Gusto raises $140M, Xero acquires Hubdoc, why the IRS should allow taxpayers to use U2F keys, and the open office under attack

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The Government Accountability Office (GAO) has recommended the use of phishing-proof FIDO security keys to prevent tax scams. Also this week: payroll and HR provider Gusto raised a $140 million Series C at a $2 billion valuation; cloud accounting software maker Xero has moved to acquire Hubdoc (a data capture solution); Stampli, an invoice management platform for midsize and enterprise businesses, raised a $6.7 million Series A; and attacks on the open office continue unabated.

Stories in this episode:

    Cloud Accounting Podcast E26: Gusto raises $140M, Xero acquires Hubdoc, why the IRS should allow taxpayers to use U2F keys, and the open office under attack

    Welcome to The Cloud Accounting Podcast, a show for accountants using technology to make their jobs more strategic, and impactful. I'm Blake Oliver-

    And I'm David Leary. Hey, Blake, we might as well just jump in here, because I think there's some big news, and I think we maybe wanna talk about it a lot. I'll start with a short one.

    Yeah.

    Last week, we talked a little bit about YubiKeys, and how Google revealed that all 85,000 employees were never phished successfully, because they use these keys. Apparently, the General Accounting Office is recommending that the IRS allow ... Rewind here, taxpayers to authenticate, using keys like that, or using biometric protocols. That way, they can support that, so you, as a payer, could validate into the IRS that way, instead of using pins, or Social Security numbers, or other authentication methods. It could be an interesting thing for us to watch, and keep an eye on, especially you, if you're doing this for your client's behalfs, you could have one hardware-based token, or key that nobody else can file for those clients, if they don't have that key. So.

    Yeah.

    Just something to keep in mind, and keep watching for, because the GAO is recommending that.

    That's fantastic. For those who didn't listen to the podcast, or aren't familiar with YubiKeys, they are these USB-drive-sized ... They look like a key. You plug them into your USB port on your laptop, or your computer, and it provides authentication, in addition to your passwords. A super-secure, way more secure than text-message-type authentication.

    Actually, there's a story about that this week. I don't know if you saw it, but Reddit got hacked. A bunch of user information from that site, everything from 2007, and earlier, was downloaded, apparently, by a hacker.

    The way that they got in was they did a SIM hack. They basically spoofed someone's phone number, and Reddit, internally, was using text-message authentication codes, so the authentication code went to the hacker, and they were able to get in.

    Huge security breach, because now all these people's usernames on Reddit, which, a lot of people like to be anonymous on there, are now linked to, potentially, their emails, so a lot of people could be exposed.

    We could do a whole separate podcast on just cloud security ... I don't know, on something, but I think even I saw some headline this week, LifeLock had a breach of some type. It never ends.

    All of our listeners, just start thinking about ways to level up your security with your cloud stuff, because ... Just assume things are under attack. Your PCs, back in the day, were under attack, as well. It was just different.

    Let's turn away from all that negative security-risk, scary stuff that we talked about last week, and let's talk about some fun stuff. There was some big activity, M&A fundraising, going on in the cloud-accounting world. The top story this week is that Gusto has raised $140 million of new venture capital.

    This was a late-stage round, a Series C, led by T. Rowe Price Associates. MSD Capital was in there, too. That's Michael Dell. Dragoneer Investment Group, and Y Combinator's Continuity Fund involved. Also, their previous investors participated in the round.

    For those who are not familiar with Gusto, it is really awesome modern payroll, and HR. I've been happy to be ... When I had my own firm, we used Gusto for all of our payroll. It's great.

    Yeah, it's really exciting for that team. I met them way early on in this process of them integrating with accounting systems, and coming into our world, and the QuickBooks world, and cloud accounting, in general, back when it was ZenPayroll.

    What's really amazing is they reached unicorn status ... For those of you who aren't familiar with that, if you have a billion-dollar valuation, you've reached unicorn status. They hit that in December of 2015. That's when they had about a billion-dollar valuation. I think I saw this latest round, they have a $2 billion valuation. There's not a lot of companies that are hitting that type of evaluation status, which is pretty amazing.

    They are a double-unicorn-rainbow cloud-accounting startup [crosstalk] what's amazing, too, is I don't know if this is more now, but last time I heard, they were saying that they are processing ... One percent of all United States payroll is running through Gusto. Clearly a huge success story.

    Yeah, and they've come so far. I remember when I first met them, and they were kind of the darlings of Silicon Valley. They did all the startups' payrolls. I talked to them, and they're like, "We don't have a customer in Iowa, yet." They didn't even support all the states. They basically just only did California, so they've really come very, very far, in a very short amount of time. It's a pretty amazing story.

