Announcing MainStreet's $60 million Series A
A Not Boring Exclusive Funding Announcement
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Hi friends 👋 ,
Happy Sunday! Yup, Sunday.
A new day for a new Not Boring format: the Not Boring Funding Announcement.
Most fundraise announcements are, well, boring. They talk about the round, the investors, mention the broader trends, grab a quote or two from the founder and the lead investor, and end with something pithy that hedges any optimism that might have made its way into the piece. It’s no wonder that people see large amounts of money being raised and think that we must be in some sort of bubble and that venture capitalists have lost their collective minds.
MainStreet wanted to try something new, and I, as a fan and very small investor, was game. (I told you I only write Sponsored Deep Dives about companies I’d want to invest in; when I had the opportunity a month or so after writing the piece, I said yes immediately!)
So today, we’re announcing MainStreet’s Series A, of course, but we’re also going to dive into the state of government incentives, why investors are excited about the company, and where MainStreet is going from here. I want this to give you a little bit of non-dramatized insight into how the fundraising process works for some of the world’s fastest-growing startups.
FYI: this isn’t a sponsored post, but links to MainStreet are my referral link. Speaking of which, you should really go see if MainStreet can find your company $50k.
Let’s get to it.
Announcing MainStreet’s $60M Series A
I can often tell when a company is going to be successful before others can.
Not because I’m particularly smart. As I’ve told you before, I’m kind of an idiot. But when a company sponsors Not Boring, I get a glimpse into whether or not the product resonates with the target audience based on clicks, conversions, and feedback. MainStreet resonated.
MainStreet is like the marketing and product layer for the parts of the government that want to give businesses money, a smooth interface on top of vast pools of money meant to encourage innovation, diversity, and growth. I wrote my first ever Sponsored Deep Dive on the company back in September, when there were only 14,729 of us here. The premise was simple: if you’re a startup, MainStreet will get you money ($50k on average). And you responded in droves. Since that post, Not Boring readers’ companies have gotten over $1 million back from the government in R&D credits courtesy of MainStreet.
(MainStreet is very serious about giving people the money they’re owed. When MainStreet increased its referral program rates, its Head of Marketing Nick Abouzeid proactively reached out to me and told me they were going to pay me out based on the new, higher rates.)
Not Boring readers aren’t the only ones getting money back. Since Q3 2020, MainStreet’s revenue is up over 1,000% YoY, crossing $15 million in February. Not bad for a one-year-old company. That’s the kind of growth investors love to see, and as a result, today, right here right now:
MainStreet is announcing that it’s raised a $60 million Series A, led by SignalFire with participation from Gradient Ventures, which led MainStreet’s Seed Round.
That’s a lot of money for such a young company, one that co-founder and CEO Doug Ludlow described as “quickly going from a Charmander to a Charizard” as it balances growth stage numbers with its early stage age.
Today, we’ll unpack what MainStreet is building and why such a young company was able to raise so much money:
Why Does the Government Give Tax Credits and Incentives?
MainStreet’s Absurd Growth.
The Fundraising Process.
The MainStreet Vision.
It all starts with something counterintuitive: the government has a surprisingly hard time giving small businesses all of the billions of dollars it wants to give them.
Why Does the Government Give Tax Credits & Incentives?
Every year, the US government sets aside over $150 billion in tax credits and incentives to businesses, but only 2% of small businesses actually take advantage of the credits for which they’re eligible. That leaves $146 billion sitting in bank accounts, just waiting to be claimed.
That’s a lot of money, and the process is so opaque and complex that I asked MainStreet’s co-founder and Chief Product Officer Dan Lindquist whether the government even wants to give it all out. He thought about it for a second, and pointed out that they’re called incentives for a reason. Federal, state, and local tax credits and incentives exist to encourage businesses to take actions that governments believe will have long-term benefits, and ultimately create more tax revenue.
