Ardius, LLC Revenue & Funding (2023)

hey folks my guest today is josh lee he's the founder of artist.com which helps you automate r d tax credits for companies that innovate and he was the first m a deal that gusto did which we'll talk about josh you're ready to take the top absolutely thanks for having me nathan you bet all right tax credits is a really interesting space main street seems to be growing like wildfire boost ai in canada also seems to be taking off were you sort of in that same space yeah i actually started uh back at ernst young right uh was my first uh real job out of college and right into tax credits and incentives so yeah for sure we we started um way back uh in the early 2000 period and so this is now all coming to light with uh technology so you you're sorry you you did not launch in 2018 you launched earlier than that i was at ernst young which actually is where where i first started and so that's where the genesis of you know learning about tax credits uh and trying to automate the process started but but rds itself started in 2018 i see okay so you launch in 2018 how much did you spend getting the mvp live actually you know uh it was funny because right before that uh i was actually in the venture capital space and so we had invested in about 23 plus companies and so it was actually a function of servicing our own portfolio right that we actually came up with this because once people find out you're a cpa nationally they want free advice and so we actually took them to my former uh big four and they couldn't service us we were just too small some of our companies were pre-revenue and you know the you know the labor intensity and the bill rates were just too high for the startups to actually uh afford so that's why we actually came up with rds to help serve them so you spin that out and did the did your firm that you were with take a percent of the business at the spin out or did you own 100 at the start oh at the uh well the company itself it was me and uh another uh two gentlemen who helped uh the first mvp this is summer of 2018 right and so from there we you know serviced our own portfolio companies and it wasn't much about the revenue so much it was about hey can this work um and then we did take obviously a percentage of of the tax savings the credits itself so from a cash flow perspective it wasn't a burden for the actual startups themselves so it was a win-win in that regard yeah no that makes a lot of sense now now did you ever go i mean would you go full time on this in 2019 at some point and really say let's build a real business well that was the funny part so right after we we finished with uh this first portfolio um we had a couple of cpa firms approaches people i had mentored said hey josh we heard you're back in the game right the cpa game i was like no i'm just doing this as a love project honestly right and then from there we had a couple other venture funds who we had co-invested with at the time uh one in particular was mucker mucker capital here in la and eric and will solve this right uh who are the managing partners at my current were like hey josh what are you doing exactly and i'll tell them about these credits i was excited to share with them how much money we'd saved for each of our startup companies and they were looking at me and they were like josh we have you know we're working on venture fund number four we have three venture funds we'd love to run our portfolio companies uh through this as well and we think you should go full time it was actually based on their encouragement right that that we thought about it long and hard about hey why don't we just do this full time and start you know artists uh as not just a love project anymore but an actual real startup so did mucker invest they did they wrote me the first check uh it was it was more of them convincing my wife who at the time was like what you wanna you know become a founder again that's that's absolutely nuts right but now but they were great uh they wrote the first check and have uh believed in it from from day one so they've been what was that what was that check size uh they have an accelerator program so that check size was roughly about uh 200 000. were you in that same accelerator as alex at ordermark same cohort yeah alex cancer great uh good friend uh with mike jacobs and that whole crew so they actually were one of our first uh clients oh i love in the beginning yeah it's great and so having been in restaurant tech ourselves or having some investments in those areas it was great obviously a big fan of cantor's deli as well and and so we uh we helped them with their their r d credits uh you know not only in improving out some of the scalability right of the of the platform but also they were a big proponent they were working with techstars at the time got us in front of techstars we worked with their portfolio a lot and so kind of going instead of going door to door started looking at some enterprise value right with the accelerator funds the venture funds around town and even some other institutions that have you know a plethora of startups right that could actually use this and and that's a crazy thing right alex had never heard of it most of these startup companies have never heard about the r d credit so and what so your model what percent did you typically take of the savings right now we're averaging anywhere from 10 to about 30. and i say that with a grain of salt just because it depends on sometimes the size