The Pomp Podcast - #631 The Leading Tax and Accounting Bitcoin Software w/ Austin Woodward

Starting point is 00:00:00 What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Austin Woodward is the co-founder and CEO of Taxbit, the leading cryptocurrency tax and accounting software that recently raised $130 million from IVP, Insight Partners, and Tiger Global. In this conversation, we discuss Bitcoin, cryptocurrencies, tax software, accounting standards, and raising $230 million in the last six months. I always enjoy speaking with Austin, and I think you'll enjoy this conversation as well. Before we get into this episode, though, I want to quickly talk about our sponsors.

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Starting point is 00:03:05 click on the link in the description. It'll take you right to the app store or you can go to crypto.com and do it from there. Crypto.com, not only do they have a great URL, but that's also the place where mass adoption is happening. Crypto.com, go check it out. All right, let's get this episode with Austin. I hope you guys enjoy this one. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational

Starting point is 00:03:43 purposes only. I must say right out of the gate, I'm an investor in the business. So everything that we're about to talk about is how amazing Austin, his team and the company is. But with that said, you now run a billion dollar plus valued company, Austin, that you started three years ago. Where the hell did this idea come from? Well, first of all, Pop, bang, bang. It's great to be here. And I'm obviously wearing the Miami swag just for you. So yeah, this is awesome. Great moment. And so I'm a CPA and we talked a little bit about this in prior shows, but this is a big problem. Digital asset adoption and acceptance hinges on tax and accounting compliance at scale, and it's a pain in the ass. And so the problem and idea originated in my father's basement.

Starting point is 00:04:31 That's where the company was started and trying to do my own taxes and figuring out this madness led to that light bulb moment where, hey, modern software has to enable and has to change the experience to help people deal with the complexities. Got it. And so you just announced this new fundraiser, $130 million. Five or six months ago, you raised $100 million. Most people would be like, wow, that's a lot of money. But you all have been growing incredibly fast. So maybe give us an update on progress as to where the business is today. And then what are you going to do with this capital moving forward? Yeah, great question. So lots of milestone moments in the last five months. We actually beat expectations in our forecast quite quickly, more than I even ever anticipated. So we've got dozens of financial institutions actively integrating tax bids, tax center suite technology, changing the client experiences on their platforms directly as related to tax.

Starting point is 00:05:25 We announced our partnership and relationship with the IRS. So by no means does that mean that we're filtering taxpayers to the IRS. That's not what that means. That only means the IRS is coming to us and leveraging our tools as kind of the best in the industry out there for tax compliance as related to cryptocurrency. And so we're helping them get their arms and minds wrapped around this new and emerging asset class as well. We've tripled headcount.

Starting point is 00:05:53 We've launched an office in Seattle. We are very soon launching an office in the UK. And so it's just momentous and rapid growth that's leading to this raise. And those milestones put us in a fortuitous spot where we were preempted by many of the world's best investors. and we're fortunate to be in a position where we kind of got to choose who do we want around at the table. And for us, we want to be operationally excellent. And so IVP with Tom Lovero joining our board, just a great operator and a great firm. And then Insight Partners, I've known them for my days back at Qualtrics. So a longstanding relationship over the years there and just a great partner and value add to have around at the table. And so let's start first with the Bitcoin side. By the way, I've got this massive water bottle

Starting point is 00:06:39 everyone makes fun of. But let's start with the Bitcoin and cryptocurrency tax side. That seems to have really come to the forefront over the last couple of weeks with the infrastructure bill and everything going on there. Help everyone explain or understand how you work with the IRS side, with the corporations, and then with the individuals. And I think part of what's so unique about your strategy is you're essentially serving three different types of customers, but it gives you much more efficacy in the market and really just makes sure that people who need to be compliant are compliant. Taxes suck. Everyone knows that. Super confusing. And that's really the problem that you guys are going and solving. Yeah. And who would have thought that

Starting point is 00:07:18 taxes, cryptocurrency taxes of all things, were at the forefront of the infrastructure bill and were the number one topic debated and discussed thanks to the passionate crypto community that we have. And so it's an incredible industry to be in, amazing people, and I'm just so thankful to be part of it. Yes. So this bill and this legislation, first of all, let me say it was something that Taxbit's been anticipating for many years now, not only anticipating, but building our software actively around for the last several years. That's what's given us a huge head start is that we knew that information reporting 1099s were going to be the requirement. Like we very much anticipated that and built for that. With that said, didn't quite anticipate the

