What I learned raising $1 million for my startup

Jessica Mah is the founder and CEO of InDinero, a San Francisco startup that makes Web-based financial tracking tools for small businesses. A version of this article first appeared in her blog, Jessica Mah Meets World.

Over the past few weeks, I've noticed that companies known for raising absurd amounts of money are often founded by entrepreneurs who have succeeded multiple times before.

Off the top of my head, there's Color ($41 million), Flipboard (a $10 series A round and a $50 million follow-on) and AdKeeper (an $8 million first round and $35 million more four months later). Plenty of others raised $5 million or more before even launching.

At first I thought this was crazy, but now I finally understand. Building a good software firm is far more expensive than people think. Sure, you can start with five guys sitting in a living room coding, and that costs virtually nothing. That's how my company, InDinero, was just a year ago. We figured that everyone raising more than $1 million pre-launch was crazy.

Boy were we wrong. Turns out it costs a lot of money to build a real business. You have office expenses, server costs, and employees who would rather not live off ramen-level salaries. Building features takes 3X longer when you're no longer incubating -- because you care about testing and reliability, you're dividing your time between building features and assisting existing customers, and you now care about writing maintainable code.

When I first went out to raise InDinero's angel round, we were looking for $250,000 to $500,000. But since we got a lot of competition from investors for our deal, we decided we'd raise more. Before we knew it, we were up to $1 million in commitments -- more cash than we knew what to do with.

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