Numeral Secures $35M to Leverage AI for Sales Tax Automation
Sam Ross, the co-founder and CEO of Numeral, conceived the idea for his sales tax compliance startup during his travels around the globe, following his tenure as a product manager at Airbnb. In an interview with TechCrunch, Ross shared that his journey began in early 2018, a time when remote work was not as prevalent as it is today. To support his travel aspirations, he managed several self-funded e-commerce brands, including an online jewelry store and a vitamin direct-to-consumer site. However, the complexities of sales tax compliance soon became a significant challenge for him, prompting the creation of Numeral.
Challenges in Sales Tax Compliance
Before 2018, e-commerce and Software as a Service (SaaS) companies were not required to collect sales tax in states where they had no physical presence. This changed dramatically when the Supreme Court ruled that these businesses must now collect taxes based on their customers’ locations. Ross experienced this shift firsthand, stating, “All of a sudden, I went from having to deal with collecting tax on my customers in California, to all of a sudden dealing with 40 plus states.” This sudden increase in complexity was a painful adjustment for many entrepreneurs like Ross, who were unprepared for the bureaucratic burden that followed.
Recognizing the need for a solution, Ross applied to the startup accelerator Y Combinator in 2023. Encouraged by partner Gustaf Alstromer, who was also his former boss at Airbnb, Ross was motivated to create a startup that would automate the entire sales tax management process. This vision laid the groundwork for Numeral, which aims to simplify sales tax compliance for businesses.
Funding and Growth of Numeral
On Thursday, Numeral announced a significant milestone, raising $35 million in Series B funding, which values the company at $350 million just two years after its inception. This funding round, which follows an $18 million Series A raised six months prior, was led by Mayfield and included participation from notable investors such as Benchmark, Uncork Capital, Y Combinator, and Mantis, the venture capital firm co-founded by members of the electronic DJ group The Chainsmokers.
Numeral’s growth trajectory has been impressive, with revenue increasing by 3.5 times over the past year. The startup now serves over 2,000 clients in the software and e-commerce sectors, including well-known brands like EightSleep and Graza Olive Oil. This rapid expansion highlights the demand for effective sales tax solutions in an increasingly complex regulatory environment.
Leveraging AI for Sales Tax Management
While various software products exist for managing sales tax, Ross believes that artificial intelligence (AI) can significantly streamline the process. He asserts that AI can handle most aspects of sales tax management, as the majority of tax rules are straightforward, reducing the risk of errors. Numeral’s AI technology is designed to keep track of changing tax laws across more than 11,000 jurisdictions, manage tax-related correspondence, and even file and pay taxes on behalf of clients.
Ross pointed out the peculiarities of certain tax laws, such as the distinction in New York between a whole bagel, which is tax-exempt, and a halved bagel, which is taxable as a ready-to-eat item. Numeral’s AI is equipped to navigate these complexities, making it a valuable tool for businesses.
Market Position and Future Prospects
Despite the niche nature of sales tax management, several startups are vying for market share, including competitors like Anrok and Zamp. Additionally, Avalara, a well-established player in the industry, is expected to go public later this year. However, Ross emphasizes that Numeral’s international capabilities set it apart from its competitors. The company is already filing taxes for clients in countries like Tanzania and Kenya, where businesses traditionally relied on CPA firms for such services.
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