Starting point is 00:08:03 breadth of coverage that this proposed bill would extend to. I do think that there will be amendments and carve outs as this industry and ourselves included, you know, work to make sure that this is fair and possible for the broader industry as a whole. And so I'll leave it at that pump. I think there's still a lot of movement that you'll see over the coming months as this bill, you know, starts to materialize and finalize. For sure. And then once you started out on the tax side, it seems like a natural extension to move into the accounting side. I know that you've got a ton of experience there personally in most of the teams. So explain kind of how you think about the accounting side of the opportunity. Yeah, the accounting side was really client

Starting point is 00:08:43 driven. We, you know, we're integrating our data with many of these leading financial institutions and they're like, Hey, you're running gains and losses for our users in real time. That's incredible. No one in the world is doing that for us as an entity. So we can't get a big four auditor to take us on as a client. We can't think about closing our books in accordance with a public company cadence. It's taking us 90 days plus. There's not a QuickBooks, Oracle, NetSuite of cryptocurrency. And so for us, that was the natural extension where we already have the data. It's running it through a separate rules engine, GAP or IFRS accounting, and being able to plug in and automate all of the journal entries on behalf of these leading financial institutions in the

Starting point is 00:09:24 crypto native space or corporate that has an exposure to a digital asset, whether that be accepting it as a means of payment or putting it on their balance sheet as a corporate treasury, such as Tesla and MicroStrategy and so many others now. And so, yeah, that's the natural extension pop that you're going to see many more announcements in the coming months on as this product's officially rolled out to market. But we've been in beta now with high profile clients and it's going super well. And so how do you think about kind of the incumbent accounting software Is this something where they don't understand the problem, it's too small for them to care about, they're faced with the innovator's dilemma? How do you think about the opportunity as to why you all can capture it versus just the incumbents adding a Bitcoin tab, let's say, to their software?

Starting point is 00:10:10 Yeah, it's a data problem. This is a shit ton of data. It is super voluminous, very complex. you're talking about banking accounting margin derivatives uh you know hedging all sorts of things where it takes really crypto uh native as well as sme subject matter experts tax attorneys cpa native uh understanding to be able to go and do uh that's number one number two i think it for the smaller smb side pump it is a little bit of the innovators dilemma where yeah this you know crypto started off as a pie in the sky small niche market and now it's really growing mainstream

Starting point is 00:10:43 quite, I think, quicker than anyone anticipated, at least I anticipated. And so we're just well primed to already be kind of integrated with these leading platforms and to do this at the forefront earlier than other people had initially thought of. Got it. There's a ton of nuance around Bitcoin and taxes. Can you explain to us, for the average person, how does taxes work with Bitcoin? And then what are the things that people need to know in terms of being able to use the tax code to their advantage? Yep. So cryptocurrency is actually crypto property in the eyes of the IRS in most countries around the world. And so what that means is you have a basis in your asset. A basis means what was your original purchase price or value when you obtained this asset? And then the

Starting point is 00:11:28 fluctuation from that basis results in a gain or loss on almost every use case of crypto. And so that creates this reporting nightmare where you have to track all of the movement of your assets across the ecosystem and your different use cases in order to, you know, nail down your gains and losses from a reporting standpoint. What that allows, Pomp, and I'm so glad you brought this up. You were talking earlier on the show about, you know, budgeting and just being financially savvy. Well, taxes are a huge part of that. You need to be focusing on your after-tax returns, not pre-tax. And so many people stop at pre-tax. And the analogy I like to use is you go into the doctor and you have no idea in hell what that doctor visit is going to cost until two or three

Starting point is 00:12:15 weeks later when you get the bill in the mail. And I know when I open those envelopes, it's like, crap, this is now what I owe. Well, taxes are the same way historically. You're plugging and chugging all your numbers into tax filing software at your end. And all of a sudden, you're just filled with anxiety of what's my tax burden? Well, Taxbit's changing that. We are actually integrating with the data in real time so people can start to see across all their asset classes. We started in cryptocurrency. We're now live on equities and commodities and all sorts of assets that will be announced and coming over the coming months where people can start to plan ahead and see where they're at, not just for peace of mind, but that data allows you to make forward

Starting point is 00:12:54 looking decisions. How can I make strategic trades to take advantage of market price dips? That's called tax loss harvesting. How can I dictate my forward-looking activity based on my current tax position? And so there's so much that you're going to see announced in product innovation on this topic that taxpayers are pioneering and putting into play, working hand in hand with these financial institutions to bring this technology straight to their platforms. And so really exciting times. And when you think about the IRS's role in all of this, Obviously, they're the kind of overseer of the tax system. Obviously, it seems like they, one, want to tell people, hey, here's what you're supposed to do.

