Neo.Tax raises $10 million to help startups access R&D tax credits – TechCrunch

Startups

For most people, the word “taxes” conjures up unpleasant things, such as tedious lawsuits, mountains of paperwork, and spending a lot of money on the government.

But one startup is on a mission to make taxes less… well, horrible and a real benefit. Mountain View, based in California Neo.Tax wants to apply machine learning to business loads and upgrade it “from an ancient pain to a modern benefit”. Or in other words, it wants make it easier for small businesses and startups to convert taxes from a liability into an asset.

The first product is designed to help such companies make a claim IRS R&D tax credit that could result in $250,000 back in their pockets. The credits are generally pretty easy for most software-based startups to qualify given the current IRS rules for what qualifies as “research.” But the process can still be daunting for some.

In line with that, Neo.Tax has partnered with Mercury, a digital bank aimed at startups, so that fintech can offer the product to its own customers.

Or as Steve Yarbrough, co-founder of Neo.Tax, puts it, “Neo.Tax is like having a former IRS agent walking our clients through the process.” In addition to the technology, customers will get “white-glove” support, the company adds.

The founding team behind Neo.Tax stands out because each of the entrepreneurs has interesting – but diverse – backgrounds that are well suited to developing this type of software. Firas Abuzaid has a PhD from Stanford University. The company jokes that it automates the brain of a former IRS agent, Stephen Yarbrough, which was produced by a former Intuit product manager, Ibrahim.

The trio’s innovative approach is attracting investors’ attention for the second time in two years. Today Neo.Tax announces that it has raised $10 million in a Series A funding round led by Infinity Ventures with participation from Google Ventures, Acrew Capital and Fin Venture Capital, in addition to participation from its existing backers – Uncork Capital, Floodgate, Liquid 2 Ventures and Lux ​​Capital. It increased a $3 million seed round in June 2020.

Neo.Tax was founded in July 2019, but the founding team came together in April 2020.

“Our goal is to truly automate taxes and, through automation and intelligence, turn taxes into a modern benefit for businesses,” Ibrahim said. “We’re taking one of a company’s most painful problems, taxation, and not just marginally improving it, we’re reinventing the whole process for companies.”

In 2021 Neo.Tax saw its turnover grow 3x and the goal is to grow more than 5x by 2022. While it was profitable in the past, it is now more focused on growth, including adding to its team. Last year around this time, the company had nine employees. Today it has 20 of them and takes “active” for all teams.

The startup also plans to use its capital to build “better software” and improve its core tax automation technology. It also puts some money towards brand and market awareness.

The sweet spot is early stage startups including the buzzing fintech Pipe, Stedi, Base Ten, Taika, Casa and Hatch Card.

Looking ahead, Neo.Tax is starting to focus more on accountants. It plans to release a product later this year that should take an accountant’s workflow for preparing a client’s tax return from 10-15 hours to just 10-15 minutes. It also targets its software at “fintech partners” who are focused on building the modern CFO tech stack.

The company believes it is in the right place at the right time. The pandemic has increased the importance of extending a company’s runway and also a record number of companies have been formed since its inception. The government has also introduced more tax cuts to help businesses during the pandemic.

“So there was a greater opportunity to help companies navigate this complexity — and simplify it,” said CEO Ibrahim. “Every time the tax code gets more complex — and it always gets more complex — that’s a perfect job for software.”

Jay Ganatra, co-founder of Infinity Ventures, said he was drawn to the quality of the Neo.Tax team and their vision.

“It’s rare to find a team that has all the perfect ingredients — a PM from Quickbooks, a machine learning PhD, and the chief of tax credit control for the IRS — to solve a very large and pressing problem,” he wrote via email. “Combine that with a clear roadmap for building a differentiated corporate tax platform over the next decade and the decision to invest was easy.”

His company also “loves” that the company is very focused on embedded tax as a distribution strategy.

“As the cost of direct acquisition is rising across the board, Neo.TaxThe ability to offer their services within platforms that already have thousands of businesses in need of their product has been really compelling,” Ganatra added. “This strategy too can only be applied if you can scale up quickly with your distribution partners. The ML platform the team has built is top-notch and enables automated archiving, meaning it’s just as easy for us to make ten thousand as long as there are ten.”

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