Gusto Acquires Ardius to Expand into R&D Tax Credits

Government Funding Opportunities for Businesses

The prospect of receiving funds from the government often evokes images of lottery winnings. However, many technology startups, alongside established retail businesses and restaurants, may be eligible for tax credits linked to research and development (R&D) activities within the United States.

Challenges in Accessing R&D Tax Credits

These credits, instrumental in enabling large technology corporations to maintain remarkably low tax rates, are frequently difficult for smaller enterprises to obtain. This difficulty stems from the extensive documentation required and the potential expenses associated with audits.

The Rise of Automated Tax Credit Solutions

Recognizing this challenge, a number of startups have emerged to bridge this gap. Now, even larger companies are beginning to participate in this growing market.

Gusto's Acquisition of Ardius

Gusto, initially focused on payroll services for small and medium-sized businesses (SMBs), has broadened its offerings to include employee onboarding, insurance, benefits, and other human resources solutions. The company recently announced its acquisition of Ardius, a startup specializing in automating tax compliance, particularly concerning R&D tax credits.

Founded in 2018 by Joshua Lee, a former accounting firm professional with over a decade of experience at EY, Ardius is based in Los Angeles. The financial details of the acquisition were not disclosed. The entire Ardius team will transition to Gusto and continue operating as an independent business unit.

Synergies Between Gusto and Ardius

The core rationale behind this acquisition is straightforward. R&D credit claims often necessitate payroll documentation, data that Gusto already securely maintains within its system. Ardius, in its previous form, was engineered to access data from various payroll providers and transform it into verified tax documentation.

This integration will allow the companies to automate this process seamlessly for Gusto’s substantial customer base.

Gusto's Vision for Simplified Government Interactions

Joshua Reeves, Gusto’s co-founder and CEO, explained that the acquisition aligns with the company’s overarching commitment to customer satisfaction and simplification. “Our goal is to integrate technology and exceptional service to make interactions with the government more accessible,” he stated.

“We aim to streamline processes like payroll, healthcare, PPP loans, and tax credits, ensuring they function as intended.” While Gusto could have developed this functionality internally, Reeves emphasized that “time to market” was a key factor in choosing to acquire Ardius.

A Product-Focused Approach

Tomer London, Gusto’s co-founder and chief product officer, added that the acquisition reflects the company’s long-held product philosophy. “We’ve consistently sought to build a product that offers clear guidance,” he said.

“In the complex realm of HR, we aspire to be a trusted advisor, not merely a tool. Leveraging the payroll data we already possess, businesses can gain access to vital cash flow within days and with minimal effort.” He also noted that tax credits have been a long-standing item on their product roadmap.

Maintaining an Open Platform

Gusto collaborates with over 100 third-party services that integrate with its platform. Reeves assured stakeholders that, despite the Ardius acquisition, all companies – including potential competitors – will retain equal access to the platform’s data.

The company highlighted Boast.ai, Clarus, Neo.Tax, and TaxTaker as examples of other tax products currently integrated with Gusto.

A Competitive Landscape

Ardius is just one of several companies entering the R&D and economic development tax credit space. MainStreet, previously featured in 2020, recently secured $60 million in funding led by SignalFire in March. Neo.tax, profiled last year, has raised a total of $5.5 million.

Gusto's Perspective on Competition

Reeves expressed optimism regarding the growing attention and competition within the sector. “We welcome any initiative that increases accessibility to R&D tax credits,” he said. “Greater awareness is beneficial, as these credits remain underutilized.”

He believes Gusto’s integrated data and software solutions will provide a distinct advantage over other competitors.

Gusto's Growth During the Pandemic

Despite the challenges faced by SMBs during the pandemic, Gusto experienced significant growth as new businesses emerged. Reeves reported a 50% increase in their customer base in the last fiscal year, which concluded in April.

“It became evident that services like payroll and healthcare access are crucial, even during a health crisis and economic downturn,” he explained. Gusto also launched a program to assist SMBs in obtaining government stimulus PPP loans.

Future Outlook

Gusto’s primary operational hubs are located in San Francisco, Denver, and New York City, with a growing number of remote employees, including the Ardius team, who will remain in Los Angeles. While Reeves refrained from commenting on future acquisitions, the company’s focus on becoming a comprehensive financial wellness platform suggests that further acquisitions are likely.