One of the goals of most e-commerce companies is to put their business on as broad a footing as possible internationally. A major challenge here is to have everything under control when it comes to sales tax (VAT) and financial accounting. Since its founding in 2016, the Hamburg-based startup Taxdoo has become a leading service provider in this field.
Three founders with financial expertise
There are not many founders who were once financial officers in their former working lives. Dr. Roger Gothmann belongs to this category. He worked for the Federal Central Tax Office for over nine years, always with a focus on VAT. He also supported tax consultants in this area on a part-time basis. In doing so, he repeatedly had to deal with companies from the online trade, which had to struggle with the different regulations regarding VAT abroad.
Roger holds a PhD from the Department of Banking and Behavioral Finance at the University of Hamburg. So do Dr. Christian Königsheim and Dr. Matthias Allmendinger, who bring a dose of technological know-how to the table in addition to their financial knowledge. When Roger told them about the VAT problem in 2015, they came up with the idea of developing a software solution for it. They applied for an EXIST startup grant, and when that was approved, they founded their startup Taxdoo in April 2016.
VAT is a challenge for every online retailer
Doing business abroad is fraught with pitfalls for online retailers. They have to submit extensive documentation every month, monitor their transactions, and keep up with changes in the law. Managing all of this with Excel spreadsheets is as common as it is cumbersome and error-prone. Incorrect information can result in heavy fines. Hiring competent tax consultants is also costly. Therefore, VAT is one of the biggest hurdles on the way to internationalisation, especially for smaller companies.
Taxdoo's original concept was based on automating the entire process. To this end, the startup developed interfaces to vendors like Amazon and eBay or its own online store in order to automatically obtain all relevant data. These were processed for tax purposes via algorithms, so that the trader always received a daily updated overview of his obligations. Subsequently, a Europe-wide local VAT network took over the actual reporting based on this data.
Taxdoo was able to win its first customer while the software was still in the middle of its development phase. In the beginning, sending simple CSV files was part of the service. Nevertheless, the advantage over previous approaches was big enough to quickly win more customers. In this way, Taxdoo was able to refine its offering quickly, also with the help of customer feedback, and was not necessarily dependent on external funding. However, this was to come sooner than expected.
A startup competition with pleasing consequences
In February 2017, Taxdoo was in the final of the startup competition Gründergeist of the Wirtschaftsjunioren Hamburg. In the end, it was enough to win second place, endowed with 2,000 euros. But much more important was the media attention that the award ceremony brought. High-Tech Gründerfonds (HTGF), Germany's busiest seed investor, in which the German Federal Ministry of Economics and Technology, among others, holds a stake, regularly sifts through the lists of winners of startup competitions and addresses the most promising teams. HTGF also contacted Taxdoo, which ultimately led to a seed investment at the end of 2017. The founders can therefore only warmly recommend all startups to participate in such competitions.
With the support of HTGF, Taxdoo was now ultimately able to go on a growth course. It had become profitable at a time when this had not even been planned, which correspondingly meant greater freedom. Taxdoo used this to increase the size of its team and, above all, to expand its range of services. One important step, for example, was to become an official DATEV partner. DATEV is a software company that has developed a range of software solutions for financial and accounting issues. Many people probably know DATEV from their payroll. However, the most important focus is on tax consulting.
While Taxdoo itself does not function as a tax consultancy, the startup has a network of around 500 contacts in the industry and can provide recommendations. The company has also long since ceased to define itself purely as a specialist for VAT. Financial accounting can also be handled via the platform. More than 50 percent of customers now use this additional service.
Two million-dollar financing rounds for Taxdoo
Taxdoo's steady rise did not go unnoticed by the investor scene and the founding team drew up a list of venture capital companies that could be considered for financing. Well prepared and with promising data and facts in their luggage, they then went into negotiations. Taxdoo was able to announce the result in December 2020. In a Series A financing round, the startup secured 17 million euros. High-Tech Gründerfonds was again involved and Accel was the most important new investor. The venture capital company headquartered in Palo Alto, California, has already invested in more than 300 companies, the best-known name on the list undoubtedly being Facebook.
In 2021, the success story continued unabated. A political decision also contributed to this. Since July 1, a regulation called One-Stop-Shop (OSS) has been in force in the EU. It enables registered companies to transmit revenues from international sales in a tax return centrally to the Federal Central Tax Office. While this bureaucratic reform brings some simplifications, it still involves a certain amount of work. In any case, it proved to be an additional argument for using Taxdoo. The same applies to Brexit, which posed a new challenge for online stores that generate sales in the UK.
December proved to be month of good news again for Taxdoo in 2021. There was now 57 million euros in a Series B financing round. The enterprise value is said to have been 350 million euros thereafter. Again involved were Accel as well as Visionaries Club and 20VC from the previous round. The lion's share was taken by Tiger Global, another major investor from the USA. Tiger Global has also already invested in Facebook, and other illustrious names on the list include LinkedIn, Spotify and many more.
Taxdoo on its way from startup to medium-sized company
There will not be another round of funding for Taxdoo in December 2022. For one thing, the current economic situation has made it more difficult for startups to obtain venture capital. For another, Taxdoo is already solidly positioned anyway. Crises such as Corona, inflation or delivery bottlenecks have an influence on the business, at least indirectly, but represent only a small risk. This means that the team, which currently consists of around 160 employees, can concentrate on further expanding its offering for online retailers and tax consultancies without any major external pressure.
The geographic focus remains on the EU (plus the UK), and the customer base is made up primarily of small and medium-sized enterprises, although a DAX-listed corporation is also included. Taxdoo is still a long way from reaching this scale, but it is no longer a classic startup either. When asked about his most important experiences, Christian Königsheim mentions, among other things, this development from a three-man project to a company with an international workforce. Whereas the founders used to do everything themselves, they now deal mainly with strategic issues and have long since ceased to be involved in all aspects of day-to-day business. The fact that this transition has been so successful is due in no small part to the good startup climate in Hamburg.