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From 1K Customers In First 11 Days To 1 Mn Today: ClearTax’s Journey Post The YCombinator Stamp Of Approval

From 1K Customers In First 11 Days To 1 Mn Today: ClearTax’s Journey Post The YCombinator Stamp Of Approval

[Note: This article is part of The Junction Series. We will be covering the FinTech sector in detail at The Junction 2017 in Jaipur. Learn more about The Junction here!]

It was on 19 July, 2011 when the website of ClearTax– a fintech startup aiming to facilitate users to file taxes and returns online, went live. The timing was quite strategic as there were only 11 days left on the July 31 deadline of filing taxes.

Archit Gupta, founder & CEO recalls, “I had no marketing budget that time. So all I did was send emails to friends or people I knew to try the product. But within two hours of the website going live, somebody had filed a tax return. That was a crazy moment for us.”

From that crazy moment, there was no looking back. In those 11 days, over 1,000 people filed their tax returns on ClearTax. Archit and his team worked day and night to make sure that they kept on adding feature after feature at breakneck speeds as people would call up and ask for more support features – such as for rental income or provision for two salaries.

The next year, over 30K-40K users were filing their returns on the platform. The figures rose to 100K, to 300K, and five years after that first fateful day, the startup claimed to have crossed the 1 Mn benchmark. For Archit, who quit a cushy academic career in San Francisco to start ClearTax with his father Raja Ram Gupta, Srivatsan Chari, and Ankit Solanki, taxing times are a thing of the past now.

From A PhD From Wisconsin To A Startup In Delhi

But the road from San Francisco to Delhi was not easy.

Archit was living in San Francisco, and visiting home for the summer in 2010. It was an informal talk with his father, a CA in Delhi, about how doing taxes was difficult both for individual consumers and CAs themselves – how difficult the computing software makes tax filing so problematic and complex that led to the genesis of an idea. As Archit thought about the problem more, he wondered if he could create a software for India to help ease the tax filing process?

He says, “When I started thinking about ClearTax, I was not thinking what the market would be or how big it would be. All I thought was it was a need that should be solved.”

archit-profile-picture_1

To solve that problem, he moved back to India – a difficult shift. There were three-four layers of complexity to the problem. Archit was an engineer from IIT Guwahati, and had also garnered a PhD in computer science from Wisconsin – so from being completely focussed in computer science to suddenly starting a tax filing company was like entering a new dimension! It required spending a lot of time with CAs, a lot of learning, understanding, and going deep into a completely new subject – almost akin to starting over again.

Learning challenges aside, bootstrapping the company as capital was very difficult to raise at that time in 2011, was another hurdle. Then there was the problem of building a product software company from India with very few precedents to look up to.

Adds Archit, “At that time, you had more transaction-based companies (travel portals); ecommerce was just getting identified and emerging on the scene, so thinking about getting into pure product play was a different ball game altogether.”

Also, he adds that the startup tried to do something which in hindsight was very smart and very stupid at the same time. He explains,

“We tried to build software for both consumers and CAs and we were not sure how to make the software. Though we started giving it out to CAs, but what we discovered that we had no fundamental differentiation in the beginning. These things forced us to think very clearly and we gravitated in the direction of building a consumer-oriented website to help people do their taxes.”

1 Mn Tax Returns And Counting

And thus shaped up ClearTax, as we know it, in its current avatar. The software helps individual consumers, CAs, and businesses to prepare and file their tax returns. For users – the process is super simplified. One simply has to upload the Form 16 pdf to start. ClearTax reads all of it and fills out your tax return automatically and instantly,thus eliminating any human factor intervention in computing and filing. The user gets a fully-prepared tax return in seconds.

Additionally, it also helps users through complex scenarios – say if you change jobs, you will receive multiple form 16s; so the software will help you accommodate that too. If one has forgotten to claim HRA, it can be taken care of as well. Similarly it can apply for tax refunds, calculate capital gain/loss in case you have sold stock or MFs, help you carry forward losses to multiple years, incorporate companies, and undertake service tax registrations, among other uses.

cleartax_website-screen-shot

Today Cleartax is used by over a million consumers and 10,000 CA firms use the software. Of these million users, SMEs comprise about 20K in number. But the scope there is huge.

