How to Get Funding from the U.S. Government Before the April Deadlines (Feb 2021)

Hey everybody, welcome to the Founder Institute webinar. My name is Jonathan Gruetchen. I'm a co-founder of the Founder Institute. We got a great event lined up for you today. I already see we got some people joining. I do know that we had people register for this event from— it was something like 40 different cities. So if you are in the chat, this is a 100% live event. Let us know where you are joining in from. We do have a member of the Founder Institute in the chat right now who's going to be there to collect your questions and to queue up any questions that you have for our speaker today. And I already see, all right, Houston, Dallas, Minnesota, Georgia, and that's the country Georgia, not Atlanta, Georgia. Baltimore, Greenville, Vegas, Detroit, Miami, Ottawa, Lakeland. I believe that's That's outside of Chicago, I believe. I don't know. There's probably a lot of Lakelands. But anyway, welcome everybody to this webinar. It's great. It's great to have you. And once again, this is a 100% live event. The value for these events is always in the interaction, right? You can always go watch a YouTube or something. So please, at any time during this event, throw your questions into the chat. We have a member of the Founders Institute team in there, and they're going to queue them up for myself and for our guest speaker today. All right, so with all that out of the way, we got an interesting topic today with a very interesting speaker. And I do know a lot of you may have registered for this event when it was originally scheduled for a couple of weeks ago, but I think our speaker today, Lloyd Lobo, if you want to come on screen here and unmute yourself, I think he had a fairly decent excuse for why we moved the event back. Lloyd actually did get COVID. COVID, unfortunately. And Lloyd, do you want to tell people? I mean, I just, I thought it was an interesting story. Do you want to tell people how that experience was? You're muted, Lloyd.

Yeah, definitely. So can you guys hear me? Firstly, everyone, thanks so much for joining us. Interesting experience. We closed and announced our $23 million USD Series A In December, we had bootstrapped, and you know, I guess like never, uh, never an easy moment when you're bootstrapped. And then my wife's an ER physician, and I think she brought home some gifts around 22nd or 23rd, um, during the holidays. We weren't feeling well, and my parents tested positive, so we all went, tested positive, uh, and then, um, everyone got fine around in 7 to, um, 10 days. And around Jan 2nd, I woke up unable to breathe. And I felt like somebody punched me in the stomach, in the chest, and I'm like drugged. And I had to be taken to the hospital. The positive thing is when your wife's an ER physician at Stanford, you get these gifts, but you also get the best care. I was coughing blood. I needed to be on oxygen. And I needed to be intubated. And I needed to be on, uh, on IV and meds via IV. So I did that, uh, did like strong dose of steroids, the dexamethasone, and then after that I got discharged. And, uh, you can still hear my voice is hoarse. This is not how I sound. Cough was non-stop. Um, apparently, you know, when we went and did a chest X-ray, the first thing they do, uh, I had like this bilateral COVID pneumonia. So my lungs were taken over by, by the virus, which is a deadly thing, and like, I think only like 15% of the people who get COVID got it. So, it was a huge like shocker to me because I've been fit, I bike, I do all kinds of things, and you know, it was a really, really big shock, but also a lot of good learnings, you know. One is, you know, it's all in the mind, right? Like, victory starts in the mind. I could have probably taken the whole month off, but but I programmed myself to start like, you know, having conversations. And I found that up until the weekend, I couldn't hold like 5 minutes without coughing. And now, like, I just programmed myself. It's just gotten way better. And, you know, so victory starts in the mind too. Like, you know, appreciate the people around you. It's not the money in your bank. It is the people who will be around your tombstone. And honestly, with the fundraise and all of this stuff, I think one of the things that I constantly thought about when I was at the hospital, there were two nights where I forced myself to stay up 'cause I felt I was gonna die. And there's only one thought that crossed my mind every single time, and that was, you know, I should have spent more time with my kids. You know, COVID hit last year, and it was a big scare, and our focus was like grow, grow, grow, what can you do to drive business growth? And like the fundraise happened, we run a very large community called Traction, and I'll talk about it a little more, we grew the subscriber base by 2x, we hosted 60 online events, engaging thousands of people, and, you know, like, and I thought to myself, none of that mattered, like I wish I spent more time with family, Victory starts in the mind and appreciate the people around you. It's the relationships that matter, and a lot of our growth has been due to these strong relationships, right? You can't bootstrap and, you know, and grow without a network and relationships, and that matters a lot. But yeah, I'm here.

I think I speak for everybody in the chat that just first of all saying we're very happy that you made a a nice recovery, but also that we, you know, are very appreciative that you're still able to join us here today. So it looks like we might have just lost Lloyd.

No, no, I'm here, I'm here.

Oh, there you are. Okay, cool. But anyway, so, so yeah, we're Thank you so much for getting up the energy and everything to still do this event, Lloyd. You know, with that being said, Lloyd mentioned a couple of things there. So Lloyd is the co-founder and president of a company called Boast.ai. Very interesting company. You mentioned they just raised a $23 million Series A. So Lloyd today is going to talk mostly about, you know, some of the strategies for raising government funding, obviously, but he's also raised venture funding. And as he mentioned, I mentioned they also run a conference and a whole community called Traction, and you can see it at tractionconf.ai. And it's.ai, right? Or is it.io?

It's.io..io.

Okay, sorry, I get them mixed up. Brain fart on my end. But you should definitely check those things out. And they literally, they bootstrapped their business to $10 million of annual recurring revenue, and they just raised this $23 million a couple of weeks ago. So any questions? Questions that anybody has about any of that, about bootstrapping, about COVID even, and also about raising funding from venture capitalists and the main topic today, which is going to be raising funding or at least getting funding from different governments, please throw them into the chat. Do not be shy. I also just, on the front end here, I highly recommend Bost Capital and Bost.ai. They are an official partner of the Founder Institute and they've been extremely supportive in a lot of our programs and have helped a lot of our graduates, you know, navigate some of the things that Lloyd's going to, gonna bring us through today. All right, so go ahead.

Yeah, yeah, go on, sorry. Should I just get started, screen share?

Yeah, yeah, I think, yeah, I think I'm gonna, I think I'll hide myself. You wanna start bringing up your presentation. So Lloyd's gonna go through about, I think you said, you know, 20 minutes or so, right, presentation. And then after that, please, at any time, everybody, when the presentation's over, we are going to go into audience questions. Throw your questions into the chat and we'll queue them up. And with that, I'll hide myself and you can take it away, Blake.