Take R&D credits, for example. They subsidize work that the government wants to happen but can’t so as effectively as businesses, namely to upskill the American workforce and create more high-skilled labor. The government doesn’t do this out of a sense of altruism; they believe that it’s in America’s best interest to have high-skilled workers to remain globally competitive, take a larger share of global GDP, and generate more in future taxes.
R&D credits have had mixed results, largely because of who gets them. Huge, profitable companies like Amazon, Walmart, Apple, Google, and Microsoft, with huge government relations teams of lawyers, lobbyists, and accountants, grab the majority of incentives because they know how to navigate the system. While Apple is (rightly) happy to take as many R&D credits as they can get their hands on, the company isn’t setting its hiring plans based on credits. If it needs engineers for a certain project, it’s going to hire those engineers no matter what.
What the government really wants is for credits and incentives to influence behavior, but until 2015, there was a structural issue preventing startups and small businesses from taking their share: credits could only be applied against their income tax liability, and a lot of startups and small businesses are unprofitable (which means they don’t owe any income taxes!). In 2015 with the Protecting Americans from Tax Hikes (PATH) Act, the Federal government let small businesses apply credits against payroll taxes, which every company pays when they hire employees, regardless of whether they’re profitable or not. That meant that small, unprofitable businesses could finally take advantage of credits. For millions of small businesses, that extra $50,000 might mean being able to hire an additional engineer that they otherwise couldn’t have, just as the government intended.
Federal R&D credits are just one of over 2,000+ credits and incentives in the United States alone. There are state-level R&D credits, work opportunity credits, disabled access credits, credits for employer-funded daycare, empowerment zone employment credits… the list goes on. Credits are powerful because, unlike deductions which let businesses reduce their taxable income and save whatever percentage they’d pay on taxes, credits let businesses wipe out full dollars from their tax bills. If your tax rate is 15%, for example, every $1 deduction would save you $0.15 on your tax bill, but every $1 credit saves you a full $1. They’re powerful.
But despite the PATH Act and the government’s best efforts, the fact remains that 98% of small businesses don’t take advantage of the credits and incentives for which they’re eligible. Most of the time, small businesses don’t even know the credits exist -- they have other things to worry about -- and even when they do, it can be a nightmare to navigate government websites and tax filings to figure out how to claim them.
That’s where MainStreet comes in.
If everything in that last section seems complex and painful to deal with, that’s because it is. MainStreet wants to fix that.
MainStreet is the mini-government relations team for startups and small businesses. It helps companies effortlessly discover, apply for, and receive government credits and incentives. The company’s founding story proves that governments really do want to give people all that money.
MainStreet is co-founder and CEO Doug Ludlow’s third company. He previously founded Hipster and sold it to AOL, and The Happy Home Company, which he sold to Google. While at Google, he was Chief of Staff for the SMB Ads team and saw the challenges that small and medium businesses in the country had in attracting talent.
He teamed up with fellow Googlers Dan Lindquist (CPO) and Daniel Griffin (CTO), and the trio, which had previous success together -- they won the Santa Cruz Beach Chili Cookoff two years in a row 😎 -- spent six months searching for ideas that could help small businesses and forgotten towns.
In November 2019, they founded MainStreet and set out to create 1 million jobs in rural and suburban communities by training facilitating the transition to remote work. They even offered to pay people $10,000 to move out of San Francisco. They nailed the trend -- remote work exploded during COVID -- but as they were managing demand from their target customers, employees, they started to get a flood of unexpected inbound: emails and calls from state and local governments trumpeting their incentive programs.
In February 2020, they decided to follow the demand and pivoted into making it easy to connect small businesses with tax credits and incentives that the government was begging to give out. Small businesses are paying hundreds of billions in taxes that they don’t need to be, and MainStreet wants to help them get those billions back.
The process is simple:
Sign up and connect your payroll system.
MainStreet finds tax credits and incentives that apply to your business.
MainStreet sends you money now. You don’t need to wait until April.
MainStreet makes money by keeping 20% of the money the government pays you. If you don’t get anything, they don’t get anything.
