Cryptotrader Revenue (2024)

hello everyone my guest today is David Kammerer he's the co-founder and CEO of crypto trader dot tax a tax reporting platform guilty of cryptocurrency investors an easy automatic way of staying compliant with their cryptocurrency transactions he's also built partnerships with industry giants like Intuit TurboTax to bring crypto tax reporting into the mainstream David you already take us to the top let's do it are you one of these guys like got into like Bitcoin like in 2010 and you're filthy rich now and now I need to deal with like tax problems no I wish ya know I didn't get into it until kind of late 2017 when really like all the hype was happening so I'm pretty late compared to some of my peers so so help me understand actual problem here what do people have problem paying taxes or understanding how to pay tax on their crypto gains no the problem is calculating your capital gains and losses for it because everything's quoted on these cryptocurrency exchanges in cryptocurrency denominations right it just becomes hard because you have to report on US dollar values so right like I would need to know you know what the US dollar value of aetherium on July 17 to 2017 was when that information is like very difficult to come by and then you layer on like some people are trading thousands hundreds of times right it just becomes difficult to do those Cal Cal gains and losses calculations so that's what we automate can't you I mean I have most of my money with a family office and one of the things they do for me is make sure to take losses when they appear and then mitigate the gains to minimize tax exposure with the volatility of crypto I mean what regulates at what point in time you actually take and convert the dollar amount because if you're smart you could essentially take a lot of losses you basically carry for a loss and not pay taxes right yeah it is all depends on like so taxable events right and in crypto crypto - crypto trades which is very common right if I'm going from Bitcoin into aetherium that triggers a taxable event which right would realize a loss and this is another part of the problem right it's for all these crypto - crypto trades that you know thousands and thousands of traders are trading on like finance and other giant cryptocurrency exchange in one base every time exactly every time they trade one asset for another even if it has nothing to do with trading out to sea currency you trigger a taxable event which needs to be reported on form 8949 and so like in the world of stock trading which is what you could compare this to you know your broker will give you a 1099 be at the end of the year that details every single taxable transaction now these exchanges is a coin base and Finance and bit rest they don't have this ability because of the transferable nature of these digital assets right people can send them into coinbase from their wallet they can send them from Columbus to buy Nantz right and it just becomes this huge mess and tracking that turns into a net parents like that's where our solution really ties in and it is kind of hard to grasp but we just automate the whole process well I mean one of the things with crypto is it's decentralized and it's not tied any government so why does the American government feel like you should have to pay tax on it couldn't send some I just argue this wasn't this has nothing to do with it wasn't in America it's not American you know I don't know American government taxes yeah I mean that's one flavor of cryptocurrency right and I'd argue that it's it's becoming much more the opposite where it is becoming a legitimate asset class that you know know your customer rules are very much enforced at the exchange level so the government's actually do know the people who are transacting and cryptocurrency and you know it is being treated as an investment so you know if I invest $1,000 into Bitcoin I'm doing that because I'm expecting to see a return of X amount on my money so they know though how does the government know I mean that's the whole thing about crypto right is you're basically a big long numeric and you know alphanumeric chain of characters yeah it's a good question and so they know because of the exchanges so to be in exchange operating in the United States you need to go through know your customers so like you know you would have to upload your driver's license to even have a coin base account and so if you meet certain thresholds let's say you trade more than 200 times and you have more than twenty thousand dollars worth of total trading volume coinbase sends a 1099 k to the IRS alerting them base guys they have to by law correct if the license I uploaded draw my claim base account is in America correct interesting so won't people just start using things that are not coin based people that don't have a relationship with the US government yeah that's a he thing and it's it's sad because you know you have to be very careful when you're regulating and you know I've been to a lot of these types of conferences but it's pushing very innovative companies to leave the United States Jumping blacklist the United States and that's dangerous because you know you want this this next-gen finance movement being built in the US right that's very important and so you have to be very careful with how you regulate - you know attract those companies because it's very easy they all bitcoins use for money laundering and criminal activity but it's like not true it's it's very much becoming you know with Facebook get involved and all these things the industry is getting