Vancouver software firm Boast has raised $30 million from New York-based Radian Capital as it looks to improve its technology for automating clients’ research and development tax-incentive claims. The company is developing a financing product to launch in the new year, and plans to double its 35-person workforce over the next 12 months.
Companies have long turned to specialized consultants and accounting firms for R&D rebate applications, a process Boast CEO Alex Popa called “cumbersome, time consuming [and] manual.” Tech platforms like his promise to automate much of the paperwork. Consultants, however, argue that software can’t handle some parts of the process. And some critics say both the consultancy industry and the rise of companies like Boast are proof governments make it too hard for innovators to access benefits.
Talking Point
Boost has raised a $30-million Series A to expand its U.S. and Canadian R&D tax-incentive claim-preparation software, with plans to double its headcount and launch a new financing product. Technology providers say they reduce paperwork and help small firms get what they’re owed, but traditional consultants say not all parts of the process can be automated, and lawmakers argue the existence of such services shows governments need to make programs easier to access.
Boast’s technology integrates with applications like Jira and GitHub, which its clients use for planning and tracking, as well as their payroll and accounting systems. It then generates time-tracking reports and filled-in tax forms that customers can use to support their tax claims. Proactively documenting eligible hours and expenses saves executives from having to “remember what I did in R&D last year that meets this narrow criteria” come tax-filing season, said Lloyed Lobo, Boast’s president. The company claims it’s more efficient than the traditional consultant model, which “puts all the work on the client.”
Boast said it has nearly a thousand customers in Canada and the U.S., and makes more than $10 million in annual revenue from charging a contingency, a percentage of the return clients receive. The firm has bootstrapped so far, but has also received over $400,000 from the federal Industrial Research Assistance Program. Radian is the sole investor in the Series A round, which is all primary and equity.
The firm will use the funding to expand its development, sales and support teams, with most of the new hires in Canada, where it already has staff in Vancouver, Calgary and Toronto. Lobo said Boast also plans to begin offering financing to clients waiting for their tax-incentive payouts in early 2021, comparing it to Toronto-based Clearbanc, which gives e-commerce brands upfront capital under revenue-share agreements.
In Canada, Boast’s market opportunity comes from the significant tax incentives that governments offer innovative firms. The federal scientific research and experimental development (SR&ED) program pays businesses back for some of what they spend on research and advancing technology. Canadian-controlled private corporations are eligible for the highest rates—a refundable credit worth up to 35 per cent of their first $3 million in expenses—but other types of companies also receive tax deductions. Canada Revenue Agency (CRA) spokesperson Christopher Doody said it paid out $3.4 billion in SR&ED credits in 2019..
Many provinces and territories offer their own SR&ED incentives, as well as rebates for target sectors like interactive digital media. In the U.S., the federal and several state governments have similar—albeit smaller—tax-credit programs. The result is a complicated system for small- and medium-sized enterprises to navigate.
That’s led to the launch or expansion in recent years of Boast and other platforms like it. In February, San Jose, Calif.-based MainStreet launched a platform that uses clients’ linked payroll and HR systems to identify federal, state and local tax incentives and credits for which they’re eligible and prepare applications. Small U.S. firms are less aware of such programs than their peers in other countries, said MainStreet CEO Doug Ludlow. The platform charges an annual subscription fee based on clients’ size and the credits they’re likely to receive. It plans to head north in 2021 or the following year. “There’s such an overlap between Canada’s tech culture and tech companies and the U.S. that it’s a natural move for us,” said Ludlow, followed by Australia, the U.K. and the EU. MainStreet raised US$2.3 million in a June round, PitchBook data shows.
Toronto-based Easly offers clients loans to fund the work for which they’ll claim SR&ED incentives, which can take months to pay out. The company’s platform uses clients’ information to determine whether to lend to them and how to underwrite and structure the financing. “It’s about having the best data to make decisions, so that [when] working with small businesses, you’re not having to spend months on every single file,” said Easly CEO Minal Shankar.
Canadian technology firms have also built software to make it easier to access other government supports. In the early months of the COVID-19 pandemic, several U.S. banks used APIs from Toronto-based Boss Insights to help process clients’ applications for the federal government’s Paycheck Protection Program.
Popa said business has not slowed for Boast during the pandemic, because companies are still filing claims. “R&D tax [credits] has been a crucial part of [clients’] strategies to maintain their innovative edge [and their] engineering teams.” It isn’t looking to expand to other grants and other incentives, although it may launch in other countries. “There is no dearth of companies [or] market,” said Lobo.
Both co-founders also said they weren’t concerned about competitors like MainStreet. “We have a very proven model that has gone through lots of cycles” of applications and audits, said Popa; in Canada, Boast estimates a quarter of SR&ED claims are investigated.
To qualify for the incentive, companies must show they’re really advancing their field of science or technology, said Martha Breithaupt, a partner at accounting firm Grant Thornton. Human consultants’ industry expertise allows them to make that case in an application. “Technology will assist,” said Breithaupt, citing documentation and time tracking. “I don’t think it will disrupt [consultants] completely, to the point of replacement, with the way the program is structured now.”
Automated or not, “we shouldn’t be setting up cottage industries to fill out paperwork,” said NDP innovation critic Brian Masse. He called for a more streamlined claims process for SR&ED, and for the CRA to offer more information and direct application support to companies. The current complicated process particularly disadvantages small- and medium-sized firms, which receive smaller rebates in absolute terms, the Ontario MP said.
Breithaupt, a member of the Chartered Professional Accountants of Canada’s SR&ED committee, said the CRA’s service has improved over the last year and a half, and plans to start using encrypted email for some application communication in the second quarter of 2021. Doody said the agency does not have a position on the use of consultants.