of the company the complexities uh we're also starting to you know discount further in in different cycles so that first cycle is kind of a beast right we're trying to automate create a framework and then once we get past the first cycle we can obviously have economies of scale right to go forward so we also will look to do that we're also looking into maybe tiering it right into maybe more of a fixed uh cost right depending on you know a variety of different variables you know raising a series a maybe being pre-funded uh pre-revenue things of that sort but trying to be flexible and again the goal end goal here is to to get more credits into the hands of of companies that need it so and do you remember in the first year i always like to ask first-year questions you remember how much uh like i guess tax savings you got for founders in 2018 oh wow i know it was i know it was a benchmark when we had our first million right when went the game yeah yeah it was uh well we started at the end of 2018 so this was in 2019. so we hit that mark and then from one to ten to yeah i think there was i mean we stopped losing shots it was almost like mcdonald's right how many hamburgers have you served and so i got to a certain point we we hit certain milestones we we celebrated and then you know from there we just kept going so so you broke 10 million the same year in 2019 in terms of tax savings yeah for tax savings yeah i mean we had companies that came to us uh that were in the three four million dollar range so it was yeah we had a huge client like just just one client alone uh nathan it was crazy yeah they were um in manufacturing had never thought they would qualify for the life of them and we were actually able to go back uh you know four or five years right because it is a refundable credit so we went back four or five years and it culminated to about you know three four million for federal and state credits so it was a it was a huge win yeah and so if you look at between your start date your first deal all the way up to today have you guys passed 500 million in tax savings that's a good question i said i should go back you have to know that number like that's like a magic moment yeah i you know actually if you had grabbed my colleague you know jenna she would actually be able to tell you she keeps track of all the numbers but i'm willing to guess yeah we probably would be pretty close just because we have hit some pretty big hitters right in the fortune 500 space and so their credits get relatively large yep right so i i do believe we're probably close i don't know if it exceeded it but we probably have come pretty close that's pretty cool okay great let's a little bit more capital history here did you only raise the 200 grand or did you raise more capital we actually raised one other note um we raised one convertible no this was at the time and you brought up you know main street there was another company that was just starting to to raise capital right we were always profitable from day one so we never really thought about raising beyond mucker's first uh you know investment but you know we were scaling and uh we were looking at you know a very you know linear growth like hey we can build this in you know twice the budget and half the time let's do it right that kind of mentality so we did go out and raise one other note um relatively small uh to that end and it was it was an opportunity to almost you know you know include and then integrate folks who who believed in us you know from from 2018 2019 so hustle fun came in you know operate studios here in in oc uh sterling road right uh companies you know that backed us avg alumni ventures so they all had portfolio companies that was the one you know uh you know characteristic we were looking for that they could also offer this to their to their portfolio companies as well and what was the total size of that second note uh a million dollars a million okay so pretty capital question then 1.2 million raised total yeah i mean we have our like i said competitors out there raising it like you know half a billion dollar evaluations right or or in the hundreds of millions and so i thought relatively for what we were offering and in terms of uh you know uh the size that we were growing at relative to what they were raising at it was it was it was fair and also you know just in light of uh you know the acceptance i guess in this market is pretty pretty hot but you know with fintech i call it tax tech right it's kind of brand new and so people trying to understand what credits are and trying to automate that it's still relatively new i think uh in that space yeah so so what um before the gusto acquisition so right up to that how much what was the total team size we were at roughly uh 15 okay at the time yeah we're currently uh of the of the 15 we had uh half okay so was it was it a tech heavy product i mean really you're basically reading thousands of pages of tax code and trying to figure out how to automate that for folks right was it heavy tech it is yeah and so i think tax is one of those areas that that we feel are most conducive for software right because the tax code internal revenue code changes all the time right and it actually makes a lot of sense to you know to change and program that at the top level and then disseminate that down to you know our our customers our clients right so it doesn't matter republican democrat who's in office it's going to change right and so now we can kind of make