That simplicity masks a ton of complexity -- even with the best intentions, the government doesn't make things easy. I think of MainStreet as the modern interface between the governments that want to give out huge pools of money and the small businesses that need that money to thrive.
The government faces two challenges in giving out credits and incentives:
Marketing. It’s difficult to reach each individual small business and startup and to educate them on the credits and incentives available to them.
User Experience. There are a lot of really shitty government websites and forms out there, which discourage even those who know about credits from applying for them.
Remember healthcare.gov? Imagine that multiplied by 2,000+ federal, state, and local credits, and that’s MainStreet’s opportunity.
Because of its place in the process, MainStreet’s product philosophy centers on simplicity and delight. The company knows that the people running small businesses and startups have a million things on their plate, none of which is searching and applying for government credits. MainStreet wants to make it seamless and magical, from onboarding to customer communications. MainStreet’s Abouzeid described the way the team writes customer emails (he works with the sales team on every single template):
Every email we send to a customer should be a gift - here's money for you, here's a way to make it easier for you. Customers don’t want to have to learn the tax code, they have enough on their plate. The whole process is designed around, How would I want to get an email from an accountant? Not “Here are ten things to read, oh wait, here’s another, and can you send me more data,” but, “Here, it's finished, do this and you're done."
MainStreet has competitors -- from traditional accounting firms, to online accounting firm Pilot, but MainStreet’s advantage is in the simplicity. “Most people design this product for experts,” Abouzeid said, “We design ours for beginners - we’re easy, trustworthy, we do it right, and won't take up your whole afternoon.”
Part of the reason MainStreet can be so seamless is its laser focus. Today, MainStreet mainly handles federal R&D credits. On average, MainStreet finds its customers $51k in federal R&D credits in twenty minutes.
It started small and focused because its job is to simplify the process. There are over 2,000 credits available to businesses in the US, and MainStreet actually scans for over 200 of them, of which each customer is eligible for 16.6 (on average). It would be tempting to try to file all of them to grab the revenue, but if MainStreet tried to do all of them at once, it would likely be just as messy and complex as government websites or TurboTax. Instead, it’s nailing R&D credits, doing some of the work manually, and learning how to automate it. Once R&D credits are running smoothly and automatically, it will move on to the next, and the next, until it hits all 2,000+.
This year, MainStreet plans to expand beyond federal R&D credits (it’s piloting state R&D credits now) and to onboard the other most common credits that its customers qualify for. Once a company is connected to MainStreet, the company’s software uses AI to scan for credit eligibility, and to update existing credits based on changes at the company, especially new hires. If your company hires ten engineers after signing up for MainStreet, for example, you don’t have to do anything; MainStreet sees that and updates your credit amount. Most customers get their cash advanced upfront, so that they don’t have to wait until Tax Day to start putting it to work to grow their business.
Unsurprisingly, customers seem to love effortlessly getting the money they’re owed back from the government. MainStreet is one of the fastest-growing startups in history.
MainStreet’s Absurd Growth
When I wrote MainStreet in September, just a few months in, they were already at $3 million in Annual Recurring Revenue (ARR). In February, they blew past $15 million in ARR, just one year in. That is absolutely insane growth.
For context, check out how long it took the fastest-growing SaaS companies in the Bessemer Emerging Cloud Index to reach $15 million in ARR. It’s not apples-to-apples because MainStreet isn’t selling pure software, but damn.
Source: Bessemer Venture Partners + Not Boring MainStreet Addition
The team has grown too, from a dozen in September to 45 today (with 14 open roles right now), including key senior hires:
Lena Gratz joined as VP of Operations (Prev. Head of SMB Product Ops @ Google)
Ege Tanor joined as Chief Capital Officer (Prev. VP, Treasury & Capital Markets @ Aura)
Chris Hohorst joined as VP of Sales (Prev. Head of Sales & GTM @ Google)
Barb Bidan joined as Chief People Officer (Prev. SVP of Global Talent @ Peloton)
Eric Ryan joined as VP of Engineering (Prev. Senior Director of Engineering @ Twitter)
Most one-year-old companies don’t have such an experienced team, but given the growth of the business, the jump from “Charmander to Charizard,” it’s had to grow up quickly and put talent and processes in place befitting an older company.