    Moving on to more activity, this time in the mergers, and acquisitions area - M&A - Xero has acquired a Hubdoc, and Hubdoc is a data-capture solution. It's very popular with Xero users, very popular with QuickBooks users, as well. Very reminiscent of Intuit's purchase of TSheets, last year.

    I haven't talked to anyone at Xero about this, but I'm sort of wondering if this was maybe a little tit for tat ... "Hey, Intuit, you went, and got TSheets into your portfolio ... " Now, Xero is gonna go out, and buy Hubdoc. Now, all those Hubdoc users that are on QuickBooks are gonna see a Xero company under the Hubdoc logo.

    Yeah, very well could be. I think there's been history with Intuit, and Xero. They kinda duke it out. Then, at the same time, there's cooperation. That competition's good for everybody, a little bit. I think it's one of those things, though ... They're open platforms. They have open APIs. Going forward, I don't see ...

    There's been a lot of paranoia, and comments over, and over again in all of the Facebook message groups, and things like that. People are like, "When's things gonna get turned off?" I think that paranoia probably was on the other side, with TSheets, as well. I don't know, I kinda view it as a thermonuclear war. Both sides have these missiles launched at each other. Nobody's gonna [inaudible] cut each other off, just like nobody's gonna ever really launch those nuclear missiles, you know?

    Yeah, that's a great analogy. Okay, so it's Xero, and Intuit are the United States, and the Soviet Union. We won't say which is which. The Hubdoc, and TSheets are satellite states that they control. Mutually assured destruction will ensure that the ecosystems remain open.

    But I think a decade ago, 15 years ago, no way. There was no way these types of moves like this would ... The platforms would stay open. I think forever, every QuickBooks user that was also an ADP customer paid a penalty.

    Every week, they'd run payroll on ADP; they'd have to save a file to their desktop, then upload that into QuickBooks Desktop software. Then, do it again the next week, and hope to God they didn't click on the wrong file, and import that in incorrectly. It was because both ADP, and Intuit had closed mindsets. As views matured, now, ADP customers can very easily shove their data into QuickBooks, or if they're using Gusto for payroll, right?

    I think companies, now, have a little bit more mature view of APIs, and open collaboration, and data movement, back, and forth ... Like I said, 15 years ago, this, for sure, could've been ugly, but I think everything ... People are gonna play nice with open platforms.

    Yeah, I think so, too. Some details about the transaction, for those who are interested, deal is valued at $70 million. Xero is going to pay the acquisition price for Hubdoc in two stages; initially, with a $60 million payment, consisting of 35-percent cash, and 65-percent zero equity. Then, they're gonna pay out the rest over 18 months. The transaction should be completed by the end of August, 2018.

    One thing I'd add to this, David, is I think the big benefit for Intuit, for Xero, in acquiring marketplace add-ons, and partners, is the ability for them to build deep integrations with their software, which gives them a little bit of a leg up, to say, "Oh, we've got this deep integration with TSheets that QuickBooks Online now has." Or Xero's gonna have a deep integration with Hubdoc, making document processing more easy.

    It's not going to be a game changer, I don't think, because, again, if they remain open, you can use either application with any provider. Really, I just see benefits outta this.

    Yeah, and I think that there's a bigger story here that some people can miss. Some of it's just maybe are accountants, and bookkeepers, and people listening to this podcast, so, it's not part of their knowledge of the history.

    Really, this is a history of platforms. This is what always happens. You go back to Windows 3.11, and you would install this shareware on it to get a toolbar and a clock. You'd install some version of a file explorer, and you installed these things, but they're all shareware; they're all add-ons to Windows 3.11.

    Then, Windows 95 came out, and it did all those. All those things that developers built, either the operating system - the platform - built themselves, or they either acquired, and integrated these add-ons. Now, there was probably 700 different toolbars for Windows 3.11, and only one won the game, or they all lost, when Windows 95 just built a Start button, and a toolbar, themselves.

    It goes on. You can look at iPhone; iPhone came out. It just took pictures. There's all these apps to do these filters, and do crazy stuff to your photos; put stickers on them, and that type of stuff. Now, if you look at the default photo apps that are in Google's Android devices, or on Apple's phones, they do tons of stuff, and that used to all be third-party apps.

    It's a little bit of a double-edged sword, because there's a couple of views you can take on this, as a developer of an app. One view is you build this. You get acquired. You win. That's a huge deal. Another way to view it is the platform builds it, and you lose.

    Another way to view it is that you're okay with it, because even if the platform acquires a competitor, or they build it themselves, because you're a third-party developer, and you're kind of solving problems with the platform, before the platform knows they even have the problem. You'll just move on to solving another problem, and just spin something else up really fast. That's the agility that you have, that the platform doesn't have.