Yeah, definitely. And yeah, you know, in general, if you have any questions, it can be unrelated to this topic on innovation incentives, And, you know, if it's about bootstrapping, fundraising, I'm happy to address like scaling any of these things. It's, you know, my background before BOST, I've been a part of 3 other venture-backed companies, most recently Speakeasy, which was funded by Bessemer and Salesforce and Twilio, which we shut down. I did a chatbot, like intercom-like company, which got into the Alchemist Accelerator, but we also shuttered it. And other 2, I was, on the exec team of two other venture-backed companies running product and growth, which I consider failure. So one of my first rules here is you are a venture-backed failure if nobody other than the investors make money, right? So think very wisely on why you do things, raise money and whatnot, right? So I'll talk about the R&D tax credit program, but first, I hope you guys can see the slides here. Give you a quick overview. Each year or every year between US and Canada, the governments provide more than $15 billion in R&D incentives to fund businesses, but the application process is manual, cumbersome, time-consuming. It takes a very long time to get it. I'm mainly going to cover about R&D expenses, the SBIR, and there's some other grants. What I'll do is I'll send it as a listing. Otherwise, it's just going to be a long essay of a webinar. I'll talk, I'll send that as a listing of other grants that you can look into. Yeah, so between US and Canada, over $15 billion is given. Globally, over $200 billion, like UK, Australia, France, New Zealand, all have R&D tax credit programs. And what we do and why we raise this money is to help companies automate that process so they can get more money faster for less time and hassle. Right, like I said, over $15 billion given, application process is manual, cumbersome, it's prone to expensive audits, and it takes a long time. I just covered about like, you know, what we do. We raise this money and we've been building with a vision to automate the process. Our mission is to help innovative companies become successful, and just sharing my journey as a founder, And all our actions drive from that mission, help innovative companies become successful. And our vision is to become the default way by which people fund product development, so they can grow without giving up equity and dealing with red tape. In the next couple of weeks, we're gonna launch a $100 million fund, which similar to MRR financing, does R&D-based financing. So what that means is, plug your tech and financial stack to BOAST, We'll analyze what R&D incentives you qualify for, but rather than waiting 12 to 16 months, we'll give you the money now. So, Jireh asked, is it a loan, a grant, or a tax credit on your company's revenue? So, these credits, and I'll go through each of them, but net-net summary is it's a refundable tax credit and you don't have to be profitable up until a certain point, so I'll go through that. But yeah, so I was saying, our mission is to help innovative companies become successful. We serve that mission through our product, of course, but we also started this community called Traction, which has now grown into over 90,000 subscribers, and we did that to take that mission further. Every action we do is like, help your community, help the people that you serve, and we do two webinars a week, we do monthly dinners, we do, an annual conference, and all the major CEOs from like Twilio to Qualtrics to Intercom have spoken there, kind of thing. So anyway, I'm gonna dive into the US R&D tax credit program, and I'll send some resources after through Founder Institute. But what is the R&D tax credit, right? It's, R&D tax credits have been in the tax laws since the '80s. It's designed to help businesses offset product development costs they incur through the year, right? And typically, if you're— this is the US one I'm talking about— if you're profitable, you can offset income taxes owing, but most startups are not profitable. In that case, you can use it to offset up to $250,000 a year in payroll taxes, right? And that's huge because businesses are required to pay 6.2% of each employee's salary as Social Security tax. So you're paying it anyway. So, so you're not profitable, you have no revenues. The criteria to be able to get a cash back from the U.S. R&D tax program is you should have revenues for 5 years or less, meaning if you have more than 5 years of revenue, then the government assumes that you're not a small business anymore. Or you should have less than $5 million in revenue, because if you have more than $5 million in revenue, and the US government assumes that you're not a small business startup anymore. Now, there's a lot of talk to expand that to 10 years and $10 million. We'll see where that goes, but you can offset about a quarter million in payroll taxes, and that comes as a refund check from the IRS. So, to give you a simple example, let's say you have $2 million in company salaries. You're paying $120,000 in Social Security tax, right? Anyway, you're paying it every payroll. You may not see it, but your payroll provider charges you. So you have $2 million in overall company W-2, you're paying 6.2% as Social Security tax. So by the end of the year, that comes out to like about $120,000. If half of that is R&D expenses, like product development, engineering salaries, contractors and whatnot, you can get 10% of that. So $100,000 as a cash back to offset those payroll taxes. And that comes as a refund check. From the IRS, right? So the credit is not available. So it says, you know, not a tax-exempt organization, basically. And that's the unfortunate thing. Tax-exempt organizations around the world can't claim it because it's a refundable tax credit, right? So what can you claim? You can claim US employee salaries. And I put US there specifically because if you have employees in other countries, you can't claim this. They're giving you this money to incentivize growth in the United States. So if you have US employee salaries, US contractors, and then you can also claim any materials consumed in R&D. Generally, those are supplies like, you know, in prototyping or scrap, like if you're a hardware manufacturing company. Off-premise lease computer costs is just hosting costs. If you have AWS costs tied to R&D, and then you have patent costs tied to R&D, you can claim those things. And that can be significant for a company like ours. You know, it's hundreds of thousands in R&D spend in the U.S. kind of thing. So how much can you recover? 10% from federal in the U.S. And I'm gonna compare the R&D credit with Canada. I'm not gonna go into other countries, just focus on North America. And then I'll walk through our journey of how we structured and built our team and bootstrap to take advantage of the most beneficial R&D credits, right? So in the U.S., you can get 10% from federal, and every state is different. California is 7.5%. The unfortunate thing with state credits is they're not refundable. You have to be profitable, and as we know, most startups are not profitable. Virginia state is refundable. Arizona is refundable. New York is refundable. So, if you're running a company in those states and employing people in those states like Virginia, Arizona, or New York, your state credits could also be refundable. But for the most part, it's the federal credits that are refundable if you're not profitable. If you're profitable, it doesn't matter, right? You offset income taxes. So, I'm just going through some questions here, and there's a whole bunch— single-member LLC and whatnot. Maybe we'll take those questions at the end. You know, if you have like some dire question, just pop it in the, in the Q&A tab because probably the chat is going to get bombarded and it's hard to navigate the chat for questions. But I'll dive into some of these and then I'll drop my email here so you guys can just send me an email after.

