By Alan Soclof
A new cohort of startups is building a killer set of businesses on a single premise: Make interacting with the government less awful.
Companies like Mainstreet, Propel, Boundless Immigration, and SESO Labor. Startups making it easier to deal with tax credits, food stamps, immigration, and seasonal workers. They’re not selling to the government, they’re building delightful software products on top of byzantine, confusing, and frustrating government infrastructure.
Their customers could work with the government directly, but instead, they use this cohort to save time, money, and headaches. It’s a new UX for government.
Building a Better Website (For Government)
One of the best examples of this is Mainstreet, a company that raised $60M from SignalFire last year for a product to automatically identify tax credits for startups. By aggregating tax credits Mainstreet can deliver small businesses – to quote the marketing material – $50k+ in credits in under 30 seconds. Which means Mainstreet’s sales team is effectively selling free money.
When I talked to founder Doug Ludlow on the podcast he said:
“That’s basically it. It’s a better website. You have to get a really smart infrastructure underneath it to make it work.
I’ve heard that great marketplaces are built by either removing a middleman or by adding a middleman. You need someone to be a broker in there. In this case, I think you absolutely definitely need a middleman. That ends up being the infrastructure we provide.”
– Doug Ludlow CEO of Mainstreet, on the Just Raised Podcast
Middleman-type businesses have extremely high margins. You also have:
- Big Markets: All 330 million Americans and every participant in the US economy has to engage with the US government. From taxes to the DMV.
- Paper Processes: Software is uniquely suited to replacing forms and paper record with seamless, simple processes; there are also huge efficiencies to be had via digitization ofc
- SaaS: This might be the hardest part to get right. You get software margins but government-related problems are often low frequency, one-time events. Think buying a house or immigrating to the US. Building a subscription model on low frequency purchases or finding a better angle can be tricky but a few companies have done it well.
SESO Labor just raised $25M from Index to streamline the hiring of immigrant seasonal workers and is a perfect example of a company that solved for frequency.
They started by streamlining the H2-A visa process for hiring of seasonal immigrant farm workers. That needs to happen every season, but now they’re taking it a step further, using that database of H-2A qualified workers to create a marketplace connecting labor to the farms that need it. They’ll soon be the biggest provider of farm labor in the US.
Propel is a neo-bank that’s racked up over 5 million users with less than $17M in total VC funding. For context, Chime has 12 million users but has raised $2.3 billion in venture dollars and spends $48M a year on TV ads alone.
How did Propel do it? They’ve built a product for Americans on food stamps.
There are 38 million Americans who rely on food stamps. Until Propel, the program didn’t have an online portal. If you wanted to know your balance you had to call a number and use an automated teller. Which I imagine is frustrating every time you want to buy groceries.
Propel built a modern digital savings account for that market and monetizes through ads.
Customer acquisition costs are ultra low, churn is virtually non-existent, and lifetime value is constantly growing. It’s one of the most capital efficient businesses out there.
Blue Sky Opportunities
The opportunities are bottomless. Boundless Immigration is tackling permanent residences and work visas. Ambrook is tackling regulation for cattle ranchers. Stephany Kirkpatrick at Orum is modernizing ACH, a bank-government creation from the 70s, that still dominates how money moves in the US.
I’m convinced that anywhere you see a slow, bureaucratic, paperwork driven process in government, there’s an opportunity to build a beautiful software product on top.
VCs are taking notice. Andreessen Horowitz just announced a new investment focus on American infrastructure, kicked off by Katherine Boyle’s essay Building American Dynamism. She lays out the entire thesis better than I can:
The technology sector is augmenting and improving the functions of institutions that we used to trust, especially those in the realm of government.
Indeed, I believe the only way to reverse the course of stagnation and kickstart nationwide renewal post-Covid is through technologists building companies that support the national interest.
I call this American dynamism: it’s the recognition that seemingly insurmountable problems in our society — from national security and public safety to housing and education — demand solutions that aren’t simply incremental changes that perpetuate the status quo.
– Katherine Boyle, Partner at Andreessen Horowitz
So what other areas of government can be fixed with software? What are the most painful government experiences that millions of consumers have to engage with? Where will businesses pay for a better UX? What opportunities are there for startups?
Workweek Capital: If you’re building something like this, or something else interesting, I’d love to talk to you. At Workweek we have a $10M fund to invest in seed stage companies with a check size of $50k to $150k typically. To reach us, reply to this email.
Raise: $25M Series A from Forerunner
Including: Angel investment from Jeff Bezos, Marc Benioff CEO of Salesforce, and Dara Khosrowshahi CEO of Uber, and Spencer Rascoff founder of Zillow
One Liner: Fractional ownership of rental homes
Lots of companies have taken a crack at real estate fractionalization but few give investors a percentage of the rentalal income and fewer can onboard new properties in less than 7 days. None are backed by Bezos and Kirsten Green’s Forerunner. It’s early but this is one to watch.
Side Note: I try to pay attention to anything that comes out of Forerunner. Kirsten Green founded the firm in 2012 and led seed or series A checks into Bonobos, Dollar Shave Club, Hotel Tonight, Jet.com, Glossier, Faire among others. It has to be one of the best consumer products portfolios of all time.
Raise: $100M Series C from Lux Capital
Including: Sequoia, Coatue, Lee Fixel at Addition, and Olivier Pomel founder and CEO of Datadog
One Liner: Open source hub for machine learning and AI developers
Hugging Face is turning into a mix of Github and OpenAI with sky high potential. They have over 10,000 companies using the platform and it’s become the place for ML and AI developers to collaborate online.
This is a repeat bet from Lux Capital who also led the $15M series A back in December 2019. When a VC doubles down it’s often to take advantage of the insider information they have from sitting on the board that other investors haven’t seen yet. That Lux is buying even more bodes well for 🤗.
Raise: $12M Series A from A16Z Crypto
Including: Odell Beckham Jr., Paul George, Lionel Richie, Packy McCormick, and Roham Gharegozlou the CEO of Dapper Labs
One Liner: Building stories and a media business around Bored Ape NFTs
It is wild that this is a business. In the NFT of the past 18 months people have started writing stories about their Bored Ape NFTs, with the breakout being Jenkins the Valet. Jenkins is so big that CAA represents him.
Now the owner of the Jenkins NFT and the original creator of Jenkins’ story is building a media business on his stories and the stories others tell about Jenkins.
There’s also an NFT gated content platform, which means it’s an NFT that spawned another NFT collection. It’s insane but as you can see from the list of angel investors, Bored Apes have built some serious cultural capital and there’s big opportunity for IP, content, and experiences that can deepen that by in with community members. Also, Hollywood needs proven IP with existing brand appeal and a sizable audience.
Jobs: If this doesn’t appall you, they’re hiring across the board.