MainStreet is growing more quickly because of COVID, but for a less direct and potentially more sustainable reason than many COVID-growers. Ludlow told me that while most startups didn’t take PPP, the huge amounts of press around the program woke companies up to tax credits and incentives’ existence. Plus, in a couple of short years, the conversation around Silicon Valley shifted – from “grow at all costs,” to “grow, but be smart about putting every dollar to its best and highest use.” As companies realized they were paying taxes they didn’t need to, and that they could apply to growth instead, they’ve welcomed MainStreet with open arms.
The majority of MainStreet’s insane revenue growth has come on the back of federal R&D credits, but once it plugs into its customers’ payroll systems, MainStreet can find new credits and incentives for the same customer. It has one of the most obvious “land-and-expand” strategies in software history available to it: automatically find more pockets of money for customers and take a cut of what it finds.
Historically high growth with low customer acquisition costs (it’s not hard to sell companies on “we’ll get you your money back”), low churn (it’s not hard to convince customers to keep a system that finds them more money running), and obvious revenue expansion opportunities is what venture capitalists dream of. And they’ve come knocking.
The Fundraising Process
MainStreet wasn’t planning to kick off its fundraising process until March, but when you’re growing as quickly as MainStreet is, the fundraising process comes to you.
The traditional startup fundraising process goes something like this:
Timing. Determine the sweet spot when the company isn’t too close to running out of money while giving important metrics enough time to grow.
Narrative. Spend countless hours honing the narrative and crafting a deck that makes the company as exciting as possible within the bounds of truth.
Pitching. Set up a bunch of meetings with investors, as many as you can. Start with the firms lower on your list to practice, and work your way up to the dream investors. Ideally, you want to pack these as close together as possible to create momentum. Nothing is worse for a valuation than a process that drags out. Pitch them your story, keep tweaking it, keep pitching. Make it past the initial pitch with one or two people and get invited to pitch at the partner meeting.
Term Sheets. Get term sheets from one or more lead investors that lay out a bunch of things related to the deal, mostly standard, and most importantly, say how much money the company is going to invest at what valuation.
Pick a Lead and Fill Out the Round. Sign a term sheet with the lead investor, the one who will invest the most, typically get a board seat, and set the price of the deal. After that, go back to a bunch of the other investors you’ve pitched, individuals, syndicates, and other smaller non-lead funds to fill out the rest of the round.
Get Money. The wires hit your account and your startup has the money it needs to survive a couple more years.
Start Gearing Up to Do it Again. Take all of the feedback from investors and think about how to incorporate it into the way you actually run your company so the next time you have to go out to fundraise, it will be easier.
Ludlow told me that he’s always having conversations with investors, but things started heating up in early December when one of those conversations turned into an offer out of the blue. Giving a company a term sheet before they’re actively raising is called “pre-empting” a round; Ludlow had been preempted. He had a choice: lean into the demand and do the raise a few months early, or wait and go out in March as planned. He decided to lean in.
MainStreet is somewhere between an early stage company and a growth stage company: it’s at the age at which most companies are still raising from early stage funds, but it’s putting up growth stage numbers. That pushed Ludlow into a fast education on the differences between what early and growth stage investors are looking for.
After an intense month, never having even put together a deck, MainStreet received multiple term sheets, some at higher valuations than the one it accepted, but Ludlow was looking for a fund that struck a balance: big enough to write the check it needed to support its wild growth, but comfortable enough with the early stage to understand that “we’re a seed stage company going to A that still has a lot to figure out.” In the end, MainStreet decided to go with SignalFire because they struck that balance, and have built out a platform to support the companies they invest in. SignalFire’s Chris Farmer is joining MainStreet’s board.
