X2X: Could it be Maine’s next big break-out startup success?

Each year, there are nearly one million divorces in the United States, which means there are likely two million people who go through the exasperating process of untangling entwined lives and think at least once there ought to be a better way.

Mark MacMahon was one of those people. In 2012, he divorced his wife after 13 years of marriage. It was amicable, but the process was complex, made more so by the presence of four children who they share custody for.

However, rather than just looking for a better way and being content with not finding one, MacMahon decided to create the solution he wish he had access to.

A mechanical engineer by training, MacMahon nevertheless realized that software could simplify the divorce process, including the financial dissolution and the administrative hassles of sharing custody of children during the post-separation period.

“The conferences and doctor’s appointments and orthodontics and sports times four,” MacMahon said. “I was really surprised at the amount of time I was allocating just to make sure I knew what was going on with my kids. I looked around to see what would work to help manage it, but didn’t find a lot.”

So in 2014, MacMahon and Laura Young, his now-fiance, launched X2X Inc. with the aim of building a cloud-based software application that would help manage the divorce process and logistics of the post-separation period. They’ve spent the last two years quietly building the company and learning as much as they can about the divorce industry, which some peg at $100 billion a year, twice the size of the wedding industry.

The company first showed up on my radar when BostInno mentioned in one of its daily newsletters that MacMahon was in Boston raising a $1 million seed round. BostInno referred to X2X as the “TurboTax for divorce,” attributing the comparison to MacMahon, and then went on to report that the majority of its investors were divorce attorneys.

“Huh, that’s interesting,” I thought. “Why would divorce attorneys invest in a company seeking to simplify the divorce process and presumably reduce the need for attorneys — kind of like TurboTax reduces the need for accountants?”

Since then I’ve mentioned X2X a few times in Maine Startups Insider. First, when MacMahon reported that they were near to closing the $1 million seed round (it’s since closed), and then again when they hired serial entrepreneur and native Mainer Matt Lauzon to become head of product.

Lauzon caught my attention when he said X2X has the potential to be a “multi-billion-dollar tech company.” But I still didn’t quite understand the company’s product, and I still wanted to get to the bottom of the mystery why divorce attorneys would invest in a company seeking to make them less relevant. So I met with MacMahon and Young at the company’s new offices, tucked away in a small office building off Route One in Yarmouth. Here are some of the major takeaways from that interview.

They’re not ‘disrupting’ the divorce industry; they’re trying to make it more efficient

Though he admits using it, MacMahon doesn’t really like the “TurboTax for divorce” analogy because it implies X2X’s product just streamlines the filling out of legal documents and seeks to replace the need for attorneys. Neither is the case, he said.

Instead of replacing attorneys, X2X’s goal is to provide them a platform to make the process smoother.

In fact, while the company’s software is ultimately about helping divorcing individuals better navigate the process, MacMahon doesn’t see them as the real customers. X2X’s real target clients are the attorneys. So rather than replace them, X2X wants to sell to them (the plan as of now is to provide the software for a monthly subscription fee).

At first, that may seem paradoxical. My assumption was divorce attorneys charge by the hour and so would not warmly embrace a software tool that reduced the number of billable hours they logged on a complex divorce case.

My assumption is wrong for two reasons, according to MacMahon. For one, he said the majority of divorce cases are fixed-fee, “so streamlining a time-consuming process is a big benefit to attorneys.” And, second, the attorneys the company is targeting are the ones who realize the benefit of keeping clients happy for positive referrals.

The average cost for an attorney to acquire a new customer is $1,500 to $2,000, according to MacMahon. So if X2X can provide attorneys with a tool that makes what’s already a difficult experience for their client a tiny bit more manageable, then it’s a win-win.

“There’s really a fundamental shift. Are there still divorce attorneys that are cutthroat, that are litigators, that will go after the kitchen sink? There are,” MacMahon said. “But then there’s this group that says, ‘Why don’t we make our clients happy and then they can help us get new customers,’ and that’s where we’re finding our niche.”

In the end, it’s about making the whole divorce process simpler. And it won’t only be a platform for attorneys and their clients. The X2X product will act as a platform allowing all participants in a divorce case, including mediators, therapists, financial planners, and eventually the court system, to work together.

“A lot of these systems aren’t as efficient as they could be,” Young said. “We’re working to make a tool that touches every part of that process and make it all more efficient.”

Ultimately, MacMahon would like X2X to be integral in the process of migrating legal divorce-related documents into more accessible electronic form, similar to how electronic medical records promises individuals to take ownership over their records.

Competition is limited because they picked a space with a high-barrier of entry

Building a product that fits seamlessly into the legal realm and touches on an emotional human experience like divorce is inherently a difficult and time-consuming task. It’s not like building a new photo-sharing or food-delivery app.

That’s what struck Joe Caruso, a Boston-based angel investor, when MacMahon explained his business idea to him.