those adjustments up front and we feel that there's a digital footprint right if you look at quickbooks right payroll information like dusto right there's information in there that we can actually flag right that's a good indicator right of things that could potentially qualify right for the credit tax returns are the same way right they give rise to hey i think you may qualify for this you're in this demographic you're in this location you have this job title all these different things i think we can connect into you know a platform and really be able to at least identify or discover things that we've missed right and so looking you know back to 2018 if you feel like you're sort of maybe flirting with that 500 million in tax credits sort of awarded today and your low end is 10 i mean could i take 10 times 500 million it's 50 million bucks in total revenue over three years well there's a timing difference right anything so in this case like we we're of the mindset in the model like we didn't you know do the big four model where we charge an upfront retainer and you know we charge everything up front so for us there is a timing difference so i want to take you know caveat that we basically base our our fee on utilization right it's a big proponent of us working with startups today we don't want to be a burden on your cash flow so as cash flow comes in right so they're off we also you know are are uh invoicing or or billing right for that time so so even though it could be 500 million or something thereof right it doesn't all hit at once right so if you if you told them at rds that a founder could get a million dollars why wouldn't they draw down that million from the government immediately yeah so some examples could be you know the way you utilize credits are in two major pathways one is if you're utilizing it against payroll or sorry your income tax right that's an easy one it's right away so you're right so for those you could be a large company that's profitable if i save you a hundred grand right you're gonna get a hundred thousand dollar credit then we can invoice right away right in instances where let's say you're a pre-revenue company right you have no profitability right there's another pathway where the irs will allow you to offset that against your payroll taxes right and so your payroll taxes right um come every quarter right it's being filed and so you may have a credit of let's say a million dollars but your payroll taxes may not hit that million dollars right until you're number two three or four right that comes in time and so therefore you know if you're only hitting let's say fifty thousand per quarter right you may only use two hundred thousand in credits for that yeah you're identifying what the total credit base is and the founders are saying okay we have enough income here where it's worth offsetting with this portion of the tax credits artist and josh have given me but they're not going to do it all today they might do some 2022 2023 et cetera yeah and so that's where we we want to grow with startups as well right so the fact that they can take this money back or raise around or you know hire more people right the more people the more payroll tax right more payroll tax the quicker they utilize their tax credits yeah so what was revenue in 2020 before the sale oh that's a good question that's uh that's something that we're we're not at liberty to discuss were you past the million dollar run right the magical moment there uh we were close yeah okay fair enough fair enough and then as we wrap up here why was it the right time to exit you know i think it was the right partner right i think with us uh gusto's been been ahead of the curve in terms of like you know automating the r d credit itself number one uh having the vision of integrated and embedded payroll number two right and then us being a uh you know being able to access that information being able to identify customers right that qualify for the credit that have not taken their credit right so all these different things having access to that information together made a lot of sense uh and we thought we could accelerate right just because our alternative might have been a series eight raise you know and to scale a lot of that would be you know for for marketing for for getting in front of customers but they already had all the customers yeah it was a big big deal for us what were you i mean you're you come from bc so you probably know as well if you were going to do a series a how much would you raise and what valuation do you think you could have raised at our target was somewhere close to probably about 10 was what we were thinking about raising 10 million or something no that was the thing we were all over the place we got offers uh anywhere at a 50 million 100 million i mean even one that was above that as well so it could have been all over the place um again depending on terms right so what do you do you take that you take the term sheet with the highest valuation and say gusto pay this amount and we won't go raise a series a no i think i think we were at a different place right i mean again there was nobody that was literally on our cap tables yeah at the time right we had a convertible note at best and so it was easy for us to make a decision quicker and faster so we didn't really have to worry about valuations right at that time so all right josh good stuff let's close with a famous five number one favorite book favorite book um is by john maxwell right 