Says Archit, “In the last financial year, 43 Mn Indians filed their tax filings. This year it is anticipated to be 65 Mn-66 Mn which is basically 5-6% of the Indian population. However as the after effect of the demonetisation policy, we expect the number to grow rapidly.”

Just as the demonetisation policy has widened the scope of opportunity for ClearTax, there was another such event which completely turned around its story.

Getting The YC Stamp

When ClearTax got into US-based startup accelerator Y Combinator’s summer programme in July 2014, it became a major milestone in its journey. Recounts Archit, “It was transformational. At that time it looked almost inconceivable that a Silicon Valley based accelerator wanted to fund an Indian company focussed on an Indian problem.” Because while it was the fifth Indian startup to be funded by YCombinator, it was the first which was focussed only on the Indian market.

However, the experience worked well for ClearTax in multiple ways in addition to the fact that it got backed by the who’s who of the startup world post getting the stamp of recommendation from YC. After ClearTax raised $120K in seed funding from Y Combinator in July 2014, the startup was also backed by One97 Communications in October 2015. It then raised $2 Mn in Pre-Series A round from FF Angel and Sequoia Capital and $1.3 Mn  in seed funding from PayPal co-founder Max Levchin and Scott Banister, an early investor in Facebook and Uber.

Others investors in the round included heavyweights like Naval Ravikant, founder of AngelList; WhatsApp Business Head Neeraj Arora; and Ruchi Sanghvi VP Operations at Dropbox; Y Combinator alum Sumon Sadhu; and Flexport’s Founder & CEO Ryan Petersen. In June this year, a $12 Mn Series A round of funding led by Ravi Adusumalli of SAIF Partners followed.

cleartax-co-founders-ankit-solanki-cto-archit-gupta-srivatsan-chari-vp-business-and-operations-with-geoff-ralston-at-yc-in-2014

But besides the fund flow, what helped it more was the right sort of mentorship, the right kind of access to investor visibility, and consumer awareness. Says Archit,

“After the YC experience, we actually improved the mobile experience for our consumers. So queries started coming in from mobile as well.  It was a good starting point for us. The other aspect was that we became quite aware of our metrics and we became very focused in our communication with the customers. Overall, as a company we spent more time doing B2B marketing that helped a lot more as we got the likes of TCS, Wipro, and Infosys recommending our product to their consumers. We also closed on partnerships with banks as they could also offer ClearTax to their customers.”

What helped it in being selected, Archit feels, is the fact that ClearTax was trying to solve a very genuine problem which was not in a very sexy area, per se. Additionally, that it was using technology and the product to solve the problem, and not operationally solving the problem, was another thing that went in its favour. Having a lot of users and real focus on consumers using the product is what he believes finally completed the equation.

So from a three member team pitching to YC, the current team now stands at 86 including the sales executives and the call centre personnel. By the end of this month, this count is expected to be close to 100.

cleartax-team

But while it has grown from strength to strength post the YC experience, so has competition in the space. Other major players in the tax-filing space include Quicko, Taxsmile, Makeyourtax, BigDecisions.com, and Taxspanner, among roughly 15 other service providers for e-filing including Income Tax department portals.

Archit however is undeterred. “We are the innovators in this space. So we are 20 X bigger than the next guy. When you are of that size, you are able to foresee a lot more consumer problems, a lot more opportunity, and you spot the trends faster to improve your software faster.”

He adds that what he has observed is that competition has typically tried to copy what ClearTax has done. He notes, “It was very funny to see our last year’s version show up at their websites which really shows they have no clue of how to build a great experience. Most of them are CA firms or non-technology companies trying to build something online or chasing the market leader. The products are not very usable or hyper laser focused on their consumers. So I believe we have a significant technology advantage.”

To add to that, he discloses that ClearTax has over 200 servers running to manage and handle the peak in demand when hundreds of users show up at the last minute for tax filings. The many significant advantages which it has built up over the year are enough to ensure that even if the number two guy is spending 10X on advertising, the kind of traffic he is able to mop up is probably 1/10th of ClearTax. It may be hard to substantiate that claim but what is undisputed is the product advantage it has and is building as the economic scenarios is India look poised to change post two major events – the GST bill and demonetisation.

