If you are an investor and want to learn more about the Scale portfolio companies, please reach out to Brett Calhoun at firstname.lastname@example.org.
The Scale team had a great time chatting with Jonathan Fish, CEO & Co-Founder of CapGains, Inc. about his journey to entrepreneurship, being a part of Scale, and what his team is building today.
TL;DR: The team at CapGains is building a personal finance software platform enabling investors and individuals to save money & time by simplifying complex tax provisions. The Company’s first product (“QSBS Expert”) empowers users to better understand their eligibility for the qualified small business stock (“QSBS”) tax incentive, which is notoriously complex and affects millions of investors, founders, and employees on cap tables.
*(sign up for free here)*
More information on the team is below. (Jon Fish / Kyle Richless / David Stephens):
If you were issued stock directly from a company then reach out to the team at CapGains for guidance at email@example.com.
Verbatim transcript of the interview below:
Brett Calhoun: Good afternoon, John, really excited for this first Friday drop. And for everybody watching, I’m Brett Calhoun and I run operations and manage our portfolio at Scale and today I’m joined by one of our founders, Jon fish.
Jon Fish :Hey, thanks for having me on Brett.
Brett Calhoun:Yeah, for sure. And you know, to go in two weeks ago, we finalized our first cohort and you know, now we’re going to do these weekly Friday drops with our companies and up first a team we’re extremely bullish on CapGains.
Brett Calhoun: And Jon, I am, I’m excited to look under the hood with you, of CapGains and really understand your journey to entrepreneurship. At one point I’d like to bring up right now is, you know, there’s, there’s a lot of chatter on, this, this new bill that’s being passed. And from what I understand, you know, one of your first products is QSBS Expert, which is directly affected by this bill.
Brett Calhoun: And so we’re definitely looking forward to hearing a little more on your, your thoughts there, but just to jump in let’s, let’s go ahead and talk about you and so, why don’t you walk us through it? Tell us about you.
Jon Fish: Yeah, well, firstly, it’s, it’s been, as you said, a very interesting time with qualified small business stock and it’s been in the news a lot and like we’ve been working with a group, we’ll tell you about, helping to, lobby on behalf of, of QSBS and entrepreneurship.
Jon Fish: So, yeah, I’m happy to tell you more about it. And, thanks. Thanks for having me on excited. Excited to be here. Wonderful. Well, yeah, let’s, let’s, let’s kind of walk, walk us through yourself. We’d love to hear a little more, more about you and how you got here. I’m an accountant turned entrepreneur. I spent the better part of 15 of the last 20 years working in public accounting with Price Waterhouse, Coopers, and really there, I was primarily working with venture and private equity funds on various solutions for their portfolio companies.
Jon Fish: And one thing that constantly came up was, was tax incentives. Funds asking like how to better manage for these tax incentives. And what I realized was that there very few people that understand these tax incentives really well. And there’s a real role that tech could play in helping folks navigate them and kind of get them right.
Jon Fish: They all kind of follow. A similar path where they’re, they’re somewhat complicated to understand they have eligibility requirements, they change a lot, different requirements affect different people. And, you know, just to maybe give a quick example, one of the early companies we worked with was.
Jon Fish: The company thought they were doing everything right to, be located in what’s called an opportunity zone, which is, there, it’s a program that the government established, to incentivize investment in certain areas of the country. And. So they, they set up, a new, facility. They thought they, were, were located one of them by simply mapping their location.
Jon Fish: We were able to see that unfortunately, they were on the wrong side of the highway, you know? So it’s like, could be very simple things, but it’s like just knowing where to go, where to get the data you need, making sure that you have that hopefully. Before you, you know, make decisions about your business could help people plan for this.
Jon Fish :For our business, we’re currently, closing out our seed round and pretty excited about where things are.
Brett Calhoun: That’s awesome. And you know, I think what’s really cool about this is just how it affects everybody on the cap table from employees to founders, to investors, to LPs of funds. But next, you know, would just love to hear, you know, why, why did you choose to join scale and how has Scale impacted your startup so far?
Jon Fish: These last couple of weeks? Yeah. Yeah. Well, it’s, it’s been very cool to be a part of, you know, especially being part of a scales first cohort, you know, it’s especially exciting. So, quite honestly, we’ve been blessed with advisors. We were incubated out of an investment fund, call it the legal tech fund and we’ve gained a ton through their, their GPs’ involvement and, experiences, so coaching their, advising, their, their network.
