Episode #243: Doug Ludlow, MainStreet “We’d Like To Be There As America And The World Starts To Rebuild, And Give Tools To These Companies…Access To Capital And Financing In A Way They Wouldn’t Have Had Before”

August 12, 2020

Episode #243: Doug Ludlow, MainStreet “We’d Like To Be There As America And The World Starts To Rebuild, And Give Tools To These Companies…Access To Capital And Financing In A Way They Wouldn’t Have Had Before”

Guest: Doug Ludlow Is co-founder and CEO of MainStreet, a startup making it easy for businesses to access government incentive programs.

Date Recorded: 7/22/2020 | Run-Time: 51:03

Summary: In today’s episode, we’re talking about saving meaningful money. We kick off the conversation with MainStreet’s launch of an incentive campaign that would pay people $10,000 to leave the Bay Area. As a result, they received an influx of local and state governments reaching out to inform them of their own incentive programs.

This caused MainStreet to shift the product vision to serve the small business and startup community as a government relations and finance team, making it easy to gain access to the same tools and incentive programs being used by sophisticated corporate finance groups. Better yet, the average company is saving around $50,000 per year!

We dive into the user experience of integrating MainStreet into HR platforms, and even get into some of the tax credits out there, some of the qualifications to access them, and the success-based business model the team has implemented.

Comments or suggestions? Email us Feedback@TheMebFaberShow.com or call us to leave a voicemail at 323 834 9159

Interested in sponsoring an episode? Email Justin at jb@cambriainvestments.com

Links from the Episode:

0:40 – Intro
1:51 – Welcome to our guest, Doug Ludlow
6:25 – MainStreet backstory
11:31 – Building out the product and impacts of COVID
15:13 – Tapping into R&D tax credit and Work Opportunity Tax Credit
18:08 – COVID and CARES Act related credits
21:35 – MainStreet
24:06 – Business model
25:37 – Future product roadmap
29:55 – Helping individuals
32:32 – Target market for the platform
34:31 – Expanding outside the US
35:59 – Policy ideas Doug would like to see implemented
40:40 – Unclaimed.org
42:02 – Other opportunities Doug is fascinated by
44:31 – Most memorable investment
46:21 – Making credits transferrable
48:25 – Number of companies finding meaninful credits
49:44 – Connect with Doug and learn more: workonmainstreet.com

Transcript of Episode 243:

Welcome Message: Welcome to the “Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb: Hey, podcast friends. We got a fun and valuable show for you today. All you small business and startup folks, it might just save you $50 grand or more. Our guest is co-founder and CEO of MainStreet, a startup making it easy for businesses to access incentive programs. In today’s episode, we’re talking about saving meaningful money. We kick off the conversation with MainStreet’s launch of an incentive campaign that would have paid you $10 grand to leave the Bay Area. As a result, they received an influx of local and state governments reaching out to inform them of their own incentive programs. This caused MainStreet to shift the product vision to serve the small businesses and startup community as a government relations and finance team, making it easier to gain access to the same tools and incentive programs being used by sophisticated corporate finance groups. Better yet, the average company is saving around $50 grand per year. We dive into the user experience of integrating MainStreet into HR platforms and even get into some of the tax credits out there, some of the qualifications to access them, and the success-based business model the team has implemented. If you are a small business owner, do not miss this episode. Please enjoy this episode with MainStreet’s Doug Ludlow. Doug, welcome to the show.

Doug: Hey, thank you so much. Really happy to be here.

Meb: Where in corona quarantine are you?

Doug: I am hunkering down with the family in San Jose, California. There are definitely worse places to be stuck.

Meb: I’m trying to relate more to my millennial listeners. So, I’m currently podcasting from my mom’s basement. Just kidding, millennials. I know you guys all have your own room.

Doug: That’s [inaudible 00:02:15].

Meb: We road tripped across Utah. We hit up Moab, Buckskin Gulch, which was a bit on my bucket list for a long time, slot canyon. We did Monument Valley, Moab, and even just survived a three-day horse pack trip with my three-year-old son. So, now, we’re in Colorado, trying to cool off a bit. But you were formerly nearby me in Los Angeles. You were a Bruin, is that right?

Doug: That’s right. Class of 2005. Lived in LA for 11 years.

Meb: Awesome. Well, we’re right down in Manhattan Beach, El Segundo. And…

Doug: Oh, well.

Meb: We’re going to get to MainStreet in a minute, but you’ve been kind of a multiple founder, entrepreneur over the past decade. Would love to hear just kind of a quick timeline of some of those stories and companies before we lead into what you’re doing now.

Doug: So, this is my third venture-backed company. My first company was a company called Hipster. And this was a company actually started in LA, not too far away from where you are now. It was an early Instagram competitor. It was a location-based photo-sharing service. You go and tag where you are, one of those early, like, local social products, got to a few million downloads. I mean, at this point, if you’re not Instagram, Instagram has billions of user. So, a few million didn’t really matter. But we were acquired by AOL back in 2012, which seems like a lifetime ago. And the goal was to integrate this photo-sharing service into their local product at the time, [inaudible 00:03:43], which I don’t know if it exists within AOL. Now, AOL doesn’t really exist anymore. I then left to start a new company after spending about a year and a half at AOL. It was a great experience. Really liked there. My second company was called Happy Home. And Happy Home was, what you call, your personal home manager. The idea was, like, if you need help with the plumber, an electrician, home renovation, we’d have a service that would take you from an end-to-end experience, from discovery to billing, etc. Raised some money from guys like Chris Sacca at Lowercase, David Tisch, Box Group, a lot of really good seed funds. The company wasn’t ultimately successful in the end. I’ve had success and had a failure. [inaudible 00:04:20] we were acquihired, though, by Google to help go and build their Home Services Ad group. So, now, like, when you go to use Google for a plumber or an electrician, you get to use the product I built. Just kind of cool… If you have a legacy at Google, being the plumber guy is not a bad legacy to have.