Starting point is 00:13:34 I think one of the people's biggest complaints against the tax code is just, I don't know what I owe. Like, I'm doing the best I can. I'm trying to figure it out. It seems like Taxbit really's goal is to automate a lot of that and be able to tell someone, this is exactly what you owe. We took all of the data. we were able to run it through kind of our systems that have been, you know, built by professionals. And like, here's what you need to either hand your accountant or turn into the IRS with the amount that you owe. Yeah, our tax system is way too complex. Like the IRS code is it's a

Starting point is 00:14:05 Bible that is enormous. And it doesn't even make sense to CPAs at times, like you really have to go deep. And so that's exactly right, pop, we've got to take away the complexity. So the average American and even just the average CPA can really just have this broken down and automated in a way that they don't have to be an expert and understand the Bible, but can go and just use software to be able to tell them in accordance with the Bible how to go and dictate their life and their financial situation. Yeah, it's crazy. Joe, John, any questions you guys have? Yeah, Austin, thanks for doing this. My question would really just be around fundraising. So I think I read that the company was founded in 2018. Correct me if I'm wrong, but you guys have raised money in the

Starting point is 00:14:49 past and you were founded kind of right after that first major drawdown in Bitcoin that was publicly. How has the fundraising process changed over time and what was kind of the feedback you guys got from institutions this time around? Such a good question. Yes, we started the end of 17 right at that bull market and then the pullback happened. And that was during the time where we were raising our first round as we were just a startup in a basement trying to get going. And no one would pay attention to us. Quite literally, Bitcoin is trading at $3,000. People just didn't understand our vision. Like I said, our vision has been different in that we've anticipated information reporting, meaning 1099 broker level requirements. And that's been our vision from the beginning. We started building enterprise grade cloud based native, super secure API connectivity to run the compliance programs of these platforms. And so trying to go and sell that vision to investors at that time when, one, crypto is tanking, taxes and crypto are an oxymoron, and three, you're selling institutional grade software, at least building at the time, where we don't even see institutional adoption or acceptance. And so it was very difficult, whereas you fast forward three years now, institutions are adopting this in the masses. Taxes are the forefront of an infrastructure bill, no longer are crypto and taxes an oxymoron. It's, you know, one of the key points of this whole asset class existing.

Starting point is 00:16:14 And our software has been in the making for three and a half, four years now for the broker level reporting requirements, which we specialize in. And so all of this was the perfect storm, which led to a complete flip on the head of the fundraising model where we've been preempted and fortunate to have the world's best investors actively knocking on our door and wanting to help and join the Taxbit team. And it's a privilege to be able to welcome them to the team. Yeah. So you talked about kind of building institutional software, but not seeing much institutional adoption. In 2018, 2019, was there a moment where it kind of flipped for you and you were like, this is working, this is going to be big, we're going to be able to raise money, we're going to be able to build this? 18 and 19 was a bear market uh not really to be honest and the technology build it wasn't like this was a product we can get to market in six months it took many years and so um it was just very stay focused stay focused keep building building building and just hope that the tides turn and and they did and they did at the perfect time where our software was ready you know three years in the making to go and issue millions of tax forms for tax year 2020. We'll do 50 million plus for tax year 2021. And so really fortunate. But I think that's a testament to the TaxBit team

Starting point is 00:17:30 of staying focused, staying determined and resilient. We took our blows and we're here now. And by no means have we made it. These are early innings. We're going to keep innovating and just putting best in class software in our clients' hands to the masses. John, what do you got? Yeah, awesome. Thanks for doing this. I appreciate it. Taxes are confusing, so I appreciate you putting that pretty simply. But I'm curious about when you started this business, like what pain points did you see in the sense of like, how do you know it's time to hire someone new? How do you know when it's time to do all these certain steps in a milestone of starting a business that I think so many people run into? Yeah. And you're talking to a conservative CPA who is very budget savvy, very focused on optimizing every dollar. And so that is hard. It's hard to know when's the time to hit the gas and when's the time to hit the brake. And I don't know if there's a universal answer to that. Every

