20VC inDinero's Jessica Mah on Why Angel Money Is Better Than Institutional Money and Boards Should Work For Founders

In this episode of the 20 Minutes VC, host Harry Stebbings interviews Jessica Ma, the founder and CEO of Indinero, an accounting firm designed to assist entrepreneurs. Ma shares her journey of transforming Indinero from a startup into a multimillion-dollar company with significant venture funding, emphasizing the importance of leadership, the CEO role, and capital allocation. She discusses the challenges of fundraising, the value of mentorship, and the strategic decision to avoid institutional money early on to mitigate signaling risk and maintain control. Ma also touches on the power of vulnerability within the entrepreneurial community and the balance between personal life and business success. Throughout the conversation, Ma stresses the importance of assembling a supportive board and being judicious in investor selection, ultimately aiming to expand Indinero's services beyond accounting and taxes.

• Jessica Mah founded Indinero in 2010 to assist entrepreneurs with accounting and tax needs.
• She experienced the challenges of money management in her own business ventures.
• Indinero has grown significantly, with multimillion-dollar revenues and over 100 full-time employees.
• Jessica has been recognized on the Forbes and Inc. 30 under 30 lists.
• Indinero has raised over $10 million and aims to be the leading accounting provider for businesses.

"So joining me on the show today, I'm thrilled to welcome Jessica Mah, founder and CEO of Indinero, which she started back in 2010 to help entrepreneurs with all their accounting and tax needs."

This quote introduces Jessica Mah and her company, Indinero, highlighting its purpose, growth, and recognition in the entrepreneurial space.

• Jessica Mah started Indinero while still in school, identifying a gap in the market for accounting software.
• She found accounting to be a nightmare for herself and her peers, which inspired her to create a solution.
• The idea was to innovate in a boring and unaddressed business area through software.

"I thought, what's a boring business that no one wants to fix and no one is innovating in that I could potentially make a difference in, through software, basically, how Indinero was born."

Jessica explains the motivation behind starting Indinero, aiming to innovate in the neglected field of accounting software for small businesses.

• Jessica founded Indinero at Berkeley and continued her education while developing the company.
• She chose not to drop out of university because the company had not taken off and lacked funding at the time.
• Staying in school allowed her to make great friends and enjoy her senior year.

"So I found it at Berkeley, and I was at Berkeley nonstop, and then I finished, and then I went straight into this full time."

Jessica Mah discusses her decision to complete her education at Berkeley while founding Indinero, emphasizing the importance of her university experience.

• Jessica Mah believes that while anyone can become a CEO, some are more predisposed to handle scrutiny and risk.
• She agrees that CEO qualities can be learned and that successful CEOs come from diverse backgrounds.
• Studies have shown that less charismatic CEOs can outperform more charismatic ones.
• Jessica identifies herself as a "capital allocator" CEO, influenced by the book "The Outsiders."

"Fact of the matter is that most people are scared and won't quit their day jobs, and they're not going to put everything on the line to do it."

Jessica Mah acknowledges that the fear of risk prevents many from pursuing CEO roles, indicating that becoming a CEO requires a certain level of risk tolerance.

"And there's an HBR study about this, how actually less charismatic CEOs tend to outperform the more charismatic ones."

This quote references a study suggesting that CEO success does not necessarily correlate with charisma, broadening the perception of effective leadership qualities.

• Jessica Mah discusses the importance of capital allocation for a CEO, which involves using existing capital efficiently and deciding on potential investors.
• She believes in being a frugal leader, which implies careful and strategic use of resources rather than simply cutting costs.

"First off, as far as capital allocation goes, what does that mean? On one hand, it's how to use your existing capital better, but it's also figuring out who else to bring in."

Jessica Mah defines capital allocation as a critical aspect of leadership, emphasizing the strategic use of capital and the selection of investors.## Fundraising Attitudes and Importance

• Fundraising is often seen by entrepreneurs as a waste of time and a chore, but it's a critical part of business growth.
• Entrepreneurs should shift their mindset to view fundraising as a valuable and enjoyable part of their mission.
• David Axelrod's book on Barack Obama's campaign influenced Jessica Mah's perspective on the importance of attitude in fundraising.
• The comparison between Obama's lack of enthusiasm for campaigning and entrepreneurs' disdain for fundraising illustrates the need for a positive approach.

"That's what I hear a lot of entrepreneurs say fundraising is a waste of time, but it's such a core critical part of what we do. It's not a waste of time."

This quote emphasizes that despite the common entrepreneurial perspective that fundraising is nonessential, it is in fact a vital aspect of business operations.

"I was really influenced by this book I read recently, David Axelrod. He was the campaign manager, the propaganda machine for Barack Obama."

Jessica Mah references David Axelrod's book as a source of inspiration, drawing parallels between political campaigning and fundraising in terms of the need for a positive mindset.

• Fundraising is integral to the mission of a business as it provides the necessary resources for expansion.
• Engaging with investors offers not just capital but also mentorship and accountability.
• Without the pressure of fundraising, there is a risk of losing focus on key business metrics and growth.

"You need the money to grow your business, so it is part of the mission."