Meb: Did you stay and become a part of the Googleplex for a while?

Doug: I did. I was there for three and a half years, which was a lot longer than I actually intended to spend. I thought I’d be there for a year, head on out, build the product, and be done. But Google had some really fantastic, kind, smart people. They really did. I was always impressed with every Googler I met. And Google operated at a scale that was just staggering. It goes slow, to be clear. Like, again, you have this giant, almost a trillion-dollar ship. They don’t want to mess it up. But the depth of talent there was pretty great. After I helped build the Home Services Ad unit product, I took on a role, a different role, as a Chief of Staff for Google Small and Medium Business Ad unit, as well as the Next Billion User Ad unit. And Next Billion Users are for India, Indonesia, Latin America, products that are overall $17 billion ad unit…ad portfolio. And it was a real fantastic… It was like a master’s class in small businesses. Understanding how do you serve 16 million small businesses? What are their needs? What are their concerns? What are the opportunities? And really, really glad I had that experience within Google. It’s actually shaped a lot of what I’ve done since.

Meb: I have a funny story. I had given a talk at Google. It’s got to be five, six years ago now. They have, like, an investment book club. And in the talk, because they streamed it, I guess, to the rest of the campus or remote as well, you can find it on YouTube, I said, “If you’re listening or watching, I’m happy to send you a free book.” It’s still, six years later, we’ll get people from all over the world that will email me and say, “I’m ready to take you up on that book offer.” And I’m like, “There should be some sort of expiration on this. I should have said 6 months, 12 months, or something,” but I still honour it. But good news, most of ours are free to download now, anyway.

Doug: Nice. That’s awesome. It’s a cool place. There’s a lot of great people there.

Meb: I saw the autonomous car driving around, I remember when I went there. Great cafeteria. Great spot. Okay. So, what was the on-ramp for coming up with your current idea? Was it bouncing around in your head while you’re at Google? Did you leave Google, do a sabbatical? What was sort of the next steps?

Doug: While at Google, I met two guys that I really got along with really well. They’re my two current co-founders, Dan Lindquist, who was a PM on the team, and Daniel Griffin, who was a team lead engineer. We got along really well. We barbecued a lot. Two years in a row, we won the Santa Cruz Boardwalk Chili Cook-Off together. Now, if you cook 60 gallons of chili with someone on the beach, you know, startups would be no problem. So, we knew we wanted to do something. So, over about six months worth of free Google coffee, we had discussions about what are we interested in? What are we motivated by? And it turns out we had a shared interest in…more like a concern for what we saw was, in our opinion, a growing inequality of opportunity in wealth and jobs that was being [inaudible 00:07:19] between wealthy areas like San Francisco and New York, and really like the rest of the country, like suburban, rural communities, this opportunities gap. So, this was a personal problem for me in my life. I grew up in a small, relatively mid-sized city in California called Modesto in the middle of the state.

And really over the last 40 years, the economy has slowly just been chipped away in my hometown to where if you’re a smart kid in high school, you generally leave to get a good job. It’s really hard to start a small business there. It’s almost impossible to start, like, a technology company because the support is not there. And the three of us at Google at the time, we said we want to leave Google and start a company whose mission was, and actually still is our current mission, to help create jobs and opportunity for underserved communities and underrepresented individuals. We knew we wanted to do that. We left in September of last year. We incorporated in October. But, originally, this is where the story takes a bit of a detour. Our product vision was very different at the time. What we wanted to do when we left Google with this mission, we wanted to build what we were calling a network of remote workups, to where you’ve got these great Google engineers who have these great Google jobs, good Google salaries, but they had to live and work in Mountain View. And no one wants to live and work in Mountain View, if you would. You’d rather take your great job and live on the North Shore of Hawaii or in Boulder, Colorado, or in your hometown.

So, we set out to build this network of remote work hubs, and to kind of kick off and see if other people had an interest in this product, we launched in November what was a kind of incentive, the kind of tongue-in-cheek promotional campaign. It was, “We’ll pay you $10,000 to leave the Bay Area” campaign. This went crazy viral, thousands of thousands of applicants, international news, media attention. What was interesting is the minute we launched this $10,000 incentive plan, literally dozens of cities and states and counties all around the country reached out to us and let us know that they already had an incentive plan and wanted to know if we could share it with the growing community that was interested in ours. And, for example, the State of Arizona reached out and let us know they had a $9,000 per new job hiring incentive [inaudible 00:09:22]. The City of Tulsa, Oklahoma has this great program called the Tulsa Remote Program. This is $10,000 for moving your remote job to Tulsa. I was kind of stunned. As I mentioned earlier, this was my third company, and yet it was the first I’d ever heard of this world of government tax credits and job creation incentives. So, we decided to dig deeper and learn more about this. And it turns out that this is an enormous market. Like, $300 billion are spent worldwide each year or allocated for basically hiring credits and tax credits based on trying to promote the hiring of certain people, the certain type of economic activity. It’s $150 billion a year alone in the United States. It’s almost entirely taken by the biggest companies, the Boeings, the Walmarts, the Amazons, who have sophisticated government relations teams, sophisticated finance teams, who take advantage of these credits, sometimes negotiate these credits, and save their companies literally billions of dollars per year.

So, we decided… This was like our aha moment, our light bulb moment. We said, like, “This is what MainStreet should be.” MainStreet should be the mini-government relations team, the mini finance team for the small business, for the startup. Let’s make it a lot easier for these Mainstreet businesses to get the kind of the financial tools and tricks that Wall Street businesses get, whether it’s tax credits, whether it’s unique financial instruments like invoice factoring, whether there’s opportunities on things you can do.” The world is kind of endless when you start thinking, “What are all the things that large companies take for granted because of their scale?” The tax breaks being one of the first and biggest parts of that. How can you miniaturise them to make it easily accessible to the startup? And once we made that…that change, when it heads down, the demand was just through the roof. And we could talk about that, if you like, but this was my long-winded way of saying, “This was not what we want to do when we left Google.” This came by launching a product that was interesting, and I think will eventually be successful. I think someone will build a network of remote work hubs, like a WeWork for remote in the suburbs, which would be a cool idea. Not today, of course, but give it a year or two. But through that experimentation, through the iteration, and kind of by listening to what the market was saying, we found this current iteration of the product that has just really taken off. I’m really glad we did.