Yeah. So we also, we have someone in the chat taking those questions, got a couple lined up too. So So yeah, keep the questions coming. We're sorting through all of them. It's hard to see in the chat, right? But, uh, well, we'll have them ready, uh, at the, uh, at the end of the presentation.

Awesome.

Yeah.

So, so this is an example. All this is saying is like what I said, right? Like you have $783,000 in expenses, you'll get $78,000 in cash back by offsetting payroll taxes. And California, 7.5%. So it's $58,000. Your total credits, California and federal, is $137,000. But federal, you can get a cashback via payroll offset if you're not profitable and don't have revenues. California only offsets your state taxes. But if you're profitable, then you can offset both kind of thing, right? Income taxes in both. So again, to summarize here, You can use the R&D credits to offset payroll taxes or income taxes. To offset income taxes, of course, you have to be profitable and be in a taxable position. To offset payroll taxes, you don't have to be taxable, you don't have to be profitable, you don't even need to have revenues. All you need to have is expenses, and you need to have revenues for less than 5 years from the tax year and have less than $5 million. Right? Those are the criteria. So if you had revenue in 2020, '19, '18, '17, '16, you can claim R&D credits provided your revenues are less than $5 million. But if you had revenues in 2015, you can't claim the R&D credit and offset payroll taxes, right? So those are, those are, those are the two criteria. And it is, Confusing. I boiled it down to 10%, it more or less works to that. Basically, the complicated calculation is let's say you have $100,000 in R&D, it's 20% of a base amount, which is like 50% of the expenditure. So complicated, 10% is the working percentage you work with. So when to claim, if you're using it to offset payroll taxes, you need to file your R&D tax claim with your taxes. So S-corp, if you're a December year-end, March 15th, C-corp, December year-end, April 15th, you can request an extension on both. If you're profitable, you can, you know, you can backclaim 3 open years. So you can claim '19 and '18 and likely '17, depending on when you filed your '17 taxes, right? So, Kripa asks, will there be a recording? Yeah, there's going to be a recording that's going to be sent. So how do you qualify? I think this is the key thing. Because a lot of people, you know, if you, accountant will say, oh yeah, just claim your whole R&D expense. The thing is you're exposing yourself to an audit because the IRS's audit guidelines say you need to prove that the work you're doing meets specific criteria, right? And the specific criteria is one, you're developing new business or improving, I mean, developing new products or materials or improving existing products or materials for sale. You were faced with some uncertainty, technological uncertainty, that you can't resolve with publicly available information. You went through an experimental process like rinse, lather, repeat, and it was in the field of science or technology, not like social science and whatnot. So, yeah, so what qualifies as R&D here is, one, the work you're doing must be to create a new product or process or material. Or improve an existing product or process or material. And that whatever you're building must be developed for commercial purposes, for sale, lease, license, right? Not like, you know, I'm doing it to like improve HR processes in my business kind of thing, right? But like generally speaking, if you're in the field of software development, there could be a lot of areas you can claim, like increasing speed, increasing throughput, experimenting with new technologies like artificial intelligence, blockchain, there's a lot of things like that. Hardware, food, every industry can claim R&D because it's not like the lab coat R&D that you see, it is experimental development. Am I developing new products, materials, processes, technologies, or improving them? The next one is, Exactly right, because the product could be in the food industry as well, so multitude of industries. Elimination of uncertainty. Say you're working through your product development, you face this uncertainty which you can't resolve with publicly available information. You can't Google search the answer, there is no open API, there is no documentation that you can read. And those things usually arise from like something is missing in your knowledge, you don't have this knowledge, and publicly available meaning it doesn't matter if the competitor across the street's done What matters is available to you. So I give you two examples here. Let's say you're a software company trying to integrate with a third-party software. Let's say that that's in manufacturing. You've built this new middleware to integrate with a manufacturing resource planning system, but that company has gone bankrupt, that ERP system that the manufacturing company uses. There's no documentation, or maybe it's legacy, they just haven't upgraded. So now you got to write the communication protocol for the two systems to talk from scratch. And now there is a lot of uncertainty there, because if it's not at 100%, you could stop the manufacturing line, right? And cause them hundreds of thousands of dollars in losses. So, you know, the shortcoming there is there's no publicly available information, the system is legacy, and you got to make the two systems talk 100%. and people will ask, "Oh, you're building a communication protocol or an API for the two systems to talk, why is that R&D?" Well, because there was an uncertainty, right? So like Cyrus asked, "How about ad tech such as new attribution measurement tech?" 100%, right? And feel free to email me, we got like 45 people on the team, growing to 80 very soon, a lot of our team members are R&D experts, are also engineers in different fields, so they can help address some of these questions. How far can you backclaim the R&D credit? Can you— it's about 3 years back, so 2019, 3 years back from the tax year, so 2019, '18, and potentially '17, depending on when you file your taxes in 2017. Any business that's developing new products, materials, or processes, or improving existing products, processes, or materials, and overcoming uncertainty and encouraging covering expenses, technological uncertainty, they can claim. Like food processors can claim. We have a whole guideline on food processors, so I can send you that after the fact as well. Awesome. And then process of experimentation is like work must be done. So you wanted to build this new product, you were stopped dead in your tracks because of this uncertainty. You Google search, you did all this research, you couldn't come up with an answer. So you work through a systematic process and says, oh, I'm gonna try this. and I'm gonna get to a potential solution. So like rinse, lather, repeat, or like hypothesis, perform the experiment, and get to the end outcome. And then, you know, your goal may have been 100%, but really with the resources you have, you can only get it 90%. And so then this is an ongoing project that goes into the next year. And one of the key things here is keeping records and documentations of these things, because when the IRS audits you, they wanna know like, What was the product you were trying to build? What were the uncertainties? What was the process of experimentation you used? Kind of thing, right? And then the last one is in the field of science, engineering, or physical or biological science, not social science. So that means food, um, manufacturing, uh, pharma, everything comes under that physical or biological sense. So if you're in the food industry, maybe you're building a new formulation and like, let's say you're one of these, you know, meal delivery things and the food doesn't last and you wanna build some formulation where you make the food last 10 days, but it still tastes really good and fresh. Now those are two big variables, right? Like you say, I wanna ship this food and I want it to taste fresh in 10 