DAVO Technologies, a software company based in Westbrook that helps small businesses automate the collection and payment of sales tax, has been acquired by a Seattle-based software firm focused on the tax space.
Avalara, which trades on the New York Stock Exchange under the ticker AVLR, announced after the markets closed on Tuesday that it had acquired DAVO’s “operational assets.” Financial details of the transaction were not disclosed.
DAVO’s acquisition is the most recent in a string of acquisition of promising companies in Portland’s financial technology cluster: ZipLine was acquired last summer, Capital One acquired BlueTarp Financial in 2019, Certify was acquired in 2017, as was CashStar.
Peter Murray, DAVO’s CEO, told Maine Startups Insider on Tuesday evening that the acquisition is good news for the company, its employees, and Maine.
“I think it’s really going to throw gas on our fire and allow us to accelerate our growth,” Murray said.
DAVO currently has more than 4,000 small businesses as customers, such as restaurants and merchants (potential customers are any small- or medium-sized business that’s required to collect sales tax at the point-of-sale on behalf of a state). Murray, who joined as CEO in 2019, said the company was doubling revenue each year up until the pandemic slowed growth in 2020. The company has bounced back and expects to double its revenue again this year. He wouldn’t disclosed sales figures, but said the company is still “sub $10 million” in revenue.
Avalara plans to keep the Westbrook office (though everyone is currently working remotely) and all 14 of DAVO’s employees have been offered positions with the new parent company, according to Murray, who will remain with Avalara as GM of the DAVO division.
All of DAVO’s full-time employees owned equity in the company, which means all vested employees benefit from this exit. Murray said providing equity to employees was an important benefit he wanted DAVO to offer.
The company has raised some venture capital money over the years (Crunchbase claims $5 million), including from Portland-based Anania & Associates Investment Co. and SixThirty Ventures in St. Louis.
The Maine Technology Institute also supported the company over the years with a series of grants and two development loans, which Murray said will be paid back with interest.
“This is also a success story for MTI,” Murray said. “They will get their money back with interest and help generate more jobs. This is an example of the economic development initiatives at work.”
Brian Whitney, MTI’s president, had this to say: “MTI has been working with DAVO Technologies since 2014 to help it grow and scale. We really like the team, market, product, and company and we are thrilled that this acquisition will keep the company in Maine and add to their employment base. As an added benefit, they fully repaid their MTI loans and those funds will now be utilized to assist other Maine startups with similar growth potential.”
A long path to exit
David Joseph and Owen Brown co-founded DAVO Technologies in New Jersey in the early 2010s before moving it to Maine in 2014, drawn by Portland’s growing cluster of companies in the financial technology space—WEX, CashStar, BlueTarp Financial, and Certify—and the support offered by the Maine Technology Institute in the form a $156,165 development loan. DAVO officially released its product the same year. (and I first covered DAVO that year for the Portland Press Herald.)
DAVO and the solution it provides was born of Joseph’s personal experience and frustration as a restaurant owner in the late 1990s who was required to collect sales tax on behalf of the state.
In the late 1990s, he owned and operated the Blue Sky Cafe in Montclair, N.J., and always struggled with coming up with the sales tax he owed the state on a monthly basis. The process wasn’t automated, so it always required a scramble to find the cash necessary to pay the bill. He knew there must be an easier way.
As the company’s founding story goes, one day he walked out of the restaurant’s kitchen and said, “I want someone to do our sales tax the way ADP does our payroll.” And the idea was born.
Joseph began discussing this idea in 2000 with Brown, who was a friend and long-time customer. Though neither had experience in software development, the pair decided they would create a way to automate the process of siphoning off sales tax from each purchase at the point-of-sale, collecting those funds, and automatically paying the state on a monthly basis.
They batted around the idea for a decade, and it wasn’t until 2010 that the pair received a patent for the technology, and another four more years to have a product, Davo Sales Tax, to bring to market. In the meantime, Joseph had sold his restaurant and moved to Maine, though Brown, who served as DAVO’s first CEO, remained in New Jersey. (While Joseph remains involved in the company’s day-to-day activities, Brown is no longer involved.)
The company could have remained in New Jersey, as well, but Portland’s growing fintech cluster and the city’s robust network of programs that support entrepreneurs and startups convinced Joseph and Brown to move the company to Maine in 2014.
Joseph’s goal was always to build a company to serve small- and medium-sized businesses and eventually sell to a larger company in the tax software such. Here’s how Joseph described his long-term plans for the company in an interview with Maine Startups Insider from 2017:
“We are not building a legacy business. We are not building a business to pass onto our kids. Nor are our investors; they’re not investing in our company as a legacy. They’re investing in our company for an exit. We are building a company and tailoring it to prospective suitors. For instance, Intuit. Intuit is everything tax. They want to be everything tax for small businesses: payroll, income, all the back office. They have a lot of money. It’s all in the tax universe. So there are potential suitors out there. In our scope we are trying to maneuver and put ourselves in a position for that. The question always comes up when talking to investors: What’s the exit? When do you want to exit? We haven’t put a time or money amount on it, but an exit is the ultimate goal.”
Murray said everyone was pleasantly surprised that an acquisition came to fruition so quickly.
“It reflects well on the team and how we’ve been able to execute over the past few years to bring scale to the business,” Murray said.
Bringing on experience
A pivotal point in DAVO’s journey was hiring Peter Murray as CEO in 2019.
Murray is a long-time member of the Portland tech scene, having served as CTO of Gofish.com in Portland during the first dotcom boom before founding a company that provided financial modeling software, and which he led to a successful acquisition. That company, Quantrix, is still headquartered in Portland.
Since coming onboard, Murray has put together a strong leadership team and leveraged his extensive technology experience to shore up what Joseph had started. Murray’s initial focus was on the DAVO app itself and expanding DAVO’s integrations with more POS systems and in the larger fintech and sales tax ecosystem.
Of his time at the helm, Murray said he’s most proud of the team he was able to assemble and the scale they were able to achieve.
“In a business this size, it’s all about the people,” he said. “So putting together the right team that can be at the coal face doing the work, but also able to sit and think strategically and help the business orient itself and build for scale has been huge.”
Hiring the right team was also a benefit of being part of Portland’s fintech cluster, Murray said.
“This [cluster] is real and valid. I was able to hire people with experience moving money, experience with sales tax calculations, experience with building large fintech apps,” Murray said. “I did this locally without a problem. This cluster is something we’re happy to be a part of and is worth highlighting.”
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