Meb: So, there’s so much to unpack in that. I mean, I was thinking, as you were speaking, about half of my family comes from sort of farmland in Kansas and Nebraska. And Modesto, I think, in that general area, is a farm community too. And thinking about go drive through those towns now, and so many are just sort of… Ghost towns would be a strong word, but you can tell…they’ve been hollowed out by, like you mentioned, the young people moving to cities, or transitioning, or whatnot. But touching, obviously, on a lot of the societal stressors of the income and opportunity gap and so many things going on there, we talk a bit about that on the podcast, and then where you are, what’s led you to kind of what you guys are doing. Why don’t you kind of walk us through… I mean, my gosh, what a crazy time to start a company and then be introduced directly into 2020. But again, this isn’t your first rodeo. So walk me through kind of then how you guys started to build the product, and what that actually looks like, and how different that was. So, where are we in the timeline now? Is this like the first quarter of 2020?

Doug: That’s absolutely right. We launched this, our first incentive program, that $10,000 to leave the Bay Area, in mid-November. It was already clear to us by the beginning of January that not only was the idea of these incentives and credits were potentially much bigger, more scalable market, we were also actually very concerned about what we started to see. And this is true in China with COVID. Recognizing that if this happens here, if things get shut down, there’s no world in which people are going to be moving right now. Remote work will be big, but so we recognised we need to make this change and we need to do it fast. So, in February, we started to build this product. We started to build… And the way the product works today, a good analogy to use is Honey for business. I don’t know if you know Honey, the app, it sits in your Chrome browser, and it helps you save money every time you shop. MainStreet actually works in a very similar way, but a founder or a small business owner will add MainStreet and connect it to their HR portal, their Gusto or their Justworks. The way it works, our system will identify based on the signals embedded within your payroll, whether it’s salary, or job type, or location, etc., what are the credits you’re likely eligible for? Well, then our system will make an application for these order of magnitude easier. So, like rather than spending hours on this on your own or with your accountant, it’s probably about 15 minutes worth of work on the part of the founder. And then we handle ongoing maintenance and compliance toward… Some of these credits require followup, the quarterly reporting. The nice thing about being software-based, it’s something we had to do, it’s easy for us to do. It couldn’t be easier to use in the state it is today. You simply add it to your payroll, and you start saving money.

The average company has been saving around $50,000 a year right now, which is pretty great. Focused largely on a few different types of credits, the biggest credits being some federal credits, the Research and Development Tax Credit, which, again, very appropriate for startups. Although with some of the R&D Credit is, everything you spend on an engineer, for example, you’re eligible for almost 10% of that back in tax credits. It’s the way the government tries to incentivise the hiring of engineers or product people in the development…research and development in the United States. Another credit that has proven popular, and I think will about to explode nationwide, is the Work Opportunity Tax Credit, which is actually a subset of 12 different credits that the government tries to use to incentivise the hiring of people. Let’s say, rural environment, an enterprise zone, veterans, or someone who’s been unemployed, and that’s about 30 to 40 million Americans about to be employed. So. we expect this tax credit to really start to help incentivise the rehiring of these people, really put money in the pockets of small businesses starting 2021.

Meb: Can you dig a little deeper on that? What are the qualifications of that? Because I imagine we have a ton of small business owners, founders listening to this. And I’m sure, much like ourselves at Cambria, we pretty much don’t do any of these things, either because we’re unaware or just focused on other things, or too small. Like, many founders, there’s only so many hours in the day. But if it’s money being left on the table, it seems foolish not to pursue some of these opportunities. So, could you explain a little more what that means on sort of the…you said the biggest muscle mover, R&D Tax Credit. I’m guessing that applies a little more to tech or research-based organizations. And then what was the next one? Could you dive a little…

Doug: So, the Work Opportunity Tax Credit, WOTC for short, WOTC, was started during the Clinton administration, I believe in ’95 or ’96. And over the last 25 years, the program has grown to add different categories of people who the government’s try to incentivise. And so, for example, during the Bush administration, veterans and wounded veterans were added to the list of people you get a tax credit for. The credits range anywhere on the low-end, really from $2,400 up to $9,600. And eligible for a few years actually, depending on, again, there’s 12 different categories, they’re all slightly different, but it’s a pretty simple process. Whether or not the companies is Mainstreet or not… So, I’ll talk about in general before we talk about how we do it. It’s very simple. You ask your employee to fill out a quick form if they meet a certain category, or if they’re a veteran. Ten to 15% of the country lives in either a rural zone or an enterprise zone. And then the government will then choose to accept or deny the request. Usually, about 50% nationwide requests were approved, and that number goes up the more you’re actually sending qualified people their way. But then you get a credit you’re able to use against your taxes, whether it’s your corporate income tax, which if you’re a C corp you have, or if you’re an LLC, sole proprietorship, or partnership, that can flow through in many ways, and you talk to your accountant about this, to your personal income tax. It will reduce your liability depending on your structure. It’s incredibly valuable.

