In funding winter, Y Combinator startup nabs $12m to help pay taxes

Photo credit: Pixabay.

Five years ago, there were around 11 million people and businesses filing taxes in India. By last year, that number had grown to 43 million. And this year, it’s estimated to cross 50 million. That’s the size of the opportunity before ClearTax. And to go after it guns blazing, this five-year-old startup has raised US$12 million in a series A round of funding led by Saif Partners.

ClearTax’s latest round of funding, announced today, comes close on the heels of a pre-series A funding round of US$2 million from Peter Thiel’s Founders Fund Angel and Sequoia Capital. ClearTax was the debut investment in India of Founders Fund Angel – the early stage investment arm of the Silicon Valley VC firm whose portfolio includes Airbnb, Facebook, and SpaceX – in India.

“The industry we are disrupting is stuck in the ’90s. The software that professional chartered accountants use is Microsoft Excel! That’s what we are competing against,” says Archit Gupta, founder and CEO of ClearTax. The startup enables individuals and businesses to file their income tax returns online.

Its tech muscle got it a seat at the prestigious Silicon Valley accelerator Y Combinator in 2014. That move put ClearTax on a whole new growth trajectory as Archit got a chance to meet, interact, and pick the brains of some of the brightest entrepreneurs and investors in the Valley. The YC alumi told him “whom to meet and also whom not to meet.” And those conversations got him an impressive set of investors, including PayPal co-founder Max Levchin, WhatsApp business head Neeraj Arora, AngelList founder Naval Ravikant, Gmail lead developer Paul Buchheit, Uber investor Scott Banister, and Airbnb investor Elad Gil.

Radical transparency and some deep tech

ClearTax CEO and co-founder Archit Gupta was earlier working with San Francisco startup Data Domain, which got acquired by EMC for US$2.4 billion. Photo credit: Tech In Asia.

Early this year, ClearTax began encoding a tax-saving layer to its product. “We saw from our data that the millennial taxpayers make a lot of mistakes with their tax savings. Hardly anyone saved much tax – that’s largely due to lack of knowledge or guidance to pick the right options,” Archit tells Tech in Asia. There’s no dearth of financial advisors but they tend to push those financial products that will earn them big commissions.

Tax-payers, therefore, mistrust agents and brokers.

“We are different. We are radically transparent,” Archit says. That translates to offering consumers a slew of options, including commission free financial products, with a lot of information about each. “We tell our customers upfront about the value a certain product will give them, what is the likely return on their investment, and what’s the commission we will be earning on each,” he explains.

We had to have real strong machine learning technology to be able to read all of that and not make mistakes with people’s taxes.

Archit, who has a master’s in computer science from the University of Wisconsin-Madison, founded ClearTax in 2011 along with his father Raja Ram Gupta, who is a chartered accountant. He takes pride in the tech mettle they have built over the last few years. “We are the only online platform out there which can read 400 different versions of Form 16, automatically,” he says. Form 16 is an employer’s certificate for TDS (tax deducted at source). Every company has its own variant of Form 16.

This non-standardized documentation makes it impossible to have a cookie cutter tool to file taxes online. “We had to have real strong machine learning technology to be able to read all of that and not make mistakes with people’s taxes,” Archit says.

He wants to hone ClearTax into a “self-learning financial platform” – like Google is experimenting with self-driving cars and Facebook algorithms are picking what shows up on your timeline – Plato or platypus. “Product, tech, and people – we are going to invest all the funds into these,” says Archit. He is planning to grow his 75-member team to 300 strong by this year-end.