legitimized and you know if the United States you know doesn't regulate in a smart way it could completely miss out on this new wave of you know entrepreneurship and well that's the point right is like the reason crypto was invented is because government made basically the people governments are domination regulate finance and they shouldn't own the the currency at all so why doesn't the government just stay out of it why try and take tax on something that could be the future of a finance yeah I mean it's a hard question to answer and you'd get so many different answers across everyone you talk to in the space but I don't think any time in the short term government's gonna be completely irrelevant so I more take the approach that cryptocurrencies going to allow much more frictionless transactions it's gonna reduce the friction in capital markets and I think government needs to play a role in that especially in the short term yeah all right good hard tell me how you make money on this thing sure so we just charge a flat fee it's the exact same business model as TurboTax if people are familiar but you know if you're a trader of cryptocurrencies and you just want to pain free get your tax reports done for it you just upload your stuff into our software platform and then we'll generate the necessary reports that you need to stay compliant and then you just it's a one-time fee for that so is it like a SAS business basically it is a SAS business but the the time frame is more yearly right monthly doesn't apply to us because you know it's just people need to do this every year so what do they pay on average per year to use you anywhere it depends on the volume of the trades that they carry out so but they'll pay anywhere from fifty to two hundred dollars per report okay and how many were like on a customer how many of course they do per year I guess a little misleading a report includes everything so yeah they're paying anywhere from fifty to two hundred dollars a year correct okay got it um so I guess the next question to you is how how do you measure your success I'll take a stab at it by asking a metric question over the last twelve or last year whenever the last filing kind of sequence was how much the all the reports you generated they covered how much total kind of crypto trading spend and fee in American US dollars rephrase are you saying like everyone who's filing taxes with you how many are you answering yeah through you a small percent like there's so many so many people what's the amount of like a million or a hundred million or billion of people that are paying taxes or traders know people that used you who processed you did their taxes and what's the dollar amount of the taxes you essentially help them pay on so the number of people so we have just under 10,000 paying customers from this past year okay and so you know between presenting how much sham fee basically all right like how much transaction and like how many do you said I'm saying like yeah well we've we processed over a billion dollars of crypto currency through our tax engine I don't know if that ain't yeah that's what I'm going at yeah it's like if you filed my personal tax return and my taxable income I'm making this up was a million dollars and you did a hunter of those the your answer be we processed a hundred million through our platform right yes I know I can go pull this from our data but it's a massive number like I think it's over five billion at this point okay good I mean well that tells me then this is a real problem you're on to something and that's interesting okay so how did you land on this on kind of on this pricing model right so ten thousand people obviously pit you know paying over ten thousand so it's I mean okay okay so let's say seven thousand no pain no kind of a minimum fifty that brings in you caught three or fifty thousand dollars last year is that about right a little more than that but yeah we changed our pricing model to we were charging way too little for our product we started with just a forty dollar flat rate no matter what volume and then two-thirds through the taxis and we switched it to volume based so depending on how many trades you have right because that's when it gets more difficult so like we're more valuable for these high-volume traders but so yeah now we're on the model of any 150 to 200 bucks but yeah so we in 2019 will do you know around four hundred twenty-five twenty-five thousand dollars okay and what is the I mean are there obviously so my whole thing whenever talk to an entrepreneur is I want to figure out like how they can make more money if they found a real problem if they make more money you can build an even better solution right so holy this is a great capitalist question but like how do you change pricing axes what you price again to make more money so you can invest more on this problem I don't think our pricing is the big opportunity to make more money going deeper in the current market you know there's first of all the markets growing at insanely fast pace and then too it's still like you said the majority people who use cryptocurrencies they don't pay taxes on it now that's going to change as you know the IRS is starting to put together a task force whether you like or not but you know let's say 10% of the market filed taxes well I'd argue that that will grow to 50% over the next few years of the people who trade right in cryptocurrency so right there the markets growing you know 5x and then on top of that there's just opportunities to go deeper you know to do business development type stuff foreign partnerships with