days, like the first day, like if there are like certain veggies or materials in there, ingredients in there, you want it to be crisp 10 days later, but at the same time, you don't want it to taste like cardboard, right? You want it to preserve the taste. So those are two things, like how do I preserve the taste of this food while maintaining the longevity, right? So in food, there's tons, like flavor, packaging, all of that. So almost every industry, and if you email me, I can you know, we'll send you the presentation, of course, but I can give you use cases for different industries. Awesome. Excuse me. So there's some exclusions, right? And there are— a lot of these have rebuttals too. But one of the things is if you are claiming salaries or contractors, but you've gotten money for it from a grant government entity or whatever, then you have to reduce that. So like for, let's say, your R&D expenses for the year were $1 million that you can claim, but you got a $300,000 grant to make some hires, you have to reduce that, right? Surveys related to market research is technically not considered R&D, but if it is in support of the R&D, for example, Now you need to run a bunch of tests and you need to get data, so you need to run tests in volume and do data collection and testing. It supports the R&D, then you can claim it if it is a supporting activity, right? Software developed for internal use. Now, a lot of startups are tech-enabled. If your software interacted with the client, meaning the client has to interact with it, log in, etc., then that can be claimed. But if it is software purely for certain, like, HR functions or whatnot, then you can. And even there, there's a list of what's included and what's excluded. I can send that after the fact. But these are, these are some things. One of the key things to keep in mind though is, like, any expenses, um, after outside of the US, you can't claim. Does this support open source software development? Yes, you can. If, if you're overcoming uncertainty and building new components Even if you're leveraging open source, but you're extending it and you're incurring expenses, you can, right? So a lot of industries you can claim. Yeah, and then the other thing is research conducted after the commercialization. So I'll give you two examples. You could build V1 of the software or a feature, and you ship it, people are using it, but now you need to improve on V1 of the software to make it V2, and you encountered some technological challenges. And so now the effort to get to V2 at 100%, you can claim. Or the same thing with any food or any material, like, you know, you did one version, there's some issues because you want to extend it, and that can sort of go on, right? So that was it on the US R&D tax side. I'm going to quickly zip through the Canadian program. I know there's a lot of Canadians here. But like the focus was US R&D, and I'll tell you why. So in the US, you get 10% of your R&D spend to offset, offset Social Security taxes, payroll taxes. As soon as you're more than 5 years of business or more than 5 years of revenue, you can no longer offset payroll taxes and get a refund, right? That refund is key, up to $250,000 a year. Then you gotta show you're profitable, and most tech startups are not. Canada, on the other hand, their program between federal and state, if you have a Canadian company, will give you 64% of your R&D spend as a cashback. You don't have to be profitable, there's no revenue requirements, 64%. So, you know, contrasting that with the previous company, I was, you know, Speakeasy, We built all our dev in the US, we burned through $6 million in 2 years at boast, we bootstrapped leveraging a whole bunch of Canadian grants, and, you know, a big part of that is just, it's more lucrative towards startups, and, you know, getting 64% cashback compared to 10%, but without any hooks, like you don't have to be profitable, you don't have a revenue range, it's huge, and a lot of, my friends in the Bay Area and our customers in the Bay Area have been looking at Canada. And there's a couple other benefits, like it's easy to get a visa in Canada. For example, they have a startup visa program where they give founders and their whole founding team and their spouses immigration within a year and work permit within a month or two. The other thing is they have a global skills visa program. So I was having a hard time hiring some developers, very competitive. So we found two ML engineers in India, and now we're able to bring them in like less than a month or less than 2 months under the Global Skills Visa, and they can bring their spouses, their spouses can work too, and then after a year, they'll get their permanent residence, which is much harder in the US, and, you know, those are the challenges I faced in the US, but like, you know, I'm here, we're building the company here, but I think, you know, with COVID you gotta, strategize for your company to do things in the most efficient way possible, and like being distributed has taught you a bunch of things. So, I'll skim through this, you know, the U.S. government gives over $10 or $12 billion each year to over 100,000 companies. In Canada, it's only $3 billion, there's less companies, but they give a lot more. It's not 10%, it works out to 64%. Same thing, U.S., Canada, all kinds of industries, as long as you're developing new or improving existing technologies, But if you're a Canadian corporation, it's 64%, it's cash back, you don't have to be profitable. I'm going to skip this qualifying criteria because it's very, very similar. And yeah, so, but like this tells you, right? In, let's say you had $261,000 and you're a company in Vancouver, I picked Vancouver because it's like a 2.5-hour flight from San Francisco. You had like $261,000 in salaries, you would get $167,000 cash back if you're a startup in Vancouver, right? If you're a startup in San Francisco, you need to one, prove that you have less than 5 years of revenue, two, you have to prove that you have less than $5 million in revenue. Let's say you hit those. On $261,000 in R&D spend, you would only get $26,000 to offset payroll taxes, $26,000 cash back. It's a huge, huge, huge, huge difference, right? Um, yeah, so somebody's asking, company working on a sustainable construction material, 100%. Like most industries that I'm seeing people dropping here, yeah, there, there, let's— there is potential there. Now this I kept as common, um, the things that are common between US, Canada is when they audit you, they want to see that you have the documentation of the projects, like you've documented in Jira, GitHub, Asana, whatever tool you're using, and you've done some time tracking to figure out who spent how much time on those projects. Otherwise, though, when they audit you, they say it's vaporware, and, uh, and you'll likely get denied or reduced, right? And so, you know, testing, like, you know, time track across like development, testing, all the activities that you're, that you're claiming, pretty much. Uh, I'm gonna give you a quick pitch about both. The intent is not to be a pitch about us, But what we do and why we raise this money is we're pulling data from your technical stack and financial stack, marrying the two to figure out time tracking from it, tax forms from it, audit evidence from it, and get you that money. And this is paired up with our R&D, in-house R&D tax experts who are engineers and CPAs who worked in industry, so they can analyze the engineers because they can analyze the data from your tech stacks. And truly understand without taking a lot of time and effort from your resources. And this is a little bit of our process. We integrate with the tech stack proactively through the year. We prepare your claim so after the year is done, you can file it with your taxes versus like trying to scramble at year end. Awesome, and this is a quote from a client and a friend, Derek Anderson. Who's the CEO of Bevy and Startup Grind, who Jonathan knows as well. So that was quick. I don't know how long I took, but I took more than 20 minutes.

