Collecting sales tax can be a real pain for merchants. But Avalara wants to make that process, well, a little “less taxing.” The 7-year-old company, a hidden success story on Bainbridge Island, just landed $14 million from Sageview Capital, Benaroya Capital and others, GeekWire has learned.
The cash infusion, which brings total capital raised to $39 million, comes amid a serious growth spurt for Avalara. The 220-person company is on track to top $30 million in revenue this year. It also just opened a new office in downtown Seattle in part to attract developers, executives and marketers who might not want to jump on the Bainbridge ferry every day.
Automating sales tax processing and collection is certainly not the sexiest business. But it is extremely complex — especially given the level of changes across geographies (think cities, counties and states) and product categories. CEO Scott McFarlane says he sometimes has a hard time explaining the concept, but in essence it’s kind of like ADP outsourced payroll service but for sales tax.
“We calculate, report, file and remit sales tax, just as a payroll company would do it,” said McFarlane. “The fundamental difference … is really about automation.”
Avalara’s Web-based technology was built by co-founder Rory Rawlings who came up with a way to create sales tax calculations that worked in real time with point-of-sale and e-commerce accounting systems, taking into consideration geographic jurisdictions and other factors.
“It is hard in its implementation, and it is a big-kind of business,” McFarlane tells GeekWire. Avalara is growing at about 60 percent each year, and the company wants to more than triple its revenue base in the coming years.
So, is Avalara an IPO candidate? That could be in the cards, but not so much in the short-term. It has other goals in mind.
“We have a mantra to get to $100 million in revenue,” said Kevin Riegelsberger, the former CapitalStream CEO who joined as president and chief operations officer last year.
In fact, the company raised the new cash in part to accelerate sales and marketing and investigate potential acquisition targets. Avalara has made four acquisitions throughout its history, and McFarlane said it could grow like payroll companies which used acquisitions to expand and grow.
Sales tax issues are getting a lot of attention right now, in part due to high-profile fights between Amazon.com and several states.
“We’ve created a business that is swimming with the stream. We are moving along with the political and economic current,” said McFarlane.
Avalara doesn’t work with Amazon, but it does have several online retailers which use its system. The ongoing sales tax battles are simply bringing more “mind share and awareness” to the issue, which McFarlane says is helping drive greater adoption of its service.
“Rather than fighting like Amazon is doing, more and more e-commerce businesses are voluntarily collecting sales tax and using sales tax services all of the time because it actually makes it easier for businesses,” he said.
As a result of the new financing, Ed Gihuly of Sageview is joining the company’s board.