R&D tax credits are due July 15th. Neo.tax wants to help startups apply, and raised $3M to do it – TipsClear
All founders love “free” money, but with the global epidemic, the need for free money has taken on a new meaning this year. First, there was a scuffle for US-based startups a few weeks ago to secure PPP loans, and then a second wave of PPP loans when Congress offered a second tranche of funds. Two weeks ago, I covered a company called Main Company, which is helping startups apply for local economic development credits that cities offer to businesses moving to their areas.
In the same vein, Neo.tax wants to help startups secure R&D research credits from the federal government – which becomes much easier for most software-based startups to achieve given current IRS regulations, which Qualifies as “research”.
Free money is good, but what sets this startup apart is its ambitious vision of bringing machine learning to the company’s account – making it easier to track expenses and ultimately save on costs.
It is a vision that has attracted top seed investors to startups. Neo.tax announced today that it participated in Andy Capital from Andy McLaughlin at Floodgate with $ 3 million from Andy McLaughlin and Michael Ma at Floodgate, with Michael 2 and Dina Shakir at Lux Capital. The round closed last week.
Neo.tax was founded by Firs Abuzaid, who spent the last few years focusing on a PhD in computer science from Stanford, where he did research in machine learning. He was joined by Ahmed Ibrahim, who was recently launching small business accounting products at Intuit; Stephen Yarbrot, who was head of tax at Krause Consulting, a popular consultancy for startups on accounting and financial issues; And Leonardo De La Rocha, the creative director of Facebook ads for nearly five years.
Or in short, an ideal class of people to deal with small business accounting issues.
Neo.tax wants to automate everything about accounting, and this requires careful application of ML techniques. Abujaid stated that AI is well suited to these challenges in some ways. “There is a very clearly defined data model, there is a large set of constraints that are clearly defined. There is a clear objective function, and a finite search space,” he said. “But if you want to develop a machine-learning-based solution to automate it, you have to make sure that you collect the right data, and you have to make sure that you handle many edge cases that pop up In the US tax code of 80,000 pages. “
This is where Neo.tax’s approach comes from. The software product is designed to ingest data about accounting, payroll, and other financial functions within an organization and to classify and initiate match transactions in a bid to weed out the drag of the modern. Calculation of the day.
One insight is that instead of building a single model for all small businesses, Neo.tax tries to match similar businesses with each other, specializing their AI systems using specialized clients. “For example, let’s train one model that can target early-stage startups and then another model that can target shopify businesses, another one that uses clover, or a pizzeria or nail salon, or an ice cream parlor. Can target restaurants by using, ”Abuzaid said. “The idea here is that you can specialize in a particular domain and train a cascade of models that handle those different, different sub-domains that make it a more scalable solution.”
While Neo.tax has a big vision to simplify accounting, it wanted to find a beach that would allow it to work with small businesses and solve their problems for them. The team eventually settled on R&D tax credits.
Ibrahim explained, “That R&D credit data basically gives us the start of training data for the creation of tax automation.” “Automatically tax vertical-by-vertical basically allows us to have this data layer for small businesses, and you can build a lot of really great products and services on top of that data layer.”
It is therefore a long-term vision, with a focused upfront product that launched two months ago.
For startups that earn less than $ 5 million in revenue (ie all early-stage startups), the R&D tax credit offers up to a quarter million dollars per year in refunds for startups from the government that apply either until July 15 Occur (new date date) due to novel coronavirus this year) or those applying for an extension.
Neo.tax will deduct 5% of the tax value generated from its product, which will only be taken when the refund is actually received from the government. In this way, the team believes it is a better incentive-alliance with founders and business owners than traditional accounting firms, who pursue professional services and often charge a higher percentage of discounts.
Ibrahim said that the company made about $ 100,000 in revenue in its first month after launch.
Entering the startup, which has become an increasingly crowded field led by the likes of Pilot, Which has raised tens of millions of dollars from major investors to use humanitarian and AI hybrid approaches to bookkeeping. The pilot was last valued at $ 355 million when they announced their round in April 2019, although it has certainly raised more money in the interim.
Ultimately, Neo.tax is betting that a deep technical infrastructure and a hyper-focus on artificial intelligence will allow both pilot and incumbent accounting firms to catch up, given the speed and ease of accounting and tax preparation when all this is automated. And will allow to compete.