    Then, the other option is sometimes, your solution's just deeper, and better. A good example of this is QuickBooks Online does just enough inventory; good enough inventory. If you have really huge inventory needs, you're gonna go to a third-party app. That's one of those things ... Maybe the platform ...

    The iPhone is good at something, but the photos ... The photos are pretty good. The filters are good. The stickers are good. If you discover, "Hey, I kinda like this. Can I do more?" You'll either go find a third-party app that does that even better, or deeper. It's really kind of a platform story here. This is not a ... I think people wanna read into this more than they should, and it's a natural evolution of platforms.

    Makes sense, makes sense. I've got one more positive story-.

    Much better than last week.

    This story is about Stampli, which I had not even heard of, a few months ago. I came across them. They are an invoice-processing/invoice-management platform on the accounts-payable side, focusing mainly on mid-market companies, and enterprise companies. Bigger, a step up from, say, a typical Xero company, or QuickBooks company. Although, I do believe they integrate with QBO. They primarily integrate with NetSuite, Intacct, that sort of thing.

    They just raised ... Stampli just raised $6.7 million in Series-A funding to streamline invoice management. The round was led by SignalFire. I like this story, because it shows that all this activity of growth in the small-business-accounting ecosystem, I think it's starting to happen in the mid-market. I'm a little biased, given that I work for a company that makes mid-market software for mid-market companies, but I think that we're gonna see a ton of companies that are down in the small-business world maybe move up into the mid-market, or new companies start out. Definitely a huge opportunity there.

    For any developers listening, there's a lot of companies, mid-sized companies ... Think of the companies that are $10 million a year in revenue, or up. They need a lot of help, and they don't have a lot of solutions that work for them. It's a different set of features that they need, and they need to integrate with ERP systems, and whatnot. Check out companies like Stampli. See what they're doing, and see if maybe there's something that you can help with.

    Yeah, I think this ecosystem, it's starting to go from that self-employed, all the way up now ... This cloud-accounting ecosystem's really starting to get bigger, get into mid-size ... We talked about this three weeks ago, with Matt Paff, out of Australia-

    Yes.

    -this mid-market-type stuff. You're right, this probably validates that theory, the fact that these guys are growing enough that they got some VC money ... [inaudible] QuickBooks Online, but they're really focused on either that high-end, large QuickBooks Online user, or that next market up.

    Finishing up this week, I saw a story in the Harvard Business Review about the open office, which I don't know about you, but I keep seeing articles complaining about the open office, talking about how the open office sucks, and we need to move back to having our own offices; separate spaces to work. The open office is distracting ...

    Frankly, I'm kind of a fan of the open office. That's what we've got here at FloQast. Although, I do have the benefit of also being able to work at home, whenever I want, or go into a private room.

    Anyway, the stats in the article are interesting. It says that the number of people who say that they can't concentrate at their desk has increased by 16 percent, since 2008, and the number of those who don't have access to quiet places to do focused work is up by 13 percent. Meanwhile, people are finding it harder to control who has access to their personal information at work, and elsewhere. In fact, 74 percent of those surveyed said they are more concerned about their privacy now than they were 10 years ago.

    Is this just a pendulum that swings one way, and then another way, and then another way? Are we gonna go back to everybody having their own office. Then, in 20 years, swing back to the open office?

    Yeah, it does seem silly that way. There should be some sort of balance. If you have an open-office plan, you need to have some private touchdown rooms, or places people who make phone calls. You probably need to have one, or two recording studios. I don't know where you're at, at FloQast, but I'm in a closet at my house. I think this is the dilemma. I always feel like Starbucks should have a little conference booth, you could just go in, and close the door, because [crosstalk]

    -people would just be shooting up drugs at Starbucks, in my town, anyway-.

    Instead. For me, personally, the open-office floor plan is tough. Work at home's sometimes tough. There's this constant fear, almost. Sometimes, the fear of interruption, right?

    Yeah.

    I like to work at Starbucks, because I know, even though it's busy, and there's noise, nobody's gonna come talk to me. Nobody's gonna interrupt me. I'm able to push through that fear of interruption, which I think, sometimes, is worse than being interrupted, like, "I don't wanna start this yet, because somebody's just gonna come bother me."

    Well, it's tough, because you want the right amount of stimulation, but you don't want too much stimulation. If everybody is in their own office, with the doors closed, then why do you all come to the office, if you're not collaborating?

    Right.

    But, if you're all out in a big space, and everybody's talking, and it's very distracting, you can't actually get work done. Really hard to find that balance. I don't have ...