21 irrefutable laws of leadership one of my first uh business books that i still have on my desk or in my bookshelf here in the back so number two i love that book is there a ceo you're following or studying uh well he's a good friend of mine his name is kevin chu um you know the ceo of kabam right in the gaming space and i was doing i don't know how many adventures is you know founded uh genji which is probably the you know number one esports team and now doing a company called rally in the areas of you know nft and and in blockchain and all that stuff so i i love what he's doing he'll always have uh and following a lot of his stuff so number three what's your favorite online tool for building the business oh it's got to be gusto and artists come on no no it can't be guses what's that um number one so tool that's a good question i i might go to playbook i mean we always use like hubspot right for crm what do you use for like data ingestion do you use anything like flat file uh we've tried a couple of other things i mean uh one the ones who i love love love i'll give them a plug is carbon carbon carbon yeah carbon hq i think they're really conducive for the back and forth chatter between a um you know a potential client customer and you know sorting out through lots of information uh i think they're they're yeah they're great for organizing information uh following threads right obviously slack is is doing that on a more real time and eliminating emails but i think carbon is a good good solid um roadmap and framework for actually organizing data and information very cool number four how many hours of sleep to eat every night oh man well that's not fair because i have four kids oh my gosh so aside from the startup world um you know being a dad of four so i'm probably averaging about six that's not bad for four it isn't bad yeah and so you know that that again is it fluctuates from probably four to eight but i'm averaging six so married four kids and uh how old are you josh i'm in my four uh just uh turned 41. 41. i think i'm in my 40s yeah i heard the average age of a startup founder now is 45. oh yeah you you're not you're not you know i felt like a dinosaur when i started but you know it's all ahead of you all right last question what's something you wishing you when you were 20. well what's something i wish that when i was 20 something you wish you knew when you were 20. oh you know so i wish i had taken more risks right i mean i i started with ernst young was there for 14 years and by all accounts i thought i was going to be a historian there or a lifer and so it got really comfortable really fast right great job great people great firm but fell in love with the startup world in my 30s right and i've never looked back and i wish someone had come to me and said hey maybe maybe take a few more chances right what's the worst that could happen you could always go back to your your nine to five or a really good paying job but i mean there's yeah there's nothing i would trade like you know doing what i do now guys tax credit company artists recently sold to gusto got started in 2018 serving as portfolio companies eventually spun it out with three co-founders took it live in 2018 and in 2019 broke the 10 20 30 million before you know it 50 60 million in tax credits identified for these firms flirting with a 500 million number there now as they've teamed up full time with gusto they were looking at maybe doing a series a in 2020 and said you know instead of raising like a 10 on a 50 or 100 it makes more sense to partner up with gusto and keep building we'll see what happens next josh thanks for taking us to the top thanks for having me nathan appreciate it one more thing before you go we have a brand new show every thursday at 1 pm central it's called shark tank for sas we call it deal or bust one founder comes on three hungry buyers they try and do a deal live and the founder shares back end dashboards their expenses their revenue arpu cac ltv you name it they share it and the buyers try and make a deal live it is fun to watch every thursday 1pm central additionally remember these recorded founder interviews go live we release them here on youtube every day at 2 p.m central to make sure you don't miss any of that make sure you click the subscribe button below here on youtube the big red button and then click the little bell notification to make sure you get notifications when we do go live i wouldn't want you to miss breaking news in the sas world whether it's an acquisition a big fundraise a big sale a big profitability statement or something else i don't want you to miss it additionally if you want to take this conversation deeper and further we have by far the largest private slack community for b2b sas founders you want to get in there we've probably talked about your tool if you're running a company or your firm if you're investing you can go in there and quickly search and see what people are saying sign up for that at dot com forward slash slack in the meantime i'm hanging out with you here on youtube i'll be in the comments for the next 30 minutes feel free to let me know what you thought about this episode if you enjoyed it click the thumbs up we get a lot of haters that are mad at how aggressive i am on these shows but i do it so that we can all learn we have to counter those people we got to push them away click the thumbs up below to counter them and know that i appreciate your guys support all right i'll be in the comments see ya