The IRS estimates that 95% of people who would be qualified for the Work Opportunity Tax Credit, that companies aren’t filling out these forms. And so, there’s an enormous opportunity for businesses to simply fill out a form and send it and get, in some cases, up to $10,000 worth of tax credit back and that’s going to be incredibly important over the next 24 months as small businesses are really getting hammered now and as they start to rebuild. For the listeners, go check out the Work Opportunity Tax Credit. Just google it, “WOTC.” You’ll get an IRS page. There, you’ll view the different types of categories. And again, the biggest being, people who are on SNAP, there’s food assistance programs, veterans, people living in enterprise zones, people living in rural zones, people who’ve been unemployed for six months, people who are felons. There’s a few other categories beyond that, but those are the biggest. But, again, are you already hiring these people without knowing? Does it fall in these categories? And it’s designed to help people who could really use a job.

Meb: All right. So, we got R&D, Work Opportunity. Are there any others that are in the current batch? I imagine, over time, you guys are going to end up adding all sorts of stuff. But are there any other main ones that people should be thinking about?

Doug: Those are the major federal credits that are available. There are some COVID-related and CARES Act-related credits, which many businesses have hopefully already taken advantage of. Obviously, there is the PPP. People should pay close attention because there’s a word of another PPP-style program that will be released since the country is still in the middle of this COVID crisis. There’s the Employee Retention Tax Credit, which is another federal level credit, and that is if your business has been affected by COVID but you did not take the PPP, you’re actually eligible for $5,000 in credit per employee. So, it’s incredibly valuable for some companies. It’s a payroll tax credit. So, it reduces your liability immediately. And those are the federal things.

But over the next year, we’re going to be adding… There’s 2,000 different programs nationwide. It’s kind of crazy how many incentive programs there are. We will be adding in statewide credits. And some of these are statewide R&D Credits. Some of them are actually Education and Training Credits. Most companies don’t know that if you’re upskilling your workforce, for example, training them in IT or giving them advancement in any number of career areas, you’re eligible for up to 50% of your expenses reimbursed by the state. And 42 different states have a program like this, again, anywhere from…California’s on the lower end at $2,400. New York’s on the higher end at $5,000 to $6,000. So, those are the things MainStreet will start to add. And eventually, we’d like to do all the local programs. The City of Sacramento has incentive programs for hiring people, $10,000 per person. And the State of Vermont has a remote hiring program. And more and more… When we talk about this is, like, more and more will cities and states start to compete for remote jobs, that’s been a trend we saw over the last two years, but given that COVID has made… Like Twitter, for example, they can go 100% remote. Facebook is moving in that direction. Now, cities and states will be able to compete for these jobs. And you’re about to see this market explode on the local level, and we hope to be there to help people connect.

Meb: It’s fascinating. I was just reminded of, and maybe as you guys wrote about this, or maybe someone else, but there was an article on some of these incentives, and some were personal and some were business-related. But there’s like a town in Iowa that will straight up give you some land. It might even be like a house, where they just, like, give you a plot of land. It’s like 200 years ago in the Wild West in the U.S., but it’s 2020.

Doug: These communities are really getting ready to compete for these jobs. I mean, imagine how much land you can get in the middle of Idaho for what you pay for a tiny apartment, for example, in San Jose or San Francisco where I live. You can buy a beautiful plot of land, and if your job is now remote, why not? Why not take the family and live on a farm and still have your great remote job for the cost of a small apartment in the city? COVID has been terrible on many, many, many levels. What I hope this brings, though, in long-term is kind of that vision that we started the company on, like spreading opportunity across the country. If you can take your great job and work somewhere else, why wouldn’t you? And cities and states will start to compete to get you to do that.

Meb: There are so many of these things. And many, many, many, many years ago, being an investment and finance guy, we used to look into the U.S. Virgin Islands incentives, which got a little more challenging over the years. But then Puerto Rico has a ton of incentives as well. Walk me through practically how this works. So, let’s say, I’m a company, I got 10 employees, we don’t do any of this stuff. We just focus on our blocking and tackling. I go to your website. What’s next? How does this process work?

Doug: It’s pretty easy. I’ll tell you how the product works today, and then we’ll talk about where it’s going. You’ll set up a quick appointment with an onboarding specialist, who will talk you through what to expect. Again, tax credits and incentives are new to people, so having a little bit of expertise helps. You’ll then receive instructions, how do you add MainStreet connected to your HR platform? If you use Gusto, if you use QuickBooks payroll, if you use TriNet, each of these programs are slightly different. And once you connect, then you just sit back and you wait. And if you’re a technology company, within a few days, you’ll get back a notice saying, “Hey, here’s how much we think you’re going to save for the Research and Development Payroll Tax Credit. Take a look at this. Sign here and be done.” It’s very, very easy. If it’s a hiring credit, like one of the Work Opportunity Tax credits, when you add someone to payroll, our systems connected, and we notice. And if we think that person is eligible, we’ll shoot off that application for you. And, again, all you have to do is sit back, and you’ll be asked, “Do you want to take advantage of this?” You press yes and you’re done. So, it’s very, very easy. It’s designed to be as hands-free as possible.

Meb: And so, is the company actually making the applications? Do you guys do it? Is it sort of you just kind of hold their hands through it or what?

Doug: So, it depends on what type of credit. Because in the case of a, let’s say, the Research and Development Credit, that’s actually something that gets filed with… There is no application. It’s actually like a form you file with your taxes. So, we’re connected to your accountant, it’s the Form 6765, if anyone cares about specifics. And we give those to your accountant, and they file alongside your taxes. And then you’re able to start taking credit every time you run the payroll. So, we’ll help you with that. For the WOTC application, that is something that we are able to send out on your behalf. Again, it’s not MainStreet making the application. You’re just pressing go, and we send it for you. Think about like how TurboTax works with Intuit. It’s not Intuit filing your taxes for you. It’s them assisting you to do so. If you get approved, then, again, the approved form, we’ll send along to your accountant. And when you file your taxes, you get the credit against your taxes.

To your point about founders and small business owners, we’re all really busy. The last thing in the world we want to do is think about, for example, for someone starting a restaurant, they’ll think about the recipes, how do you hire enough staff? The last thing they’ll think about is government incentives, even if it could net them tens of thousands of dollars. We want to take as much of that headache off as possible.