Starting point is 00:18:23 entrepreneur has to go with their gut. And I think no one knows the business more than the founding team and your extended leadership team. And so really hiring the best leadership team that you possibly can and going with your gut and what the market signals are telling you. For us, it was very clear once we got our products in the hands of these clients that we had achieved amazing product market fit, just a home run. Clients wanted more. They were coming to us, like Pomp alluded to, saying, hey, can you do this for our internal accounting? Hey, can you release this and this to the user. So having a client-focused roadmap is one indicator that's telling you maybe you should hit the gas a little bit more. This is working. And then I think it's

Starting point is 00:19:05 external focus as well. Okay, what's the industry doing? For us, timing's everything. There is a scenario here where crypto tax, you could have been too early to the game. And so for us, we needed to stay super focused on the long-term mission and know when to hit the gas at the right time. And that time was about 12 months ago now when institutions and PayPal releasing this to 30 million merchants, Elon Musk and Tesla putting it on their balance sheet. So many others, Black Rock, Visa, Amex, all their announcements. It was very obvious for us. Okay, now's the go time. And we're hiring in case I haven't said that. We'll be a tripling headcount hiring to 200 people by the end of the year. So fortunate to be in hyper growth mode. What are the roles you're hiring for

Starting point is 00:19:48 and remote in person. I know you guys have built the company, not in Silicon Valley, not in New York, not in Miami. So talk a little bit about kind of where you've chosen for people to work from and then where you're hiring. Yep. We've been at Salt Lake based. We just launched a second headquarters in Seattle. We have believed in, in office collaboration on kind of this hybrid work model, three days in two days remote, just that's been an enormous competitive advantage to our team. You should see the rapport of the tax fit team and the energy that we have. I know it's cliche to say the whole family thing, but it's a close knit, very collaborative and aligned group that will be extending. We'll be opening offices, like I said, in the UK very shortly. We will

Starting point is 00:20:31 likely have a go-to-market team in New York and a public sector team in DC. So there will be other geographical territories announced very, very close, but hiring an org wide, literally you name product, dev, subject matter experts, CPAs, attorneys, marketing, go-to-market. This company has been ran with a two-person go-to-market sales team, all inbound generated, and we're profitable year to date. And so that's just showing you some of those indicators of product market fit and how big this market really is. And so hiring across the org, and it's really exciting. When you start thinking about this tax loss harvesting, it seems like you've really taken a B2B2C approach, whereas maybe other people who went into the space started out B2C and have kind

Starting point is 00:21:16 of stuck with that strategy. Can you talk a little bit about, from a founder perspective, the iterative process that you've gone through to really kind of find this product market fit and then know when to step on the gas? And Joe asked earlier, like, when did you know it was working? But like, kind of what was the process to discovering, okay, this is the model that's going to work, let's go? Yeah, for us, Pomp, it was staying super close to customers or potential customers. We don't, we very rarely build things at Taxbit here without a customer helping guide and dictate the process. And so that's what we did with very early adopters of Taxbit's enterprise product, which were Uphold and BlockFi. Those were our two, you know, first clients and you

Starting point is 00:21:58 know BlockFi very well and they've helped. I think they get a lot of credit for the whole accounting product. And so that's been a key to our business, among so many others that have been core clients and partners of ours that have helped dictate. But that's, you know, the advice I'd give to any entrepreneur is find a client or a potential client that you envision your product in their hands and get them to work with you in some capacity, whether that be, you know, as an early beta customer, that's the best you're showing that they're willing to pay for it up front, or at least as a strategic partner and advisor as you go through the build process.