No, it's, it's, that was great. And just judging on the number of questions that came in, I don't, I don't think anybody minds. So a couple of quick things. First of all, yes, we all know Canada is better than the US, blah, blah, blah, right? Okay.

My goal was not to pump Canada. My goal was just to pump the program. Honestly, tomorrow if another country has great programs, I will hire people and build teams there. But so that's not the goal. The goal—

okay, all right, all right, I know, just joking around. Just for the record, we're coming back. We got a new president now. Second of all, probably the most important question that I got was from a user named Small Biz Philly. Did you know that Lobo means wolf in Spanish?

Yes, of course. And you know, it's funny, I have a very sort of weird background. I was born in Kuwait, my parents are from India, and there were Portuguese settlers in India in a place called Goa, I guess, and like Catholicism, I may be saying the complete wrong thing historically, but I feel like Catholicism and these Portuguese last names proliferated from Goa, and the Portuguese, I think, were in India until '70s or '71 kind of thing. And so that's how the name came about, right? So I'm a brown guy with a Portuguese last name, uh, which means wolf, right? And my wife's last name is Monteiro, which means hunter in Portuguese.

Family of badasses. Um, I don't think Grecian means anything. I think it was made up at Ellis Island. Uh, but anyway, um, so all right, I think one of the biggest things— and I saw a ton of questions in the chat, keep the questions coming everybody, they're great. Was just how surprised people were on what classifies as quote-unquote R&D, right? And I see this a lot. I think when most people think of R&D, they think of, you know, you're in some underground government facility and you have physicists and all this kind of stuff, right? And at one point you gave a very succinct and great definition on what qualifies for R&D. It had something to do with improving or creating processes. Can you just repeat You know, you had a great definition there that I thought would be very helpful for a lot of people on here who, you know, even if you're just building a website or something, some of the things that you're doing can qualify as "R&D," right?

Yeah, definitely, and that definition is if you're developing new products, technologies, processes, or materials, or improving existing products, processes, technologies, materials, and food is considered material, then that's considered R&D, provided it must be developed for commercial purposes, right? And one of the key caveats there is during the development of that effort, you are faced with uncertainty that you couldn't resolve with publicly available information, and publicly available just means that it's not available to you. So, yeah, if you could spend a million bucks, you could probably get the formula for something, but you don't have that money. So, it's not publicly available to you, or there's a patent on it, or there's no Google answer for it kind of thing, right?

Okay.

So, it's not—

it's not—

it's R&D is not lab coat. I'm in the lab, build, like, you know, develop.

That's what it sounds like to most. It sounds like to most people, you're at Area 51 and you're building, you know, some kind of amazing craft or something.

Yeah, that's definitely not the case. And what they're doing is giving you this money to encourage development in the US and growth and hiring and scale in the United States. And you know what's really interesting is before 2016, or before December 31st, 2015, this program would occasionally expire. And in the PATH Act of 2015, the Congress made the program permanent. And then they— and before then, only profitable companies could utilize the R&D credit before December 31st, 2015. You had to be profitable and most startups are not. So they couldn't— most venture-backed startups are not especially, right? Because the motive is don't be taxable till you like exit or IPO. Why do you need to show profits on the books, right? That kind of thing. So, So the, in that PATH Act, they made the program permanent, and they also introduced this, if you're a startup with less than 5 years of revenue and less than $5 million in revenue, you can offset up to a quarter million a year in payroll taxes and get that cash injection. And that is a huge one, I think, you know, it's huge only because now anyone can leverage it, right, across industries. Kind of thing.

Yep. Okay, so I'm gonna burn through a couple of technical government funding questions here, and then I'm gonna go on to just some of the questions that I have in terms of how you guys were able to grow BOSS as well, because I think that's an interesting story. But there's— all right, so there's a bunch of questions here on just the status of having offshore workers or contractors, even if the company is based— it's a US entity. So Ravi, Felipe, Steve, Alicia, all ask this question. U.S.-based company have offshore workers, can that at all be included in any of these programs?

And, you know, I wish, and that is the unfortunate thing. You can't claim offshore people. They have to be U.S. salaries. They have to be U.S. contractors. And that is the unfortunate thing. Now, you got to think about it and do the math. I always tell people, although I'm in this business, I'm going to advise you as a founder because I've been a part of other companies. As well, is do what's best for your business, right? So, for example, when we're looking at developers and whatnot, we're like, okay, if you're one, I'm profitable, so, and I'm in California, let's say, if I hire a developer here between federal and California, it's 17.5% back on the— and it's a little less on contractors. I can give you the proper breakdown, but let's say it's an employee. 17.5% back. And then I'm like, okay, now if I'm not profitable, but I have less than $5 million, it's 10% back. Now contrast that with hiring somebody in Ukraine. Is the time zone difference and the cost, like basically, I look at it as total cost of ownership, right? Is the management and everything, is it cheaper than that 10%? If it's significantly cheaper and you're able to manage them and you're getting high-quality work, By all means, like hire there, like do what's best for your business. But if the unit economics, I mean, the total cost of ownership is better with the R&D credits, federal and state, or just federal if you're not profitable, then do that there. Then, because we've built an office in Canada and we have a lot of people there, we'll scale their engineering and whatnot, although we'll keep some exec hires here, like CTO, etc. But then I compare with, oh, if I were in Canada and hired a developer, I'd get 64% back. So, that's $64,000 on $100,000. And it's not guaranteed, of course, because they audit you and whatnot, but you have to understand, like, is the work you're doing meet that criteria and make that guesstimate. So, I'm like, okay, $64,000 back, that's significant. And then, I tie up all the other costs of ownership, like management, time zone, all of this stuff, I'm like, "You know what? I may as well keep them in Canada." Right? Or like the US, maybe, you know, what I'm seeing right now, because I'm beginning— after this raise, you can imagine you get hit up by a lot of vendors and a lot of them— Oh yeah.

You're on a list. It's like when you get a car loan or if you got a mortgage, all of a sudden, all these people want to talk to you, right?