The roles on SignalFire’s team page look more like a startup than a VC, and the firm can get its hands dirty on everything from data science to content. To whit, SignalFire’s Josh Constine is hosting a Clubhouse room in an hour with MainStreet to discuss the raise.
“For a team that’s spent the past year running so fast and so hard,” Ludlow said, “It was like, alright, here comes the cavalry.”
In addition to SignalFire, Gradient Ventures, which led the company’s Seed Round, joined the Series A, alongside new investors Ashton Kutcher and Guy Oseary's Sound Ventures, Tusk Ventures, Moxxie Ventures, and Intercom co-founder Des Traynor. They join returning investors Shrug Capital, Basecamp, Basement Fund, Backend Capital, Remote First Capital, and Scribble.
Darian Shirazi, General Partner at Gradient Ventures and Board Director at MainStreet, explained his firm’s investment well: “There are only a few companies each decade that transform economies. MainStreet's growth is unprecedented and its vision is noble, a rare and desirable combination.” Tusk Ventures’s Bradley Tusk added, "Big corporations like Amazon rack up millions of dollars in tax incentives each year and MainStreet is making it possible for all entrepreneurs to reap the same benefits traditionally available to only a select few."
While fundraising is sexy and gets a lot of the attention, ultimately, it just means that a company has enough money in its bank account to stop fundraising, get back to work, and bring in the resources it needs to achieve its long-term vision. For MainStreet, that means leveling the financial playing field for small businesses and startups.
The MainStreet Vision
Today, MainStreet is growing at an insane rate with a small team and one product. With this funding, it will expand the team, onboard more credits, and automate more of the manual work. As it feeds more data and reps into the system, its models will improve, and it will be able to realize its goal of unlocking more credits and cash advances automatically. With the current product, it has two obvious avenues for revenue growth:
Acquire More Customers. MainStreet has two customer acquisition cost advantages: people want to get their money back, and it’s always the right time to sign up for MainStreet since they give advances any time of year. With the R&D credit process humming, it will be able to acquire more customers quickly.
Onboard More Credits. Once MainStreet has acquired a customer, it can grow the revenue it generates from each by finding and getting them more credits. Who’s going to say no to more easy sources of money? I expect MainStreet to have one of the most eye-popping Net Dollar Retention rates in SaaS.
Help Customers Grow. As MainStreet gets customers more of their money back, they can hire more people, which means more credits, which means more revenue to MainStreet.
MainStreet figured out this incredible unlock: since the government is the only entity that wants to give away non-dilutive money to businesses with no strings attached at scale, MainStreet’s incentives are perfectly aligned to both the government’s and to its customers’. It’s facilitating something that both sides of the transaction clearly want but couldn’t do efficiently.
That alone is a huge potential business, but MainStreet’s real mission is to build the financial operating systems for small businesses and startups. The biggest businesses in America, Ludlow points out, “sit at the intersection of Wall Street and Washington.” They have access to the government and to sophisticated financial products that give them a massive advantage over everyone else.
MainStreet wants to close that gap by offering more credits, tools to make better business decisions based on data, and a suite of best-in-class financial products, including bank accounts, charge cards, financial forecasting, and insurance products. As MainStreet builds up more data on more small businesses, on what makes each of them tick, it can help all of them build better businesses. Individually, no one startup or small business will have the resources of an Apple; together, MainStreet thinks they have a shot.
To Lindquist, the measure of MainStreet’s success is how many companies are surviving, growing, and hiring because of MainStreet. MainStreet is doing its job if small businesses are creating more jobs. It sounds like something that companies say, but with MainStreet, it checks out. They’re able to make money by putting the government’s money to work to create jobs. Or as Ludlow put it:
MainStreet is just a bunch of pretty good people who want to do something good in the world. It really is an inspiring place to come to work. You can scratch that business itch and build a big business while doing something that you can be very proud of. There's no conflict here.
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Thanks for reading, and see you TOMORROW,