Gusto Adds Tax Compliance via Ardius Acquisition

One of the first SaaS companies we wrote about years ago on these pages was Gusto. Back about five years ago, the company’s then head of marketing and now CRO Tolithia Kornweibel joined our podcast and spoke at a tech adoption event we organized in San Francisco years ago.

Hats off to Tolithia for now moving gracefully up the corporate ladder to CRO of Gusto. The company has raised more than $500 million to date, all in the pursuit of payroll giants ADP and Paychex. The two market leaders have a combined market value is $120 billion. So challenging them is hardly a layup. And according to its website, Gusto is service the “people” needs of some 100,000 establishments. 

The company, now a decade old, has been at the forefront of shifting how small businesses run their payroll and people operations. Like many start-ups, even ones that are 10 years old, finding acquisitions that fit into the company’s overall ecosystem and strategy is an important piece of the growth model. 

Gusto Founder Josh Reeves
Enter Ardius

Now we learn that Gusto has pickup a startup in the area of tax compliance by picking Los Angeles-based Ardius. We believe Ardius was a bootstrapped startup and had probably cracked the code on how to help small businesses take advantage of R&D tax credits. We imagine it’s a complicated, even taxing, process. It’s the government after all.

Ardius was founded three years ago by, you guessed it, a former EY executive. just three years ago. Interestingly, one of Ardius founder Joshua Lee’s advisors is long-time Los Angeles tech executive Will Hsu.Will is ex YP.com and SpotRunner. And he is co-founder and partner at Mucker Capital, a lead investor in ServiceTitan.

For businesses on the Gusto platform, the potential benefit is that Ardius was built to extract the necessary, and probably convoluted data and information, from payroll data to build verifiable tax documents for obtaining government reimbursements. Since Ardius was already doing this within the Gusto platform – and another payroll platform – now the customer doesn’t have to make sure the two systems are working together. 

An Expanding Stack

This is yet another step for Gusto in building out an entire people platform for its customers. When Gusto launched a decade ago it was a payroll company. Now, a decade later, payroll remains a key component of their product solution. But now it goes well beyond making sure people get paid and W-2s and 1099s are sent every February. Gusto’s solution has expanded into new employee onboarding, insurance, benefits management. It even does employee surveys and analyses. 

Interestingly, Gusto grew its customer base by 50% in its last fiscal year which ended in April. We guess that for those small businesses that could survive the pandemic and access PPP loans, doing so with a broad platform like Gusto was quite advantageous. So while the overall addressable market probably shrunk for Gusto, those that survived found Gusto to be an important element in their survival. 

With 100,000 businesses on the platform we guessing the company is generating over $50 million in ARR. We come to that by assuming that the 100,000 customers have on average 5 employees and the company’s charging on average $9 per employee per month. If anything, we are probably underestimating their ARR, by assuming 10 employees per customer instead, which would track to over $100 million of ARR. In either case, that is still a far cry from Paychex’s most recent quarterly revenues of $1.1 billion. 

What’s Next?

And that leads us to our final take on Gusto. We have been admirers of Gusto for a long time. Simplifying one of the most important tasks for small businesses is vital to helping the small business world thrive.

The company seems to have built a compelling culture for its own employees. If it hadn’t that would be a big-time miss. But we are left wondering, what is Gusto’s next big move.? Raising more money is probably an important next step. We’d expect more money would mean more acquisitions to grow their customer count and broaden their platform’s functionality. We also note that the company has dozens of positions available in their San Francisco, Denver, and New York offices.

Is a Gusto IPO in the offing? We’d think so. But with Paychex and ADP as the 600-pound gorillas sitting out there, we’re not sure what kind of IPO valuation Gusto would be able to achieve. We will continue to watch closely. And perhaps we’ll get Tolithia back on the podium to help tell the ongoing Gusto story. Besides, we’re awfully fond of the socks they hand out at the company headquarters in San Francisco. We hope that tradition continues.

Stay ahead of the curve and get the latest on Local straight to your inbox.

By submitting this form, you agree to receive communications from Localogy. You can unsubscribe at any time.

Related Resources

Snap Continues Steady March Towards Local Search

Snap’s latest move is the My Places feature on Snap Map. This brings more structure to Snap Map’s existing local discovery use case by positioning 30 million SMBs with more formal interactivity in the map experience. We unpack strategic takeaways.