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Sequoia Leads $16 Million Series A Round Into Verification Startup Middesk

This article is more than 3 years old.

Last Spring, business identification startup Middesk was deep in the throes of helping small businesses apply for paycheck protection program (PPP) loans as Covid-19-induced lockdowns roiled the entities. While the founders of Middesk couldn’t predict this usage scenario when they launched the company in 2018, helping those organizations verify their identity to secure these loans fits right into the startup’s mission of helping small businesses more easily access necessary services and navigate regulatory risk.   

Founders Kyle Mack, CEO, and Kurt Ruppel, CTO, got the idea for Middesk when they were working at a startup with a similar flavor, Checkr, which helps verify the identities of gig workers for clients like Lyft and Instacart. Every time they onboarded a new client, the process to verify the company's legitimacy was arduous. “It created a lengthy delay for newly formed and smaller businesses,” Mack tells Forbes. “[Our] idea was to build a product that would make it really easy for small businesses to get access to all the services they need where there is a regulatory component.”

Middesk’s flagship identity product is used by banks and financial service companies like Plaid to help small businesses more easily obtain services like a bank account or credit card. While traditional databases in this space can date back to the 1800s, Middesk provides a more up-to-date database on potential company clients including incorporation documents and tax identification numbers from more than 75 million businesses. Middesk’s revenue grew by 5x last year, Mack says, though he declined to share specifics. This growth prompted the startup to raise a $16 million Series A round led by Sequoia with participation from Accel and Y Combinator, bringing its total fundraising to $20 million. 

Sequoia, which also funded Middesk’s seed round, believes the company will define a new category within business infrastructure surrounding verification and trust, partner Stephanie Zhan tells Forbes. After Covid, Sequoia doubled down. “Small businesses are very much the heart of the American economy. There are more than 30 million in the U.S. yet many struggle to access the financial resources they need to work with each other,” Zhan says. “We think there is a massive opportunity ahead to build a whole new category around business identity.”

In addition to the fresh funds, Middesk is announcing the launch of a new product which will help businesses more easily register tax accounts with state governments; it is currently operating in 35 states. Macks says this service is especially critical now with many employees working remotely. If a company hires someone in a different state than where it’s headquartered, it needs that state’s tax account before that new hire receives a paycheck.  “Every year, about 50% of annual net job creation is coming from newly formed and small businesses,” Mack says. “We see this really awesome opportunity coming out of the pandemic. We think many businesses will be hiring employees in a new state.”

Covid-19 brought into sharp relief the need for resources aimed at helping small businesses, which surged despite the pandemic. More than 4.3 million new businesses applied to the Internal Revenue Service for Employee Identification Numbers 2020, up 18% from the 3.5 million in 2019. Middesk was able to help 200,000 businesses in 2020, and has already surpassed that total in 2021, with Mack setting his sights on helping 1 million customers by the end of this year. 

“There are two-to three-times the amount of new businesses being formed right now compared to the monthly average for years,” Mack says. “There is this huge wave of entrepreneurship coming out of Covid and we are making sure we are able to help them.”

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