GST, Demonetisation, And The Road Ahead

One major product initiative ClearTax has taken is simplifying business tax returns. Says Archit, “We are very interested in simplifying and helping how to make a business tax return easier for both CAs and business owners themselves. That is a major growth area for us as it is not very easy and obvious. It almost feels like being back in 2011 and doing something that people think is not possible!”

The reason behind this is probably closely linked to the GST tax regime which India is bringing about. Archit is positive that GST tax reform will affect 1 Cr business owners and will bring about a major shift in how the economic system in India will work. He believes that a lot of clarity needs to emerge and that’s why it is working on a software platform that will enable GST-registered entities to follow all compliances and file their GST returns effortlessly.

In fact, he discloses that the GST platform is the also the reason behind its recent Series A round of $12 Mn. He adds, “Our target is to become the largest tax planning website in the country and the largest GST platform in the country. Fundamentally it will help us achieve scale and capacity.  We will be helping businesses to achieve the compliance goals set up by government.”

Consequently, the startup is also undertaking training camps and webinars to bring about clarity and educate people on GST’s impact and how to operationalise it. Archit believes that software products akin to ClearTax are needed to ensure that the delivery of a project like this happens.

tax1

Similarly, he feels that demonetisation would be the second impetus that will increase its business multiple times. He adds, “Post-demonetisation, even small businesses such as beauty parlours, tuition instructors, yoga teachers and such small businesses who were not worried about reporting feel the need of reporting so that their income and the cash they hold is accounted for. So for all these scenarios – right from ecommerce sellers to Ola drivers, there are tax implications and we have a platform to help them.”

Right now, ClearTax is free for everyone to use but it charges in case a user needs more assistance, depending on the scale and complexity of the CA expert filing. Additionally, in its bootstrapped days, on the last two days prior to the filing deadline, it would start charging for tax filing at INR200-INR300. However, senior citizens and women were not charged even then.

From those initial days to clocking 1 Mn users, ClearTax has come up the long and arduous way of building a fintech startup in India and keep it growing. What has bothered him is the lack of high quality technology talent. Additionally, given that the maturity of the ecosystem is sometimes ahead of the curve and sometimes behind the curve, a fintech startup finds that while it is shaping the market, it is also doing the work of educating it. Then, the not so comfortable comfort levels with choosing technology in terms of financial matters were also some of the concerns it faced.

Which brings us to the question as how can fintech startups like ClearTax increase access to non-urban consumers?

Archit believes that still continues to remain a challenge. Firstly, because to access financial technology, smartphones and networks require a relatively decent, affordable data connection,which is still a luxury to majority of non-urban consumers. Education and motivation to transact online also remain a challenge. He adds that the non-urban community has not so far shown an uptake; it has been mostly through intermediaries, not directly.

Hence, ClearTax’s approach has been to partner with CA firms in such areas as they will bring access to these layers. The small town CAs then become the intermediary for it to reach these sections of the population. And that is why he believes, that though ClearTax can’t reach rural areas given that agriculture is not taxed, with CA firms in Tier II and Tier III cities, it will able to create a large impact on semi urban area. Coupled with the effects which GST will have on all businesses across India, that could be yet another inflection point in ClearTax’s journey from growing beyond the traditional audience of a fintech startup.

Editor’s Note

With a million people already using the platform, ClearTax has the first mover advantage in the space. However, when compared to the number of taxpayers  in India, it has its work cut out. With more people joining the formal economy post demonetisation and the GST rollout, the scope of growth is undeniably immense. How much of that can be effectively monetised by ClearTax is something that will be interesting to look forward to in the coming years.

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Author

Shweta Modgil

Inc42 Staff

Passion for writing and interest in the start-up space brings Shweta to Inc.42. She has prior experience as a Research Analyst in the venture capital/ private equity space and the auto industry. Fiction writing is her other forte and her first book titled One Hundred Days published by Tara Press debuted in 2014.

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