similar companies and so that's what we're really focused on yeah a lot of these like if you compare this to traditional finance where these kinds of companies start to make like millions and millions of dollars we like for all in their big accounts is they're doing like real-time tax loss harvesting right versus just like a one-time flashpoint tax report at the end of the year okay is that analogous to crypto can you do like real-time tax loss harvesting yeah that's very big and that's something that's on our product roadmap it's pretty easy with the data that we collect right we can see hey we see that right now you have a great opportunity to even just trade into another cryptocurrency and trade back because right now wash sale rules don't actually apply to cryptocurrency because it's treated as property and not as a security like a stock would be so there's great opportunities for us to educate people and to bribe them a service year round be like hey now you should sell you know they about like the betterment type of sales book but yeah great opportunities to build products in that space too that's interesting and then on your pricing you have hobbyist pro trader high-volume trader and you you quantify based off number of trades why is that the right utility metric a price round versus the actual dollar Fiat like conversion amount yeah so it's because of if you think about it right we want a price based on the value we're providing right because that's what people who are willing to pay for and so to do this by hand right if I have 10 trades I could do this by hand it's not too hard so you know we want we don't want to charge as much for those types of people but for the people who have thousands and thousands of trades there's just no way they could ever possibly do but so we're providing them so much more value to use our service and so that's why they pay more because it's not it's more valuable to them many we found it is the right metric we experimented a good amount and it's the best way to go yeah when you launch somebody what year so mid to late 2017 we launched and then we got a MVP out in 2018 that spring that first tax season but we didn't charge for it then how much you tend to get the MVP F before your first all our revenue we're completely bootstrap so I think is maybe two thousand dollars just your own money basically exactly are you developer I am NOT but my to both of my partners are full stack developers they're great guys and we work on it very well how many folks in the company today so now it's just those founders we've also contracted out a decent amount of work but we're hiring right now so you know if anyone in your audience is a software engineer and is looking for a job we're hiring there you go all right so three of you guys it's great and bootstrap to date are you so are you burning capital today are you guys cashflow positive no we're very cashflow positive but I mean we're reinvesting just everything back in the growth yeah I was gonna say if you're cranking in caught three thousand last year across three people and throwing some contract work I imagine you guys are you know you know doing nicely there is talk to me about about churn you I don't know if you have enough history to look at this but of all the people that process with you you know eighteen months ago four months ago at their 12-month marked and they all renew or how many people did you know did him with you once and then didn't do them the next year yeah so we really have enough data for that right now because in 2018 it was you know a crap MVP just to test the market let's see if there's actually demand for a product right like this and then we really doubled down you know built a very legit product going into this past spring so really this past spring is our first year that we've been you know very legit and doing things the right way so it'll be interesting to see you know like you said what our turn will be I would imagine it'll be you know anywhere from 20 20 percent maybe but the thing is if we treat our customers well which has been going very well so far they're always like oh well you got we'll use you guys again next year it's more the turn will happen if they stop trading crypto currencies you know what I mean yeah so it's very market dependent right that's that's huge what we're built on and we're very bullish on where this market will go you know you see all the investment and talent venture capital being poured into this industry it's exciting but I'll have to get back to I guess on the legit turn how do you convince these folks to trust you again the big reason people use crypto is to stay anonymous obviously if you're doing their taxes you now know they are and you know their volume you know their moves and everything how do you convince ease you know highly skeptical market to trust you yeah great question so and this will bring a little bit more clarity to what we do so they don't have to trust us the only thing we need from them is an email address they could even put in you know a phony email address and we're just a tool for them to generate you know this specific type of report and then they go and upload that report into TurboTax and that's where that partnership came in and TurboTax is the one that collects Social Security I you know I've done identifying information where they just use us as a tool to build out their capital gains capital losses a few other things and then they can go bring that reportage so they're only giving it out alphanumeric did basilar alphanumeric code there are only giving us an email address