Yeah. So, you're on this list and I'm trying to like— I don't know why this lighting is coming up, but yeah. So, you're on this list, you're getting hit up. So, I've spoken to a lot of very good dev shops. and actually they came recommended by companies that are clients of ours or friends of mine. And to be quite honest, their costs are not significantly lower, right? Like than hiring a developer, because they have, they tack on a few things like project management and they have product managers. They have all this overhead costs that they're starting to build in. So like a developer is going to still cost you, like, I don't know, maybe between $6,000 and $10,000, right?

It all makes sense too, right? Because the point of these government programs is to, to make hiring onshore, so to speak, more, more competitive, right? Once you factor all those things in. Yeah. So there was, there was a bunch of other questions here too, just on some of the technical stuff. So in, in terms of corporate structure, Joel, Faith, Ravi, and Akshay were all asking, you know, this is the corporate structure, whether it's a single-member LLC, C-Corp, S-Corp. I know you said, and a lot of people asked before as well, in terms of nonprofits and stuff, those aren't going to qualify.

Right.

But as far as for-profit, what about B Corps and other, you know, for-profit companies?

Yes. Other for-profit companies, as long as you're taxable, you can claim. And I can send you more info on that because a little more like, you know, I may as well send you like stuff that's written with like reference links. C Corp, S Corp, LLC. LLC, with the LLC, the R&D credits flow through the shareholders because you're getting a K-1, right? And so, provided the shareholder is earning income from the LLC. So, let's say you're like, you know, me, Jonathan, and Founder Institute are 3 members of, like, you know, XYZ LLC. Now, Founder Institute is not getting a distribution from XYZ LLC, so the R&D credits, they can't claim it. But Jonathan and I are getting a distribution from XYZ LLC, so the R&D credits can flow through to us and we can offset use the R&D credits to offset our personal income taxes. And that's the benefit of LLCs. And a lot of LLCs, like, outside of— if you're not a venture-backed tech startup or plan to raise money, a lot of the people, like, what I see in pharma or manufacturing or food, a lot of our clients that have not raised money, they're not Delawares. Like, you know, they're basically LLCs, right? And that's a big, big benefit. Of them.

Yeah, most of the companies that— yeah, if you want to raise funding, LLC is not a good option. But for something like this, it is. A couple people— do you know, like, how— I know B Corps are somewhat new, but do you know how B Corps, you know, play along with these companies?

You know what, let me get back on that. I gotta poll somebody on the team.

No, I know, I know, it's the same I mean, like, we get a lot of questions about B Corps too, and, you know, people are just like, oh, well, you must just be able to look something up. Like, no, there's so much gray area because the government, you know, people just try to push the envelope and the government decides, okay, was this okay or not, right? So it's evolving, right?

I want to specifically, like, you know, ask somebody. I just don't want to say an answer, like, on the team, like, you know, yeah, the team or expert. But like the tax law says you shouldn't be a tax-exempt organization. So if you're a taxable entity, if you're a taxable entity, meaning filing taxes and, you know, owing taxes, then you can claim. And nonprofits are not taxable entities, right? So that's why they're exempt. Tax-exempt entities are not. So that's the answer there. But I want to look at some nuances on the B Corps, so I'll get back on that.

Yeah, okay. But you may have a case just because B Corps do get taxed, right?

Yeah, exactly, exactly.

So, okay, so I wanna ask a couple questions here too. This is something I know, Lloyd, as far as, you know, Boast.ai goes, you guys, you bootstrapped this company to over $10 million a year in revenue, right? Which I'm sure for a lot of people on the line today is no small feat. Small feat. And I know that you've done a lot of talks on how you guys did that, and I know that a lot of people on the line here, obviously, if you're looking for funding, you're probably bootstrapping right now. So government funding is one way to do it, right? Venture funding, etc. But can you just describe kind of what the mindset was to, you know, for you guys to bootstrap? And one thing that I also found super interesting too was that Bose.ai has a certain product and then you have this Traction conference and this Traction community, which are certainly similar, but definitely not like hand in hand. So I'd just love to hear like how the thought process and how you guys did that and anyone else throw questions into the chat. We got about another 10, 15 minutes here.

So my co-founder and I are both best friends. We've known each other since we were 18. We studied engineering, computer engineering, together. And after I finished engineering, he got into engineering leadership program at Johnson Johnson, and he built software there. And then he did a startup that wasn't successful, and he felt he needed to study accounting. So, he got into accounting, and long story short, a number of years later, ended up at a Big Four company managing like R&D tax practice for the tech vertical. And after engineering, I worked in product and growth at a number of venture-backed companies. The interesting thing is, you know, having a unique background with accounting and engineering, he worked with a lot of venture-backed companies and their R&D, and he saw like the bad thing, like, you know, basically, if more people, I don't know if this is a Gandhi quote or what, but more people die of indigestion than starvation, and that is particularly true in the venture world, right?

That's a great fact. Is that true?

That is apparently true. More people die of indigestion than starvation. I think that was an old quote there. And that's particularly true in the venture world because the thing is, you got two young founders, they went through Founder Institute, so you raised like a lot of money. If you don't know the fundamentals of business, you likely will not spend that money wisely, thereby requiring you to raise more money and give up more of your company and raise more money. And that's how these things become like a zero-sum game. Like, oh, it's either going to succeed or not. And then what happens along that path is every investor, you got to understand the investor mechanics. And you guys run this great workshop on how to start a venture fund, but the investor mindset for the most is, I got to make every investment that returns my fund.

Right?

So if, after a few rounds of funding, If you're not along that path, then the venture, the VCs have lost interest, right? Like, it's like a write-off almost. So then you're like, "Oh, I shutter or what?" And you're on this hamster venture wheel, and like, my co-founder, our company CEO, Alex, knew that extremely well, like having worked with hundreds of companies before we started Boast, and saw that, and so he, coming with an engineering accounting mindset, is like conservative, right? Yeah, raise money if you can turn $1 into $3 or $5, definitely. But if you can't, figure it out, get to product-market fit. That's the key thing, right? And then after engineering, I worked at 2 venture-backed companies, and they both were failures. When I say failures, both of them got acquired, but nobody on the executive made money. My first job was in product. My chief product officer, he left And the CEO was a small company, 11 people or so. CEO's like, you figure it out and doing all this stuff. And, and, and somebody's gonna—

I'm gonna turn— yeah, can we turn off the chat here? It seems like we're getting— let's see. All right, I just turned off the chat. Yes.