Jessica Mah states that fundraising should be seen as an integral component of a business's mission, not a distraction from it.

"This is incredibly valuable, I believe, and I'm 100% certain my business would not be half as well off if I had the money just sitting right there ready for me."

This quote highlights the value of fundraising beyond just the financial aspect, including the mentorship and focus it brings to a business.

• Jessica Mah prefers investors with operational experience and a track record of running a company.
• She emphasizes the importance of investors adding value beyond capital, such as asking insightful questions and providing valuable introductions.
• Conducting background checks on investors is crucial to ensure they have a good reputation.
• Turning down investors with a negative reputation is a practice that Jessica Mah recommends.

"I do prefer people not be like money people. I want them to have operational experience and have experience running a company."

This quote outlines the criteria Jessica Mah looks for in investors, prioritizing operational experience over mere financial input.

"A lot of people don't do that. I've turned down investors because I've talked to entrepreneurs who are like, yeah, this person's bad news."

Jessica Mah discusses the importance of vetting investors and being selective based on their reputation, even if it means turning down potential funding.

• Building a network is crucial for successful fundraising; it cannot be a last-minute effort.
• Jessica Mah shares her experience of raising funds from small private firms and individuals, avoiding big institutional money.
• The ability to fundraise effectively is tied to long-term networking and relationship building.

"It's a few things. One, it's like building the network all along the way, so you can't just say, hey, I'm fundraising now, so I'm going to start today."

Jessica Mah emphasizes the importance of continuously building a network for successful fundraising rather than starting the process only when funds are needed.

• Initially avoiding institutional money can mitigate signaling risk, where the lack of follow-on from these investors in subsequent rounds could send a negative message.
• Raising smaller amounts of money can be strategic to maintain ownership and control without the pressure from institutional investors.
• Combining equity with debt is a strategy used by Jessica Mah to prevent excessive dilution of ownership.
• Establishing an independent board offers flexibility and aligns with the company's interests rather than those of external investors.

"So at first, we didn't do institutional money because we didn't want the signaling risk."

This quote explains the strategic decision to avoid institutional money to prevent potential negative implications for the company's perception in the market.

"We really like having a lot of flexibility as a business, and so we build out our own independent board instead."

Jessica Mah values the autonomy and flexibility that comes with avoiding institutional investors and having an independent board, suggesting that other entrepreneurs consider this approach.## Pressure from Angel Investors vs. Institutional Money

• Angel investors don't exert the same pressure as institutional money but still expect returns.
• Angels are more mission-driven and long-term focused.
• Early-stage institutional investors look to return capital within a shorter timeframe, typically within five to six years.
• Companies aim to return significant capital over a ten-year period, requiring patient capital, which is often not found with early-stage institutional investors.

"They don't give you the same pressure, but I mean, they still expect it."

This quote emphasizes that while angel investors may not pressure founders as much as institutional investors, they still have expectations for returns on their investment.

"A fund that's like two years in to their fund, they want to start returning capital in the next five, six years."

This quote illustrates the typical timeline and pressure for returns that institutional investors have, which is shorter than what some companies aim for in terms of long-term growth and capital return.

"Whereas for us, we're trying to build a company where it's going to return a lot of capital about over ten year period."

This quote explains the long-term financial goals of the speaker's company, which align more closely with the expectations of angel investors rather than the shorter-term expectations of institutional funds.

• A board that works for the entrepreneur, rather than the entrepreneur working for the board, can be more aligned with the company's future.
• The relationship with the board should be based on genuine support for the entrepreneur's vision and the business's future, not just financial motivations.
• Institutional boards are often primarily motivated by financial returns.

"And you said about the board working for you as opposed to kind of you working for the board, as would traditionally be with institutional money."

This quote raises the topic of board dynamics and how they can differ between angel investors and institutional investors, with the former potentially offering a more supportive role.

"That's really it at the end of the day, and they're not money motivated."

This quote highlights the difference in motivation between angel investors and institutional board members, suggesting that angel investors may have motivations beyond just financial gain.

• Vulnerability can lead to more honest and productive conversations.
• Being transparent can change the tone of interactions, encouraging others to share their challenges.
• Trust and vulnerability are interconnected and beneficial for meaningful dialogue.
• However, vulnerability should be exercised with caution to avoid negative gossip that could impact investor relations.

"It only takes one person to change the whole tone of the conversation by being vulnerable."

The quote illustrates the power of vulnerability in changing the dynamics of a conversation, leading to more open and honest discussions.

"It breeds trust, which breeds more vulnerability, and it's more productive conversation."

This quote explains the positive cycle initiated by vulnerability, resulting in trust and leading to conversations that are more productive and beneficial for all participants.

• Sharing vulnerabilities should be done within a trusted circle to avoid harmful gossip.
• Organizations like EO and YPO provide a confidential environment for entrepreneurs to share challenges safely.

"Which is why you only do it when you are in a close circle where you know most of the people and you have a good personal relationship."

This quote advises caution when being vulnerable, recommending that it should be done within a trusted and close-knit group to prevent the spread of potentially damaging information.