Starting point is 00:22:35 Yeah, one of the last questions I have for you and then we're gonna take a couple of questions from the audience is, you've done this with your brother. Talk a little bit, obviously, as you were listening to me and my brothers argue over who had a higher batting average in high school baseball. Talk a little bit about kind of doing that

Starting point is 00:22:52 and not having exactly the same relationship as you would have with like a non-family member founder. Yeah, it's been a privilege to do this. my brother and cousin is actually the other co-founder. So very unique story. And I love joining early because the shit talking on batting averages is exactly what we sound like every day. You know, our argument is, you know, Justin, he's a younger brother. He is smarter than me, but I always say I'm better looking. And so that, you know, we get into all those little bickers, but it's just so fun to be in the trenches with people that you trust and that

Starting point is 00:23:26 you can be super transparent with about weaknesses and about how you can do better. And I think that's the key to any business is having that radical transparency and not being afraid to hold back and having that family relationship. Some families can do that. Other families that would tear apart. I'm really fortunate to be in a position as are you with your brothers where you can do that. Absolutely. And then I guess the only other thing is as you've raised this capital, how are you going to deploy it and kind of what are the milestones that you're thinking about in terms of what you're able to achieve with it? Yeah, obviously, hyper growth. So headcount, really expanding deep on consumers, enterprises, governments, those are our three market verticals,

Starting point is 00:24:08 lots of new product launches, as we already talked about the accounting ERP sub ledger side of the business, the whole public sector, putting our products in the government's hands across the globe, so they can start to enable digital asset adoption. I hope I make that super clear. is governments regulating the asset class to a degree and being comfortable with the software and technologies that they have is going to allow the asset class to grow at a quicker pace than if you have regulators pushing back to it saying, no, we're not comfortable here. We don't have tools. And so we're going to, by nature, install laws that aren't industry appropriate or enabling. And so that's what we're helping out with. Going internationally, we'll be in the UK,

Starting point is 00:24:50 as I alluded to, other countries in the EU, Canada, and so many others on our roadmap. And then other things that I think you're going to see forthcoming. I can't share everything, but lots of huge announcements to be revealed in the coming months that we're excited about. Last question I think that we've got, there's a couple of people who are asking around geography, and some of it is things like Cayman Islands or places that they've heard have better tax treatments. Anything that you've got thoughts there, either in kind of how you all build the software or ways that people should be thinking about geography when it comes to taxes in Bitcoin or crypto? Yeah, that's going to be fact dependent based on the individual. So I would say go get a

Starting point is 00:25:28 tax attorney if you're going to think about that. It's complex. It is. And I have friends and others and financially savvy people that have done things like that. But it requires a time commitment to some degree. You have to be in those countries usually. And then spending some money up front on savvy tax attorneys that really know your individual circumstance. Got it. Uh, and then two fun ones. One is everyone wants to know where they can get that shirt from. Uh, I'm assuming they have to go get a job at tax bit to get the shirt, right? Um, funny story. We ordered some new shirts for internally and the company shipped us like hundreds of these ones on accident. So we have so many of these right now where maybe we need

Starting point is 00:26:09 to do something i heard you want to get to a thousand likes pomp uh let's uh let's pull some some drawings we can give out 50 shirts or so um yeah like let's get to a thousand likes and let's go we'll get some miami shirts out there don't say i didn't ever do anything for any of you guys you see this we bring on amazing people and they give you free stuff amazing uh and then the second one uh people are asking in terms of uh working for miners and mining programs i'm assuming that the software uh you can set it up for miners just as much as you can set it up for like individual investors or companies? Yeah. Miners can link, you know, their ERC 20 or other wallet addresses and see kind of those mining deposits come in in real time and we can run the income reports and

Starting point is 00:26:49 other things. So there's going to be more product innovation developed specifically towards miners. There's so many things that we can do on that front, but yes, absolutely. Awesome, man. All right. Taxbit.com. Anywhere else you want to send people a Twitter or other locations? Follow us on Twitter. We keep it fun there as does Pomp. And so, yeah, it'll be just a pleasure to work with each of you. And we have an amazing support team with live chat support on taxbit.com. So if you've got individual fact-specific questions, feel free to reach out to them. Real humans, savvy people that are going to be able to help. Awesome, man. Well, listen, thank you so much for jumping on here. The internet exclusive interview with Austin. We appreciate you doing it. It's absolutely

Starting point is 00:27:30 incredible. I am biased because I'm an investor in the business, but going from zero to $1.3 billion in about three years is pretty incredible. It's very obvious that the adjustable market here is massive and only getting bigger and bigger over time, which tends to be a pretty good macro tailwind to have on your side. So I think you're doing a great job. Everyone go check it out at taxbit.com. And thanks for doing this, man. We're just getting started. Thanks, Pomp. Bang, bang, let's go. all right we'll talk soon my friend

The Pomp Podcast - #631 The Leading Tax and Accounting Bitcoin Software w/ Austin Woodward

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