Lloyed Lobo, president at Boast Capital.
Boast Capital Ltd., a Vancouver startup that is trying to disrupt accounting giants with software designed to help companies claim research and development tax credits, has raised $30-million from New York’s Radian Capital.
Boast is best known for running one of Canada’s leading tech conferences, Traction, plus a range of events geared toward startups. It has used those events to recruit hundreds of customers to buy its product, which automates part of the cumbersome process of applying for research and development tax credits.
As a result, Boast has reached US$10-million in annual sales with no prior outside funding, with just four salespeople and 35 employees. Boast has doubled in size in each of the past two years and has close to 1,000 customers.
“Our entire mandate and focus is to find companies exactly like Boast” that are generating millions in revenue providing technology-enabled services with little outside funding, said Radian partner Jordan Bettman, whose firm met Boast through one of the Canadian company’s events in 2019. “If all they do is continue to drive execution, they’ll have a pretty large business.”
Boast was the brainchild of Alex Popa. He got the idea while working in KPMG’s tax group a decade ago after becoming frustrated by the manual and cumbersome process to prepare R&D tax credit filings, said Lloyed Lobo, Boast’s president and a university friend of Mr. Popa, the chief executive officer.
Ottawa spends $3-billion annually through its Scientific Research and Experimental Development (SR&ED) program subsidizing R&D work by about 20,000 companies, similar to programs in other countries. To qualify for credits, companies spend dozens of hours gathering data at year’s end or turning to accounting firms for that work. (For example, SR&ED work accounts for about 5 per cent of KPMG’s tax business in Canada and employs 90 people, said David Regan, KPMG’s partner in charge of the tax-incentives practice.)
They then file the claims and wait for refunds; Canada Revenue Agency frequently audits recipients. “The process is cumbersome and expensive,” with a lot of time needed to document everything, said Kumar Erramilli, chief technology officer of online corporate education software provider ACTO Technologies, a Boast customer.
In 2011 Mr. Popa and Mr. Lobo began building Boast, creating a platform that automatically pulls in relevant information from engineering process tools such as Jira and Github, plus payroll and accounting software, using artificial intelligence to help collect and organize data for the R&D claims. Like the accounting giants, Boast charges a percentage of its clients’ recovered credits, about 12 per cent on average, Mr. Lobo said.
Jason Smith, CEO of Vancouver business intelligence software startup Klue Labs, said his company “spends maybe five hours at most a year” preparing SR&ED filings by using Boast. “If we did it ourselves, it would be 50 to 100.” Mr. Erramilli estimated ACTO saved up to 50 hours of work annually using Boast compared to when it used an accounting firm. “I think this will be a huge threat” to professional services giants, he said.
Mr. Regan said the business “is ripe for [automation as] there is a fair bit of time commitment of personnel required” for claims. “If there are tools that make it faster, better, quicker, there absolutely is a place for them.” He added KPMG has digitized some practices, creating its own tool last year to automatically collect some SR&ED claim data.
“We are aware of competitors and tools in the marketplace,” Mr. Regan said. “However, we have substantial resources... to build the kind of disruptive technologies for tax automation that our clients need.”
Now, Boast is looking to help finance clients so they can receive R&D cash back months before refund season. Boast declined to offer details but Mr. Smith said that would be “powerful, particularly for early-stage companies. Cash flow is everything.”
“Our goal is to become the system of record for R&D,” Mr. Lobo said. “Every company that has become a system of record in its industry” such as Salesforce for customer-relationship management and QuickBooks for accounting – “has become a billion-dollar company. If we become that for R&D, we will too.”
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Sean Silcoff