    Here's my solution. I think the open office is here to stay, and that's simply because, in most big cities, real estate prices are so high that it's impractical, at this point. If you're a startup, if you're any company, these days, and you're moving into a new office space, it is so much cheaper to cram a bunch of people in desks, and not have them have their own office. It's a lot more flexible, because you just add a desk. You don't have to build an office, when you hire somebody.

    I don't think that's going away, but I think what will change is that when people need to focus, they'll end up just working at home, and the actual amount of time that people spend in the office will decrease.

    If I were starting my own firm, again, my ideal situation would be you have to be at the office, say, three or four days a week, between 10:00, and 2:00, but the rest of the time, you can work wherever you want, however you want.

    I think it's the perfect benefit of not having too much commuting time, being able to go focus on your own, when you need to, not having too many people in the office, all at once, because if everyone's there at the same time, it's way too crowded. I don't know, what do you think, David?

    I think it's a dilemma, which I get the logic behind. If I'm an office manager, or I own a company, and I'm pounding my brain, saying, "Why am I gonna invest in more than a desk, or spend money on an office, when you're working at home? This doesn't make any sense.".

    It's just a dilemma. I think it's a personal thing. People have to figure out how to be productive on their own. I think the open office is difficult for a lot of people. I think that's the trouble.

    Like you said, the solution is to let people work from home, when they need to focus, and to tie this back to cloud technology/cloud-accounting technology, if you implement those tools, then it makes it easy for people to work remotely. Then, you don't have this problem, because, if they really need to get something done, they just stay at home, they work, they get it done; they come into the office to have their meetings, and to socialize; do that company-culture thing.

    It's not even working at home, right?

    Or work remote.

    Everybody's gonna have that sweet spot, where they can work really well. I remember when I was in college, I would go to the library, and they have those little study rooms, way in the back, and you could close the little door. I would go in there, and I would be super-productive. I think it's just ... Because of cloud, though, anybody can do that. You go work, and be productive, where you are most productive at.

    Yes, I will agree 100 percent with that. No one policy is gonna work for everybody.

    Just the one that gets the most work done.

    Well, David, this was fun. Great talking to you. That's all the news for this week. If somebody wants to get in touch with you, where should they find you?

    Twitter is the easiest. @DavidLeary. How would people get a hold of you, Blake?

    I'm @BlakeTOliver, or you can connect with me on LinkedIn. I'm actually finding that I'm really liking LinkedIn, these days. I feel like a lot of traffic has moved from Facebook, over to LinkedIn, and they've kind of improved things, so I like it.

    Yeah, I've been using LinkedIn a lot more, as well, because I can't follow anybody else on Twitter, and you're right, now, Facebook ... Third-party, actually that's news this week we shoulda covered. Apparently, if you have third-party tools that post to Facebook, that API's been turned off-.

    Yeah, for posting to personal accounts. You can't do that anymore, via Buffer, or via whatchamacallit, Hootsuite. You have to go, and manually do it.

    Yeah, or even other tools. I use contact-management software. Now, I have to become a brand. I have to create a Facebook page. Then, I'm gonna have to hit everybody up, "Be a fan of David Leary," and you have to be a fan, so I have a business page.

    I'll tell you, just from running the social media, here at FloQast, it's not worth it. Our Facebook page, I post something on there. It doesn't go into anyone's feed. We have to pay money for people to see it. It's all pay-to-play, and LinkedIn isn't, which is nice.

    Yeah, [inaudible] into a developer, and this is why I post things to mine, because it gets more eyeballs, and clicks.

    Yeah, and now they're gonna stop you from doing that, because I guess people were abusing it, right? I know you weren't, but, I think [crosstalk]

    Oh, wow.

    No, you weren't, but there were a bunch of brands that were out there, that had created personal accounts that were just posting stuff to get around this issue. I think Facebook is in trouble. Certainly, they were, when they lost what ... Was it this week that they lost the greatest amount of capitalization, or value of any company in history?

    Yeah. I forget the number, but it was completely ridiculous. It was a mind-boggling number.

    Completely. Billions and billions of dollars in shareholder value erased, because of their poor earnings report for Q2. That was all because of the changes that they made to their algorithm, because of all the fake news stuff.

    It's interesting. because it shows the price that social media pays, at least with their business model of advertising ... LinkedIn doesn't have that problem, because the way LinkedIn makes most of its money isn't ... I don't believe it is through advertising. It's through people, like salespeople, paying for premium accounts, so they can go prospect, which is good, because then, the news feed stays pure, or stays authentic. Anyway ...

    No, definitely. That'd be a whole 'nother podcast, one day.

    My little rant on social media for everybody.

    Awesome. Hey, Blake, I'll let you go, and we'll talk next week.

    Talk to you later.

    All right, bye.

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      Blake Oliver

      Los Angeles, California, United States