Meb: Yeah. I think that’s the perfect description, is headache, because if anyone’s been to the DMV, or dealt with the government in any capacity, it can be mind-numbingly painful. So, what’s the business model? Do you guys charge a monthly fee? Is it something where it’s success-based? How does it kind of flow through to you, guys?

Doug: So, it is a success-based model. So, for example, if we identify a credit for you, and then you’re actually able to take advantage of that credit, then we charge a fee. And the fee is generally 15% to 20%. And we only get paid when you get paid. So, it’s one thing to identify that, “Hey, you’re eligible for this,” but we won’t charge you until you’re actually receiving benefits. One of the things we’re evolving with our business model and actually launching this week, so by the time people hear this, this would have been out for a few weeks, a program to where you can actually receive it. We will advance you the money for credit you’ll receive down the line. So, if, you know, in July, I hired someone, I might not be able to take that credit till next April after I file my taxes. Or if I’m paying an engineer researching something, I’m generating R&D Credit now, but I won’t be able to receive that for nine months. We’re able to actually give you the credit now in the form of an advance that we get repaid when the government writes you that check back. Again, it’s the same model, we get paid when you get paid. But this way, you will basically get paid instantly, which is kind of cool.

Meb: It’s such an obvious business model. It’s one that is so obvious that it’s odd that no one has kind of done this exact approach. But, like you mentioned, because of all the guts and challenges of connections, it’s not a trivial project that, I imagine, is going to be a continual effort to add all these programs in the future and optimise them. So, you mentioned kind of how it works now, and maybe, how it’ll work six months or a year from now. What does sort of the future product roadmap look like? Because I imagine once you have dozens, and then hundreds, and then thousands of these companies plugging in, you start to have some opportunities and ideas that may be able to capitalise on that you don’t have maybe today. Any general comments, thoughts?

Doug: Oh, yeah, absolutely. If you think about a small business, and how business is valued and how business is financed, it’s actually very difficult for a traditional bank, or a lender, or a credit card company to actually understand, how is this company doing? Because if you look at the balance sheet of even a very successful retail store or a restaurant, they generally have very little cash on hand, even if it’s a very successful restaurant or a very successful retail store. What we’d like to be able to do with MainStreet is utilise the insights we have in this business. So, for example, if a restaurant has hired 20 people in a year, and that’s a pretty standard restaurant, and it turns out that half of them were eligible for a $5,000 tax credit, well, gosh, we know that this restaurant is going to receive $50,000 worth of credit next year. We can extend all sorts of financial assistance to that business, whether it’s in the form of loans, whether it’s in the form of, like, approving for credit cards, or etc. So, we like to use government credits and incentives as a way that will help us get more insight into a small business and be able to help them in ways that bigger companies get.

So, if we can be the heart of the small… We may… Now, we’re getting into the realm of brainstorming, and I don’t want to give away anything. But like we can launch the MainStreet credit card, that could be in the pocket of every single small business owner that helps get you savings from tax credits, helps get you savings from incentives, but then also adjust your limit based on what we know. So, we can be… Going back to our core mission, we want to help create jobs and opportunity for underserved communities and underrepresented individuals. The small business owner is out there on their own. And it’s very hard. The world of finance can be an opaque, difficult-to-navigate world. And so, if we can make that just a little bit easier, kind of set it and forget it, and open doors to easier financing, better financial tools, kind of be the heart of that small business’ financial centre, that would be our goal. How do we help tens of… And actually, just to go out a little further, small businesses are being hammered right now, and many will close over the next 18 months. So, it’s going to terrible, it’s going to happen. We’d like to be there as American…the world starts to rebuild and give tools for these companies. Millions of companies that are starting to have access to capital and financing the way they wouldn’t have had before, and really be there to help usher in the next wave of small businesses for the next decade.

Meb: It’ll be fun to watch you guys as this entire platform gets built and you have some of these insights, a lot of the almost traditional banking ideas. You’ve seen a lot of the credit cards that are focused on startups and early-stage companies develop a whole ecosystem of benefits that probably outweigh the cost, where they can say, “Hey, here’s the 20 things that you can get that companies may offer as benefits.” But I wonder at some point if you guys almost can become a proactive…where it’s like a flywheel, where you’re actually talking and having discussions with various municipalities, and states, and governments about programs and ideas once you have this whole base of companies to work with.

Doug: No. That’s exactly right. Certainly, if we have thousands of technology companies… Certainly, it’s very easy for us to talk to a city saying, “Hey, this is the type of program you should launch. You will attract talent here.” We’ve talked to dozens of economic development boards around the country, and they’re eager for a solution like that. They don’t know exactly… They know they have to compete for these jobs. But the traditional model of economic development doesn’t work. It’s the build the factory, spend $200 million. Hopefully, the factory will never leave. That’s very much a 20th-century form of economic development. So, here, if they can use MainStreet, again, leveraging the thousands of small businesses, thousands of startups that will be on the platform, or the hundreds that are on the platform today, they’ll be able to have a much better insight into where their tax dollars are going because they’ll see like, actually, this company X hired this person, and we provided a $5,000 incentive. And we know they’re living here. It’s a level of insight and accountability they have with their tax dollars and tax credits they’ve never had before, so they’re eager for that as well.

Meb: It’s funny because you mentioned TurboTax earlier, and I was actually ranting on Twitter because I still do my own taxes. Don’t ask why. But it takes me usually about four days, and I don’t even have traditionally that complicated a taxes. And I’m a finance professional. I’ve been in the finance industry for essentially 20 years, and it’s still that complicated. But even then I was, like, how is there not automated service to where, and this is personal, but essentially, it’s what you guys are doing, where I could just put my last five years of tax returns, and it spit out, “Hey, idiot, you’ve done these five things wrong. You could have claimed these home office expenses or whatever they may be,” which I imagine maybe one that, by the way, may start to pop up more in this sort of remote world with you guys too. But is there ever an expansion idea that would involve individuals too where you say, “Hey, look, you should be taking advantage of XYZ,” or is that just too far down the road?

