Sam Ross, the co-founder and CEO of Numeral, came up with the idea for his sales tax compliance startup while traveling the world after having worked as a product manager at Airbnb.
“This was early 2018, where you didn’t have remote work like you do today,” he told TechCrunch in an interview. Direct-to-consumer businesses were a big trend then, so he supported his travel dreams by running several self-funded e-commerce brands from the road. He operated an online jewelry store and still maintains a vitamin DTC site.
While he loved the freedom his businesses offered, Ross (pictured above, left) was perpetually annoyed by the complex and bureaucratic process of handling sales tax on the merchandise he was selling.
Until 2018, e-commerce and SaaS (Software as a Service) companies didn’t have to pay sales tax to states where they had customers, but no physical presence. But the Supreme Court ruled later that year that these businesses must collect taxes in the jurisdictions where their customers are located.
“All of a sudden, I went from having to deal with collecting tax on my customers in California, to all of a sudden dealing with 40 plus states,” Ross said. “That was painful.”
When Ross applied to startup accelerator Y Combinator in 2023, he was encouraged by partner Gustaf Alstromer—his former boss at Airbnb—to build a startup that automates every aspect of sales tax management.
On Thursday, Numeral announced that it raised $35 million in Series B funding, valuing the two-year-old company at $350 million. The round, which comes just six months after raising an $18 million Series A, was led by Mayfield, with participation from other investors including Benchmark, Uncork Capital, Y Combinator, and Mantis, the VC firm co-founded by the members of the electronic DJ group The Chainsmokers.
While there are many software products for managing sales tax on the market, Ross believed that AI can remove the complexities and serve clients as a human tax accountant would. That includes everything from keeping track of how tax laws are changing in over 11,000 jurisdictions to keeping track of tax-related mail and filing and paying tax on behalf of the client.
AI can handle most aspects of sales tax because most of the rules have no ambiguity, so the risk of hallucinations is low.
“But some of the laws are pretty crazy,” Ross said. “In New York, if you have a full bagel, it’s tax exempt, but if you cut it in half, it is considered ready to eat, and it becomes taxable.”
Numeral’s AI is aware of thousands of such laws.
Over the last year, the startup has grown its revenue 3.5 times and now serves over 2,000 software and e-commerce clients, including EightSleep, Graza Olive Oil, and Manus.
While managing sales tax may seem niche, there are several startups trying to solve it. Competitors include Anrok, Zamp, and others. And a 26-year-old incumbent, Avalara, owned by Vista Equity Partners, is expected to go public later this year.
Ross says that Numeral’s international offering differentiates it from its competitors.
“We’re filing taxes for people in Tanzania and Kenya, in all these small markets where traditionally they would have had to use a CPA firm,” he said.
Source: techcrunch.com