• Jessica Mah had a realization that her product was a "vitamin" and not a "painkiller," indicating it wasn't essential.
• Investor and mentor Steve Blank provided candid feedback, helping Jessica recognize the need for change.
• Steve Blank's advice emphasized the importance of having a working business model before scaling and critiqued launching a product prematurely.

"Steve Link's a phenomenal investor and mentor of mine. I love the guy."

This quote introduces Steve Blank as a significant influence and mentor to Jessica, setting the stage for the impactful advice he gave her.

"Jessica, what you're doing is not working. You guys make no money, and it's not too late to change."

This quote captures the blunt yet constructive feedback from Steve Blank, highlighting the need for Jessica to pivot or make changes to her business approach.

• Deciding when to publicly launch a product is critical.
• A premature launch can damage a company's reputation and waste the opportunity for a strong market entry.
• The right time to launch involves having a solid product, but excessive delays in pursuit of perfection can also be detrimental.

"You could only have a public launch once, so you should have waited."

This quote reflects on the consequences of launching a product before it is ready, suggesting that the timing of a public launch is a one-time opportunity that should not be squandered.

"I had holes on the bottom of my bucket, though. It wasn't just leaky, it was really bad."

The quote metaphorically describes the state of the product at launch, indicating that it had fundamental flaws rather than minor issues, emphasizing the importance of product readiness before launch.## Favorite Book and Its Impact

• Jessica Mah's favorite book is "Guide to the Good Life."
• The book discusses how to achieve happiness without focusing on money, fame, or legacy.

Guide to the good life. And it talks about how to be really happy without worrying about money, fame, or legacy.

This quote explains Jessica's appreciation for a book that provides a philosophy on achieving happiness through means other than material success or recognition.

• Jessica would like to improve her anxiety and impatience, particularly regarding waiting for positive outcomes.

I would say anxiety, impatience, because I'm not very good at waiting for good outcomes to come.

Jessica expresses a personal challenge with anxiety and impatience, indicating these traits as areas for self-improvement.

• If starting over, Jessica would hire better people and rely more on investors and mentors to evaluate candidates.

I would hire better people, obviously. I know how to interview people better now, so I can't bring that back in time. But if I had to go back in time, back to when I didn't know how to interview people, well, I would have had my investors and mentors be a bigger part of my process to help me get the right first few people in.

This quote reflects Jessica's learning experience in hiring and the value of utilizing the knowledge and networks of investors and mentors in the hiring process.

• Jessica's most frivolous purchase was a Tesla Model S with autopilot.

Yeah, I have the model s with the autopilot parked in my garage downstairs.

The quote mentions a specific luxury purchase, indicating personal indulgence and interest in technology and convenience.

• Jessica names several influential people, including Steve Blank, David Wu, and Ariel Poehler, but ultimately credits her parents as her biggest mentors.

Steve Blank has been so influential in my life, but same with David Wu and Ariel Poehler and Anton commasaris, who know the first guy at mint. And all these people are really helpful. I think at the end of the day, I really relied most on my parents because they're entrepreneurs. They've always given me fantastic advice and mentorship along the way.

This quote lists several mentors who have impacted Jessica's life and career, highlighting the role of her entrepreneurial parents in providing advice and mentorship.

• Jessica foresees a distinction between her personal growth and the growth of Indonero.
• Indonero aims to expand its services beyond accounting and taxes to assist businesses more broadly.
• Jessica anticipates Indonero becoming a nine-figure revenue business.
• On a personal level, Jessica is exploring what she wants more in life and has taken up flying airplanes as a hobby.

Next five years for me versus Indonero is very interesting because the two are different. And that's something else we don't do very often as link. We just kind of assume that we are our business and our business is us and we tie those identities to the hip when really that's not the case at all.

The quote discusses the differentiation between personal identity and business identity, with an emphasis on the growth trajectory for both Jessica and her company.

• Jessica believes that in the early stages of a business, personal sacrifices are necessary.
• As the business grows and delegation becomes possible, investing in personal life is beneficial for creativity and business success.

So for me, if I work more hours and I don't have a good personal life and my personal happiness is being sacrificed, I'm not going to be as creative. I'm not going to think of the right things to get us to the next stage in our business. So today, I don't think that's the case. I think investing in my personal life today is possibly one of the better things I can do to improve my business.

Jessica's quote conveys the evolution of her perspective on work-life balance, stating that a rich personal life can positively influence creativity and business progression.

• Jessica expresses gratitude for being on the show and provides her email and Twitter handle for contact.

Hey, thanks for having me. And yeah, send me an email, CEO@indonero.com or find me on Twitter at jessicamaugh.

The quote is an expression of appreciation for the opportunity to appear on the podcast and an invitation for listeners to reach out to her.

• Harry Stebbings promotes the 20 Minute VC podcast and thanks Lisa for sponsoring the episode.

If you'd like to stay in the loop with the 20 minutes vc, then you can add me on Snapchat at htebings with two B's, or you can sign up for the newsletter on the twentyminutevc.com so you never have to miss an episode or an update from us.

The quote is a call to action for listeners to follow the podcast on various platforms and acknowledges the sponsor, Lisa, for enhancing his sleep experience with their mattress product.