Doug: No. I mean, we certainly discussed the idea, because individuals need help. One of the benefits… I actually don’t think we’ll be going down that anytime in the near future. It’s for a variety of reasons. The interesting thing with small businesses and startups is if we can nail even a handful of programs, it will be incredibly valuable for millions of businesses. Individuals, there are so many complicating factors. So many, like, are you married, filing jointly, partnership? What’s your losses for years? It is far more complicated. Someone will eventually develop a fantastic AI-driven accountant that does exactly what you’re talking about. And that person will develop a trillion-dollar business. I have no doubt about that. In the meantime, though, I think our focus will be on small business and startups only because it is slightly simpler, even though it’s not simple, it’s a lot of work, but it’s simpler than doing an individual level. And from a business perspective, when we’re talking about helping small business with tens, if not hundreds of thousands of dollars, we can invest the resources because we know we’ll get a return helping these guys that may not be there for the individual. It’s a great idea. Someone will do it. It’s probably not going to be us.

Meb: I mean, the opportunity is big enough. It is kind of focusing on the business side. But you guys have only been at this for a few months on this specific iteration, and you mentioned already the average savings is like $50 grand. Have you had any companies that have gotten into 6 figures, saved over $100 grand yet?

Doug: We’ve had companies save $250,000.

Meb: Wow. That’s awesome. Even at the bigger companies, I wonder where you start to hit your head on the ceiling of they have someone doing this in-house, is it like 50, 100, 500 employees? Is it totally dependent just on kind of their time in business? What do you think is kind of the upper reaches on where this might already being captured in-house?

Doug: For the product, as it stands today, our target market is generally a startup from a pre-seed level to Series B or Series C. And that’s generally the… If you have a CFO, and CFO is probably your college roommate, they’re not a professional CFO, you have not yet really invested to digging into every little detail about your finances, your focus is actually on building the business. As the company grows and matures, that does start to change. So, we think that our product today is useless for Google or useless to Amazon. What we think will be interesting, though, as we develop this network of incentive programs around the country, around the world, we’re talking thousands of different programs across hundreds, if not thousands of different locations, that’s actually a network that Google would actually benefit from. Google’s not going to maintain active 2000 different programs, they will utilise us. Twitter will utilise us. If we can manage to do that, we’ll have created this giant network that’s very difficult to disrupt, provides a lot of help and provides value to everyone from that entrepreneur just starting on day one, all the way to some of these trillion-dollar companies. That would be a really valuable end goal, but then we’d become, at that part, kind of a vital part of the world’s economic development landscape, which is not a bad way to spend your time.

Meb: I mean, even if you are a company, and I’m smiling at this, that’s doing 10 million or 100 million in revenue, what’s the downside? It’s like you’re getting a free audit. It’s like, “Hey, sure, I’ll plug in if you can find some savings that Joe Smith, the accountant, has not found in-house. Why would you not do it?” It would be such a fun case study. Just, be like we plugged into whomever it is, it’s some massive company and still found all these opportunities. That’s a fun idea. So, listeners, email in and let me know how this all works out. Let me know how much you saved. You owe me a beer if you save anything. You hinted briefly at actually global. Is that something you guys are looking at beyond our shores? I remember some countries like Chile used to have a big incentive program. Is that something you guys look out to?

Doug: Yeah. We’ve actually talked about that. Again, just when we talk about business focus, we’re less than a year old. The product has only been in the market for four months. So, it’s not something we could do today. But if you look at the economic development landscape in the credit world, about half of it is centred in the United States. The other half is found in the EU and Canada. India actually has a pretty robust incentives program. We will eventually get there. Again, this is an enormous market and it will actually only continue to grow. As the same competitive forces that are going to drive American cities to compete against each other for jobs, you will see, on a global scale, countries competing for jobs. Like, they did for the Amazon HQ2 headquarters search. So, I see a world in which we can compete there. And we can help the entrepreneur and small business owner. That it is so far ahead of us that we’ll have to wait to see where we can get to, but either we’ll be the company that does it, or there will be another person…company who does it. Maybe, it’s actually a company that is focused specifically on the Canadian market, someone who is specifically focused on the EU market. They are different enough programs to where… And there’s different payroll platforms that you might have localised versions that we either will partner with or eventually acquire, but we’ll get to the global bridge when we have a little more of a presence in the United States.

Meb: It’s too early for a beer. So, we’ll say coffee brainstorm here. But let’s say you get to put on your government policy hat and your state governor, or a local mayor, or what have you, or a senator, are there any policy ideas that you think are particularly insightful that seemed to work really well? You’ve seen a lot of things, Cory Booker’s, you know, there’s Opportunity Zones, some other ideas that have got batted around, or any that people have not mentioned that are really interesting. Is there anything that you think, in particular, going back to the beginning of the conversation about this wealth and inequality opportunity sets, any ones that you think are really wonderful or new ones that you think no one’s even thought of yet?

Doug: Let’s talk about Opportunity Zones for a moment. Opportunity Zones started off two and a half years ago, right, with Cory Booker, one of the co-authors of the legislation. It is this close to being a great program. The amazing thing that Opportunity Zones do, they let investors roll over, you probably know this and your listeners may know. If you have a capital gain, and you invest it into Qualified Opportunity Zone Fund, not only will you get, if you hold this for 6, 7 years, 15% reduction in the capital gain you owe. No matter how large this grows, you own no capital gains on top of that. So, it’s limitless growth. It’s an extraordinary program, or it could be an extraordinary program. One of the challenges with this is it was designed initially for real estate, and the IRS has… And Treasury has released a few clarifications and guidelines to point this towards businesses in Opportunity Zones. The challenge, though, there still exists a gap between the massive benefits that wealthy investors get, and the small businesses or even startups that would benefit from this capital. There really is no benefit if you’re a small business to be in an Opportunity Zone. None at all.