“As he described it, it struck me that there’s a huge amount of complications, subtleties and difficulty to this process,” Caruso, who ended up investing in X2X and is now an advisor, told Maine Startups Insider. “That says to me that you really have to know what you’re doing to do it well. If this were a straight-forward process there wouldn’t be much value being created here, but if it’s a bitch to execute then once you’re done you’ll have a strong market position because it’s tough for other people to follow.”

That’s not to say there aren’t other startups targeting the divorce industry. The highest-profile player in the space is currently Wevorce.com, a 2013 Y-Combinator alum that has raised nearly $5 million. Its underlying value proposition is also to leverage technology to simplify divorce, but it does so by marketing to divorcing couples and assembling a team of experts to walk them amicably through the divorce process. MacMahon describes it as a “finder agent” or “marketplace” for professionals providing divorce-related services, whereas X2X wants to be the platform attorneys and other service providers use to help their clients.

For those reasons, MacMahon doesn’t see Wevorce as a competitor, at least for now.

“I think longer term there’s definitely some opportunity to act as a marketplace. But I think shorter term it goes back to the idea that we all generate a significant amount of data in our lives and to move that toward some form of electronic divorce record,” he said.

They pitched before they had everything figured out

MacMahon began meeting with potential investors during the summer of 2015. He pitched a few venture capital firms, but admits he used it as more of a learning experience than anything.

“I used it probably not the way the venture capitalists would have liked me to use it,” he said. “We essentially used our pitches more as a chance to interview people that have done things and get their feedback on very specific components of what we wanted to do. Our product in early Q3 of last year is drastically different than today because they we used our pitches as a sounding board for large scale strategies.”

But, in the end, they opted against accepting VC money

In March, X2X closed its $1 million seed round. As I said, the majority of those investors were divorce attorneys, but there were also some angel investors included in the mix. Absent, though, were any VC firms.

“The more that we talked to [venture capitalists] and the more we understood what they were looking for, the more we realized that wasn’t right for us,” MacMahon said.

I asked him to elaborate on that last bit.

“Because at the end of the day you have to look at where the value comes in, and where the value came in for us was really working with our attorneys and getting our investment from them because they really understand this market. They live the pain points,” he said. “Venture capitalists are more about self-aggrandizing startups.”

The interest from investors hasn’t abated, so MacMahon said they’re already preparing to raise another round of funding that will likely close late next month.

“The majority of investors are attorneys and the majority of our investors are impatient for product because they recognize the benefit,” MacMahon said.

Unfortunately, Maine companies have a steeper hill to climb because they’re not in Boston or Silicon Valley

There was another reason MacMahon and Young didn’t accept investment from any VCs. It turns out the few VC firms that did offer to invest in X2X would only do so if the company moved out of Maine. Two VC firms — MacMahon wouldn’t reveal which — wanted X2X to move to Silicon Valley, while another wanted them to move to Atlanta.

“It was a really serious conversation for 30 minutes and then we were like, no, because we believe in Maine,” Young said. “From the very beginning we knew we would be staying in Maine, not just because that is where our families are located. But also because there are some amazing resources available to us here.”

That Silicon Valley VCs are hesitant about investing in a Maine-based company doesn’t surprise Caruso, the Boston-based investor in X2X. “But I’d be surprised if it was an issue for people in Boston,” he said.

That being said, location can factor into an investors decision and a company in Maine does have to work harder to stand out compared to startups based closer to tech hubs, Caruso said. To illustrate his point, he used a sports analogy. It’s like a basketball player who’s 5’11” but dreams of playing in the NBA, he said. “All things being equal, he’ll have to be a little bit better.”

“I’m not out waving a flag saying people in Portland are at a disadvantage, but if you ask me I’ll objectively say you got to be a little bit better to stand out,” Caruso said. “And I think Mark and X2X passed that easy with flying colors. It’s one of the better companies I’ve seen in the past year. I’m very enthusiastic about it.”

So…

So, could X2X live up to Lauzon’s lofty predictions of becoming a multi-billion-dollar company?

Obviously, it’s impossible to tell until its product hits the market and we see whether it gains traction, but so far the signs are positive: It’s received significant interest from a group of investors who also happen to be the product’s target audience, it has a strong team led by an entrepreneur who lived the pain point he’s now trying to relieve, and it has a group of experienced advisors. Besides Caruso, the group of advisors includes author and retired Maine Family Court Judge J. David Kennedy and Daniel Wathen, former chief justice of the Maine Supreme Judicial Court.

MacMahon expects the company to begin hitting some milestones in the near future and start generating revenue. Asked where he sees the company in a few years, he guessed it’d employ a few hundred people in the Portland area.

He wouldn’t share the company’s current valuation, but said because of the significant investor interest he’s opened the second fundraising round at a “considerably higher valuation.”

In the end, whether or not Lauzon’s prediction turns out accurate, X2X is a Maine startup I’ll be keeping an eye on.