and then obviously they're trading information but we don't have we're not that's not tied to anything right it's not tied to an identity what's the trade information though so we integrate with all the major exchanges while it's other platforms and then we they through an API key right they give us their API key oh I'm stuck in with three access and we can pull in all of their trading history across all of their I see I see okay um what was it costing you fully waited to get a new $50 your customer ah I don't even know top my head I mean do you spend money on ads or anything yeah so like our AdWords spend is positive like it's greater than one you know this past spring we probably spent like just over seventeen thousand dollars with that what do you mean greater than one like for every dollar we spend we make you know a dollar and fifteen cents with Adwords okay okay so it's like a positive you know it's a positive feedback loop there and I would mean basically like an eight month payback period then right if you spend I mean I know I'm asking you if you spend 50 bucks you're gonna get basically $70 back out of it correct yeah okay that's just not the one traction channel and then but yeah yep okay and then um okay so that's all full is that unlimited like can you spend a billion dollars in that channel anything the economics will hold nope no there's only a certain volume of people searching these keywords you know during tax season but we buy them all up and we'll we really didn't start doing a good job of that until kind of halfway through tax season so we'll again you know big opportunity for us to double down on that any plan any plans to raise yeah so we will probably raise around after next tax season it's still in the air you know a lot of companies in this space they did a raised during 2017 kind of the boom and that was a mistake because you know they're taking on this money and then all of a sudden they don't have the attraction revenue to support like a series a right or a series B and so those companies are letting off people so it's you do have to be very strategic when you raise because you don't want to get ahead of the market we believe the market can become very very substantial but you have to time it right right so that's important to us so if you did raise what even the right amount is yeah I think you know obviously it depends but I think a modest you know somewhere between 500 thousand to a million type of seed would allow us to hire you know three to four more engineers we need to bring out some more customer support people and then just keep growing you know we want to grow as smart grow slowly but like fast yeah what would you hope to raise evaluation why's that you're talking like three four five million pre-money I think we would raise on a convertible note I don't want to slap evaluation on at this early you know what would you go out then mm-hmm you're obviously speculating but I'm just curious would be I'd say like a five yeah yeah that's my name look that seems to make sense we'll see very cool all right and then name one or two of your competitors is there anyone else in the space yeah I mean they're not as user friendly but like Bitcoin tax has been around for longer coin tracking down info again been around for longer but you know we're very focused on building the best product in the space yeah does it make sense like go buy them just take all their customers and then you know you don't act honestly I've done that many times like down the road I would love to buy Bitcoin about tax yeah have they raised capital no those two are each bootstraps there's a couple more that have raised some venture so we'll see it's it's very much a market share grab right now we should talk about me getting you capital go do that we can talk offline about it I'd love to heavy interesting it's gotta be big yeah let's wrap up uh I'm in by the way full disclosure I'm in Bitcoin I own a lot of Bitcoin I think it's great you know it's just I don't think it'd turn about it I just buy a bunch of it's cheap and hold it and it makes and I interview all the people in the space and learn a lot so and so I love that yeah I'm just like suck it of learn learn learn alright let's wrap up with the famous five number one what's your favorite business book attraction by Gabriel Weinberg yeah number two is there a CEO you're falling or studying um I like to do it Butterfield yeah number three what's your favorite online tool for building the company intercom no question that changed our business number four how many hours is 50 tonight hey honestly seven it's good Institute how are you I'm 24 24 and situation man I'm gonna say assume single and no kids I am single with it alright good and the last question take us back for years what he was your 20 year old self Neal I wish I would have known how big of a deal Bitcoin what's going to be guys there you have it 7,000 Bitcoin traders and folks in crypto used them to process taxes they made 300 fifty thousand dollars over the past twelve months doing again those tax returns for them launch in 2017 they are bootstrapped which I love spent 2k to build their MVP now they're profitable team size of three people no turn too early they're spending a dollar get a new dollar 15 in terms of a CAC and payback period and ratios they're looking to scale maybe raising call it 500 million sometime here in the near future to hire some more engineers and customer success folks but in the meantime again just scaling in the market organically anything the timing right David thanks for taking us out thanks Nathan