And so, I would love it, and actually, MainStreet is working on this problem right now. So, I have a dog in the sun. How do we find a bridge to connect the truly great incentives that wealthy investors get and make sure that small businesses and startups actually benefit from those programs? Right now, the Opportunity Zones have a reputation for being kind of a loophole for billionaire investors, which, hey, I have no problem with billionaire investors make money at all, I just like to see if we can make that benefit flow to small businesses more. So that’s something I hope to see Congress revisit and tighten it up. Again, I think you’d see an explosion of benefits in startups. Like, for example, the R&D Payroll Tax Credit is helping startups hire additional people. It’s actually achieving the goals they’re looking to do. If a startup could get a benefit from being in an Opportunity Zone and save 10% to 20% of their cost, that would do extraordinary things for underserved areas within the country. So, it’s my long-winded way of saying, I love Opportunity Zones. I think they’re this close to being a great program. But until some revisions happen, they’ll still be those loopholes for billionaire investors.

Meb: I think it’s pretty accurate. I think it was framed as the companies would be more attractive to the investors. But if you actually had the benefit or the companies that would kind of link the whole thing from formation to investor, what would it look like? Would it be some sort of tax rebate? Would it be some sort of discounted tax rates? Like, what would the best proposal be, do you think?

Doug: Well, so, there’s a couple of different things. Payroll taxes are the things that startups and small businesses benefit the most from. Payroll tax relief, that’s why you saw some of the COVID… The Employee Retention Tax Credit, for example, is a payroll tax, because that’s… Most startups and small businesses either operate in a net operating loss or have very little profit to offset as it is. So, if I can go and… If I base my startup here and not have to be payroll taxed or get a massive payroll tax reduction, that would actually be a substantial benefit. It’s like a 10% increase in every dollar I spend. Things of that nature that would be useful. We’re experimenting in the company right now is, can we find a way to link essentially the 15% credit that investors get, can we pass some of that along to companies that either exist in Opportunity Zones or even outside of them?

So, can you come up with clever financial instruments that essentially allow the wealthy investor to share some of their credit in the form of discounts, in the form of whether it’s reduced payroll, whether it’s rebates on expenditures to help align those incentives? There’s a lot of different ways this can go. But for a startup or a small business, cash in hand or cash in hand equivalents is what’s needed, not a 10-year time horizon. Ten years is an eternity for a startup. You’ve either been out of business for nine years, or you’re a billionaire, it doesn’t matter anymore.

Meb: This reminds me a lot… One of the reasons I was so attracted to what you guys are doing is that we’ve written about over the years, and this is on a personal level, but actually, it’s businesses too, with the unclaimed assets that are sitting at state coffers, and it’s in the billions. And we’ve found every year around tax time, which is weird because now tax time is kind of right now. We tell our followers to say, “Go to unclaimed.org, type in your name, type in your family’s name.” If you want to be creepy, you can type in all your relatives, or friends, or neighbours too, and people have tons of unclaimed assets. And we found over a million bucks for our listeners so far. I think the largest single was $80 grand. We had an investment advisor do it for all of his clients and found like $250 grand. People usually think it’s a scam, but it’s a lot of unpaid, whether it’s dividends that are lost, or utility bills you overpaid, or insurance. Some of the states liquidate it. Some of them let it compound. Some even let you download some of that, and so that’s been an annual thing we’ve done for probably a decade. So, listeners, if you find anything, shoot me an email. Let me know what you find, particularly if it’s over 10 bucks, but you’re doing a much more professional version of that.

Doug: Well, it’s a similar thing. It’s like there’s trillions of dollars in unclaimed value. How do you get that in the hands of the small business rather than let it just sit there or rather… If you’ll have a tax credit, if you don’t utilise them, they disappear. But then you can’t claim, what a shame that is.

Meb: What else is on your brain these days? I’m sure the 99.9% of your time is spent thinking about the business. Is there anything else you’re excited about as you look out to the horizon of this early decade in, six months in the 2020s? Anything else you guys are thinking about related to your company or anything else?

Doug: The last six months… I mean, you and anyone listening knows just how insane the last six months have been. I did not set out to start a remote-only company but that’s where we are now. We have people scattered, and we will be hiring really anywhere. And so, one of the things I’m concerned about as a founder is I’m fully expecting our company to be in a phase of hypergrowth, and that every founder should want to be in that position. And I think we’ll be there. We’re now at 11 people, how do you scale to 50 people? How do you scale to 500 people, and do that all in a remote setting? I have no experience doing that. And most people have no experience doing that. So trying to rewrite some of these rules for how do you do that, it’s something our company is actually thinking about quite a bit. Most companies before this era that were remote-only, they hired people specifically who wanted to be remote. Automattic is a great example of that. Zapier is a great example of that. They filtered for people who want to be great remote workers or want to be working in a location other than San Francisco.

Well, now, every employee in a tech company is going to be a remote employee for a while, not everyone is a perfect fit for that. And yet, at least 50% of the talent that was looking for a great job is going to now have to be remote. So, how do you support that? How do you build an infrastructure? How do you build a company culture that supports that? That’s going to be a real challenge. That is a very big top of mind question and concern for us. I, generally, in life, am an absurd optimist. You kind of have to be to be a repeat founder. You have to believe that things are going to go right. But when it comes to, like, planning for the next 24 months, I’m taking a very pessimistic viewpoint, saying, “I think we will be working from home.” And the room I’m in right now, this will be my office as we go and raise our Series A, Series B, Series C. And how do you build a company that can succeed and scale? That is something that keeps me up at night. You can nail the product, but if the company is not there, there are some real challenges.