Jon Fish: And so we really appreciate the value of good advising. And so when we heard about Scale and what you guys were all doing and, the group, you and, Willy is pulling together, it’s, it’s, you know, more, you can never have enough. Good advising. And for me, as I think about myself, I wasn’t always entrepreneurial and then like getting to, Be coached in a way by someone like Willy and getting their interacted with him, who seems seemingly has always been entrepreneurial.
Jon Fish :I think he started his first business when he was like nine years old. And I certainly was not starting businesses when I was nine years old or 10.
Brett Calhoun:I can’t tell you what I was doing when I was nine years old, but it wasn’t starting businesses.
Jon Fish: Yeah, totally. I mean the half, you know, his level of experience is, is huge.
Jon Fish: And, you know, he has all these insights into a business and the journey and, and also applies various philosophies, you know, and, and like has kind of been through enough businesses to navigate those kinds of philosophies and figure out what works and, you know, And impart that on to CapGains, Inc. And the rest of the cohort.
Jon Fish: So it’s been a very cool, like what, you know, one of the things that we just got started with this week was stress management and it’s, you know, I think part of what’s really valuable about learning from people’s experiences, you know, like Willy and, and other, coaches within, the within Scale.
Jon Fish: That like, they kinda know the journey, like what we’re going to feel at certain points. And like stress management was like the last thing in my mind at this point, but it’s, it’s very relevant and, you know, so, so having people kind of looking out for you and knowing, what you might need at a given point of time is, is huge. And I really appreciate it.
Brett Calhoun: I agree. I mean, and it’s, it’s pretty unique to how the situation you guys are in. You’re just immersed with successful operators, turn investors. Obviously, we spoken to Zach Posner at the LegalTech Fund who is, you know, he’s built some successful businesses, just like Willy and Jabbok Schlacks.
Brett Calhoun: And, obviously, there’s, there are other people involved like Wade foster and Brian Whorley, and Jackson, Moses. But you know, we’ve talked enough about scale. So, you know, let’s get into cap gains would just love to hear, you know, what the company’s mission is and you know, what excites you about the problem that you’re solving.
Jon Fish: Yeah, our mission is, to simplify tax incentives and make them more accessible to companies, investors, employees of companies. They quite frankly, they’re, they tend to be overly complicated and these complications lead many people to not being able to leverage these tax incentives.
Jon Fish: By being overly complicated. In some ways, they reduce the effect that they were trying, you know, which is to spur investment in innovative companies and, direct capital, the things that the government wants people to do and grow. So, you know, qualified small business stock is our first real focus area.
Jon Fish: And, you know, to, to give you a sense of the complexity. Their requirements at the corporate level, at the individual security level. And then at the taxpayer level were like every state, for example, in the United States, somewhat like. Qualified small businesses act differently. So you could be two investors in the same company, but from different states and they need to understand those ramifications separately.
Jon Fish: So happy to get into that more about QSBSs, but it’s a, there’s kind of a lot to, a lot to sift through for sure. And obviously, you know, I’ve, I’ve tried to go down this rabbit hole as well of, looking at the tax code. It is, very dry and it’s very ambiguous. So, kudos to what you guys are doing.
Jon Fish: But you know, going off the problem, you know, the next is, you know, just walk us through your solution and, and why, what you’re doing now is better than anything in the market today. Yeah. So,, we actually just launched our platform. And it’s, right now, a freemium platform available, to companies to get onboarded.
Jon Fish: And it really addresses two key questions that companies need to figure out. Number one. Is there a company in the case of qualified small business cycle, are they, do they meet the basic eligibility criteria to be a qualified small business? And there, they’re really five basic criteria. So one, you have to be a C Corp.
Jon Fish: You have to be in, what’s called a qualified trade business, certain types of businesses. One in, one in qualifies. So, things really, I, the way I think of it as like we’re an individual is the product, that type of business isn’t going to qualify for this tax incentive. The government through QSBS is trying to spur businesses that are going to scale and create jobs.