So Lloyd told me he had hemorrhoids. I don't know who that is.

Uh, is that— wait, is that true?

I don't even know who he is. I know a lot of Joshes. Uh, I think he's trying to return—

we turn— we turn the chat off. We, uh, we were— it's not the first time it's happened. We were the victim of a Zoom bomber. So throw any other questions that you have into the Q&A. Chat's off.

Um, but did he spell that— did he spell that correctly, by the way? Hemorrhoids?

I don't know.

Let's not look it up.

I don't know how to spell hemorrhoids.

Right, so let's not distract, but like, that was funny. So then I went to another, so that was in the enterprise space, we were selling to large venture back, sorry, large enterprise like Tiffany, Armani, Simon Schuster, and that company got acquired, but like, you know, the founder was, the CEO was out, nobody made money, and the investors recouped their money, and it was in another company in the B2B, B2B2C SaaS space in the ticketing world, in Philly. So that was in New Jersey, New York, and then this was in Philly, and the same thing, right? And then, Alex said, "Hey, you know what? This process of R&D tax credits is very manual. We can start with R&D tax credits, and then based on the data we collect, we can launch other financial services like what we're doing, like automate R&D credits. Now, we're doing R&D-based financing, and who knows where this goes?" And so, I was like, "Okay, great idea," but like we also had two other, like a few other ideas. So, Alex also had the idea of "Hey, we should automate customer service." And so, I also spent 2013-14 figuring out how to build a chatbot on top of Zendesk and getting traction for it, and you know, I think the key learning that got into the Alchemist Accelerator, we didn't really go through it, but one of the learnings there was customers want an outcome. Like we talk about product-market fit, why companies don't get to product-market fit, because customers want an outcome. Your number one job should be delivering outcome. The concept behind Automatticly, which you founded around the same time as Bose, was, but we thought like Automatticly is sexier and like tech and whatnot, right? So Automatticly was, consumers are getting a lot of, or companies are getting a lot of queries from customers and they're inundated. How do you automate that flow? We ran some tests on Twitter and we were able to respond like a real human, like automatically intelligently respond like a real human, to JetBlue at like 90% accuracy. Great. We went, first step was, now let's validate it with more. We, my, always my process is figure out the ideal customer profile, where they eat, breathe, drink, sleep, build a list of people, and reach out to them like 100 people a day, 50 people a day, that kind of thing, and like—

The manual work, right? Like to do things to scale, so to speak, like—

Yeah, and you can automate it somewhat because you can, you know, back then I was using mechanical Turk to scrape emails and then using mail merge with Streak and you reach out and now you can do sequences and Mixmax and whatnot, right? Outreach, the more you spend, but there's cheaper tools. But reaching out to say, hey, I'm an entrepreneur, you're a head of customer success service at this company. It appears that most companies are inundated with queries and we're building a solution to automate that process to respond like a real human. Would love to get your feedback, not looking to sell you anything. We lined up like hundreds of interviews like that over weeks, and that's what Founder Institute preaches as well. We lined up hundreds of interviews, talked to lots of people, and then we figured out the ideal customer profile. We knew it was a pain point. Where we failed was, we did these interviews on heads of customer service at Automatticly, on large enterprise customer service reps, and you know, when you're running short on time, Everyone's like, "Yeah, we use Salesforce or we use like an Oracle product for customer service," these large enterprises, right? And so then, we reached out to Salesforce and Oracle and they're like, "Yeah, we're not getting you in our marketplace, like go build a customer service application, who's gonna do that? You're not gonna get traction." The key thing is also figure out one pain point and solve for that, and make sure the customer gets that outcome, right? Get them to an aha moment right away and solve for it. And so we reached out to Salesforce and Oracle and they said, "No, you can't get in the marketplace. You have to go through security review, yada, yada, yada." So I just, Zendesk was doing a conference, so I ran through there, went to their conference in SF and I cornered their marketplaces person and they're like, "Yeah, you can drop an app here." And so we built an app and we dropped it in the Zendesk marketplace and we got a lot of downloads, a lot of downloads. Now here's the biggest mistake we made. So one is customers want an outcome, but like, you know, you'll see how we got there is we did all our customer development on heads of customer service at large enterprises, and then Oracle and Salesforce said no, and then we quickly cornered Zendesk and got into their marketplace. We didn't do any customer development on Zendesk marketplace. so we threw the app there, I kid you not, I don't know how this— it was like an intercom-style chatbot on Zendesk. A customer query comes in, it creates a response, you edit or approve, right? And the edit or approve came from the feedback. Initially we were just responding, and the Zendesk customers were like, guys, like, dude, like, this is garbage responses you're sending, right? So we made it edit or approve, and what we realized is all of Zendesk customers were really small with no dataset, no big dataset, nothing. And so, you know, when you do a Turing test on effectively, when you run a Turing test on Twitter, on JetBlue, they've got so many queries that you can respond like a real human. Zendesk customers in 2013, '14 were really small, and so we couldn't do that. If I knew then what I know today, customers want an outcome. I would have just gone to every single customer and be like, what are your most common questions? Create a decision tree and just build that as a bot custom till we figured it out, right? Till Zendesk got bigger, till we got enough traction. So we had to shutter that. After that, you know, Bose was at a point, still early days, we're not making that much money. So we're like, one of the founders have like, you know, my co-founder, He understands the R&D tax market, and he knew how to serve customers. I'm like, hey, I'm going to get a job. I'm still going to do both, but get a job that sort of pays. And I joined the early team of Speakeasy, founding team of Speakeasy, which was AI for customer service, raised $6 million. And so, this is the thing, more people die of indigestion. You have $6 million seed round, you hire all kinds of people before you get to product-market fit. And then you realize customers don't have an outcome. So these three things are paramount, right? Like you need an ideal customer profile.

You can create— Yeah, you can do that stuff without $9 million of funds. Yeah, exactly.

