give up 15–20% of the business.
Especially if you don’t need the money.
And we didn’t. In an ideal world, we would just raise angel funding instead of institutional funding. But not many people do it because there isn’t enough angel money out there. It’s like herding cats — it’s a lot of work.
We only needed $2M, so I decided I would raise it from investors on AngelList and call it a day. Also, my friend Kara Goldin [Hint Water] raised money through AngelList and said I had to try it, that there were so many great investors on it. So I did. We ended up raising $2M from AngelList investors in 2015. Half my total equity money is from people I met off AngelList.
What’s interesting about both of your rounds on AngelList is that you didn’t have a syndicate lead. Less than 5% of all the deals on AngelList self-syndicate.
I didn’t have the benefit of a syndicate lead, and was frankly lazy, and didn’t want to hunt for one. I just wanted to get whatever bites we could, because we didn’t really need the money. We already had some notable investors on board, like Kevin Hartz, Jeremy Stoppelman, Steven Chen — but none of them were “syndicate lead” investors. They were direct investors.
But people loved the deal. The feedback we got from AngelList investors was, “I love that this is a more established business that runs on the principles a business should run on — unit economics, how to become profitable.”
How did it work?
At first, people started putting in $10–25K commitments, so it wasn’t a lot of money. But then the AngelList team saw people were pretty interested, so they featured the deal to a group of investors via email, and we went from a few hundred thousand to blowing past $1M within a few days.
The whole process was fast too. We had done the hard work before I got to AngelList, in terms of having great investors and having our paperwork in order, so then I could focus on finding great value-add people on AngelList.
Did you take money from everyone, or were you selective about who you let into your syndicate?
We got to approve people. And it was great because I didn’t have to weed people out because of small checks. Normally, $100K wouldn’t be a lot of money to get from someone, but on AngelList, one of my most value-add investors only put in $20K. It’s not that much money, but it allowed him to feel like he could add a lot of value and mentorship. I speak with him every month for a few hours. And I met him through AngelList.
Since you didn’t have a syndicate lead, who took the carry?
No one. AngelList gets their carry, no matter what, but that was it. Everyone loved it.
Did your previous investors from your first round, before you ran out of cash and pivoted, jump into the AngelList round?
We ended up raising over $2M from AngelList investors for that round. One guy put in $500K and ended up being awesome. I also talk to him every month or so. We’ve even gotten customers from AngelList. And we got a critical partnership out of someone who invested through AngelList that has contributed a shitload of money to our top line.
Anything else on your mind?
The current fundraising environment has been kind of like a prime environment for a company like inDinero. Yes, it’s a slowdown, and people aren’t getting the crazy valuations they would have before. But we’re pragmatic about how we’re thinking about growing, and we aren’t going to waste money and just throw it at problems to fix them. I think that’s why we’ve been successful at raising money from great people on great terms. It’s all about focusing on the fundamentals.
Originally published at blog.angel.co on July 29, 2016.