Meb: When you find the answers, write a blog post, send it over, because I’ll read it. We struggle with the same issues. One of the things I think a lot about, like many people, is, do you need an office at all anymore? And what does that look like? It’ll be interesting to see. We asked most of the people on the podcast and hear you’re a founder and entrepreneur, but I imagine an investor too that are investing focused, what’s been your most memorable investment? Is there anything that comes to mind? It could be good, it could be bad, it could be anything in between, anything seared into your brain?

Doug: I can tell you the biggest investment I lost. I had an opportunity to invest in a fund that ended up being one of Uber’s very first institutional checks. But at the time, my wife and I were expecting our first child. So, this was 12 years ago, and it was $10,000. But we were, like, “Yeah, let’s save this $10,000 for baby stuff.” I don’t want to say how much that $10,000 would be worth now, but that’s my greatest investment regret.

Meb: Well, that would have been one hell of a 529 plan. You said, “Look, we’re going to put in $10,000, but we’ll put it in our child’s college account.” You could probably fund just about every student in Modesto with that.

Doug: As a repeat entrepreneur, I have a lot of friends who run small real estate companies. So, there’s a wide variety of them. I’m a big fan of supporting my friends. I’m fortunate enough to be friends with a lot of very creative entrepreneurs. And so getting an insight into their world and the opportunities they’ve seen, so I tend to avoid… I don’t write checks to institutions. I will write checks to friends, and you have to do that fully expecting that that money all goes away. But so far, all my friends are fighting the good fight. And if anything, it’s been an interesting opportunity for me to improve my skills as a founder, because I’ve been able to help them with their problems from the inside. So, I’ll be able to see some problems before they arise. It’s made me better. So, it’s like even if every dollar I’ve angel invested disappears and doesn’t return, the education it has given me, not just from an investment [inaudible 00:46:13], I don’t ever expect to make money investing, I expect to make my money doing what I’m doing now, it’s made me a better manager. It’s made me a better founder.

Meb: And speaking of friends and writing checks where all the money goes away, living in Los Angeles is probably one of the most well-developed and understood tax credit industries being the film industry, if any industry has figured it out, certainly, all of our producer buddies that go film in New Zealand, or Kentucky, or whatever, North Carolina, I don’t know where all the incentives are, they seemed to have that dialled in. That’s been one industry that’s been a pretty good constructor of that concept.

Doug: Absolutely. They invented something called a transferable tax, to where when Paramount goes and films in Georgia, they will never pay Georgia State taxes [inaudible 00:46:58] based. But most filming credits you can actually sell to someone else. So, Paramount, when they film in Georgia, they can sell their state taxes to Home Depot that is based in Georgia. I guess your earlier question, what are trends we hope to see happen or what are great ideas? I think all Research and Development Credits should be transferable to where if I employ someone in Wyoming, if I employ someone in Rhode Island, California, those state-level taxes I should be able to sell as a founder, get cash now, I think that would unlock an enormous amount of opportunity.

Meb: Is there a marketplace that exists for that? Or how does that actually work?

Doug: It’s generally like private placements to where you’ll have brokers who arrange this. The challenge is there’s just not enough liquidity in the marketplace to have a true market for this. On the filming side, there’s just a handful of players that, like, go and film in these large studios. Generally, it is done in a private placement. I think if you were to open this up to the startup world, though, suddenly, now, you’re talking about 40,000 different startups, you could have a really interesting R&D. There’s $400 billion a year spent on R&D in the United States. What you can do to unlock that for startups, small businesses, and small labs would be extraordinary.

Meb: There’s another billion-dollar idea. By the end of this podcast, we’re going to have, like, five different unicorns for our listeners to pursue things that you guys might not be. I was going to ask and is a curious question, I know you guys have a limited sample set so far. Out of all the inbounds you guys get, what broad percentage of companies do you think end up having a pursuable amount that’s worthwhile, and worthwhile to everyone means something different, but maybe more than, say, $5 grand? Is it a majority, a minority, don’t know yet?

Doug: So, I can actually give you real numbers. By the time people are hearing this, these numbers will be slightly out of date. But we’ve had 420 people sign up to the platform so far. And of that, 70% have been revenue-generating for us, which means we’ve been able to identify and claim a credit for them.

Meb: Wow. That’s astonishing.

Doug: That’s been great. The other 30% we haven’t been able to get anything for it, we think we will as they start to rehire. One of the strange times when we launched is everyone needs money, but no one is hiring, or very few people are hiring. And that’s where the majority of credits and incentives come in, work opportunity, tax credit, and local state credits. We want to build the infrastructure for this right now. And again, a year, year and a half when everyone starts rehiring like crazy, that’s when we expect the hiring credits to be…shoot to the top of what generates revenue for us, and what creates value for our companies.

Meb: Well, look, we’re both hiring, And you’re going to get an inbound from Cambria Investment Management this week. So, tell your product leads that you’re going to be running a case study for an investment company based out of LA. Doug, this has been a lot of fun. Where do people go? If you’re a small business founder, CEO, you want to sign up, or even if you’re a big business founder and CEO, what’s the best place to get started?

Doug: Go to mainstreet.us and sign up. It’ll take you three minutes. By the time people are listening to this, there will likely be a new version to sign up. They’ll make things even easier. And hopefully, for the small businesses and startup founder, we will be able to, again, advance you credit today. So, you sign up, turns out you’re generating credits in July through your normal business activity, we’ll send you a check in August or September. So, we really, really want to help you, mainstreet.us, hopefully, save you some money, save you significant money.

Meb: Awesome. Doug, this has been so much fun. Really excited to watch you all’s journey. I think you’re doing some pretty amazing work. Thanks so much for joining us today.

Doug: Hey, truly my pleasure. Thank you so much.

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback@mebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe to the show. Anywhere good podcasts are found, my current favourite is Breaker. Thanks for listening, friends, and good investing.

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