So those were the three things: ideal customer profile, build a product that gets them to an aha moment, gets them to an outcome right away, and figure out one channel, one distribution channel. And so, we shuttered that, then I was doing Boast in parallel, and then really like 2017, 100% heads down Boast, and took it from single digits to 8+ figures in revenue in 3 years collectively, like, you know, honed in, software vision, all hands on deck kind of thing. So, it's a journey having been a part of different startups, and I would say if you have an ideal customer profile, And not like, you know, I give you the automatic example. We have the ICP, but then like, you know, we got nervous and built it for somebody who gave us access. Ideal customer profile, get them the outcome, even if you have to do it manually. Guys, don't be arrogant. I'm a founder, you know.

Do it manually at first. Do it manually at first. And this is, we see this from so many of our companies too. And I was just reviewing some pitches. We have an event next week and I'm reviewing these pitches and they're mentioning, you know, like 10 different problems that they're solving for the customer, or they're mentioning, 10 different customer acquisition strategies, right? And each time I'm like, no, one and one, right? Like there's so many products that do 10 things poorly, right? Yeah.

And there's this common—

this is great. You don't need $10 million in funding to just do that one thing, at least to start figuring that out, to start building it. And then you need the money once you want to take it like nuclear.

Exactly right. And so don't get into this Silicon Valley trap of everything needs to be hypergrowth, double, double, triple, triple. Rahul, who's the founder of Superhuman, took several years, I think almost 6, 7 years to build it. Building good businesses with fundamentals takes a long time. Focus on the customer you're serving. Let that be your primary guide. Get them to an outcome. If you keep doing that, you'll, you know, the money will follow. Make focus on making money and making customers happy. Nobody cares about the fancy AI. AI and the dashboards. What they care about is like, with us, did I get my check and did I not get a call from the IRS? So, one more thing here that you touched on and is tied to traction is the channel, right? Ideal customer, one kind of customer, like one kind of customer getting one kind of value coming through one or two channels over and over again. So, you get this one kind of customer getting one kind of value coming through one kind of channel over and over again, you're ready to scale. Take as much money, dump it in there, You have your metrics, you're gonna scale. So with us at Boost, it was dialing for dollars. So like we started with sales, right? And as we talked to more and more people, we knew that you need to build your brand as a thought leader in that space to be able to have people have the conversations. So we started doing like, we knew we were selling to founders, CEOs of technology companies. So we started doing meetups, inviting people as speakers. Those meetups turned into a conference, that conference evolved into Traction. and, uh, and, you know, we partnered with, um, our good friends, uh, Ray and Launch Academy, because they have the same mission, and you need the support as a bootstrap company to collectively build it. That, that actually, that those meetups turned into a conference called CloudFactory, story for another day, where I had another partner who ran away with the money of the conference, so we pivoted, turned it into Traction, and then last year what happened was, uh, last couple of— last year COVID hit, And since then, Traction's grown into a community now. And basically we knew we're not gonna do the conference, so we started weekly webinars. That's the other thing, right? If you wanna build a brand, you need to have a cadence. If you say, I'm gonna do a webinar, you can't do one and done, you gotta do it like every week. So now we're doing 2 a week, our lineup's full till April, that's turned into a community. People register, you send them a follow-up email, they engage. But really it all ties to your mission, right? Like before you even build a product, like write down a mission. Our mission is to help innovative companies become successful. And yes, we serve that mission through our product, but our customers want more than R&D tax credits. You said it, they want funding, they want scale, they want growth, they want hiring, they want all kinds of things. How do I give them that? I wanna be the broker of resources for my customer. Well, that's why we built, that's why we focused on building Traction. And so one kind of customer coming through, one kind of customer getting one kind of value, which is like founder CEOs of technology companies, getting government money to fund their business, coming through one kind of channel, cold call, warmed up with our community, and over and over again. Now, yeah, we're gonna— we're literally hiring our first marketers, right?

And sorry if I was loud there, right? There's a big storm coming here, so my windows are shuttering and stuff. But yeah, I think it's brilliant too, because, you know, what we're talking about here a lot is focus, right? It's like focusing on one, one, one, one, and one. And but if you could also look and say like, okay, Boost.ai does this thing, And then there's this traction conference which does this other thing, right? So you could see that as unfocused, but you guys are tying it together through a unified mission. So it doesn't really matter that they're kind of tackling different, you know, not even necessarily different, they're tackling the same mission, the same larger problem, even if, you know, you're kind of dividing it into smaller pieces, right? And yeah, building that audience is so, so important. And just for anybody on the line here too, that's definitely at the idea stage of your business, if you don't have a product yet, And if you're in some of the things that Lloyd was talking about on just dialing for dollars, talking to people, understanding what problems you need to solve for them, if you can build an audience, right? Not only are you actually going to probably have a customer base once you do have a product, but you're gonna learn so much more that's going to allow you to build a product that people actually want.

Exactly. And you know, if you look at, speaking of products, everyone knows Product Hunt, Product Hunt started as an email newsletter. If you do things manually, technology will not buy you engagement, but engagement will buy you dollars, which will enable you to build technology, right?

Yep, exactly. That's a great way. That's a great way to put it. What? All right, I think we're at the top of the hour.

Sorry for taking 6 more minutes here.

No, no, no, we're good, man. A lot of people stuck around. So yeah, Yeah, for everybody on the line, I did see this question a lot. Yes, you are going to get, I believe there's an automated email that's going to go out 48 hours from an hour ago. So 47 hours from now exactly, you're going to get an automated email with the video recording. Lloyd, I know you wanted to share a bunch of links and stuff, right? You referenced a couple times during the talk today, people were asking specific questions. Lloyd's going to send me those links and we will include those in the follow-up email. For anyone else, You know, please check out Lloyd's company, uh, Bose.ai. They, they do, like, as I said, they're a partner to FI, that they've helped a lot of FI companies. It's a good company. And even if maybe you're not in the market for, for that right now, check out thetractionconf.io. Um, those, uh, you mentioned some of the names that were coming up. I know there's Jeff Lawson from Twilio. Uh, you guys are interviewing some of the best practitioners in growth Awesome.

Thanks so much, Jonathan. It's been a great relationship partnering with FI as a mentor and as a supporter here. And thanks for all the love and support, everyone. If you have any questions, just hit me up LinkedIn or email me. And Jonathan, let's stay in touch and let's have you on an Attraction webinar in short order when you're not so busy.

Yeah, I look forward to it, man. Awesome.

Take care. Have a good weekend. Bye.

Thanks, everybody.