Jon Fish: You know, for people. So if an individual’s the product, you know, that that’s not going to qualify, you know, the thing is like a CPA operating as a CPA or a doctor operating in as a doctor, serving patients. So, see court-qualified trader business. Yet you have to have less than $50 million in gross assets at the time the stock was issued.
Jon Fish: You have to, there’s something called the active business requirement, which basically demonstrates that. The companies using the assets primarily for that qualified trader purpose. And then there are disqualifying actions. So, stock redemptions, for example, where the company buys back their stock that could disqualify some or perhaps all of the stock that the company issued from qualifying.
Jon Fish: So. Basically the way we designed our platform. So it’s part of its educational, you know, to help, helping companies make sure that if they’re pursuing actions that might disqualify them from these tax incentives, that they’re warned in advance. And so, so part of it is educating them up front when they’re first onboarded onto the platform.
Jon Fish: And then we work with them overtime to make sure that they continue to comply. With the standard. So the first question is you, is your company eligible? The second key question is which of your shareholders and which share classes are really kind of the ones that stands to benefit from this favorable tax treatment.
Jon Fish :And, you know, as you, as a founder, would, which shareholders are going to be coming to, to ask you about this. So, the platform really seems to address it or works to address both of those key questions.
Brett Calhoun: Yeah, that’s, that’s great. I mean, you know, essentially you guys are demystifying the nuances with QSBS for everybody on the cap table.
Brett Calhoun: And, you know, from what I understand too, is up to this point, everyone’s been too scared to address some of these pain points because of the complex. And you guys are taking it on head first, which is one reason we love your team.
Jon Fish: you know, in one. The company perspective, but then we, we have an investor dashboard where we’re still working through, but basically this from an investor’s standpoint or a shareholder helps address thing, alert them to things that they might not have known about.
Jon Fish: So, you know, you’re managing a portfolio of security. Okay. Yeah, it looks eligible for this tax incentive, but then have you held it long enough, for example, of, with qualified small business stock, you have to have held it for five years. So this part of the platform helps to monitor your holding period or what to do if you’re going to have.
Jon Fish: Yeah, how to, how to effectively plan or, you know, if you’re, if you’re going to come into a large gain and could think about tax planning strategies, or if you end up selling it before the five years, there’s an opportunity to roll it over and, helping direct people to roll over opportunities so that there are a lot of, a lot of things and not just helping people understand, you know, if they qualify, but also helping to plan and manage.
Jon Fish :You know, for their portfolios. So, we’ve, we’ve been gaining a lot of traction with, venture funds and angel investors and, you know, folks that have a portfolio of, private companies.
Brett Calhoun: That is awesome. I think it’s such a cool product. You know, just to lat last question here, just to top of this.
Brett Calhoun: Um, you know, we touched on this briefly in the beginning, but there’s certainly been a lot about QSBS in the news lately. So would love to hear a little bit about what you’re seeing today and, um, you know, w what is the future of QSBS yeah.
Jon Fish: Well, thanks for it. Thanks for asking. I think the future is still strong for QSBS there’s.You know, it kinda came as a surprise. Historically QSBS has had bipartisan support. It was, it was introduced under the Clinton administration Democrat, expanded under President Obama. You know, to this a hundred percent, a tax exemption. And most recently, when, when Joe Biden introduced his tax reform proposal, there was a notation about leaving the qualified small business stock exemption in place and which they’ve continued to do.
Jon Fish: But now, just a couple of weeks ago in the middle of September that the Congress is rolled out the bill back better initially. There is a $3.5 trillion, package. And, you know, it has, has a lot of great benefits in there, but they were looking for ways to pay for those benefits. And so they released a couple of weeks ago now.
Jon Fish: A whole bunch of amendments to the tax code that would help pay for this to generate the $3.5 trillion that’s needed for, this package. And QSBS is the exemption. What they’re doing is kind of putting in a cap on adjusted gross income for folks. So if you’re under $400,000 in adjusted gross income, you still have a hundred.
Jon Fish: The tax exclusion for qualified small business stock. But if you’re over that limit, it drops it down to a 50% exemption. And, so Congress also studied the, expected tax revenue that they expect to gain from. Which in total is about $5.7 billion over 10 years, or like $570 million a year.
Jon Fish: So it’s really rather small, you know, when you compare it to the total bill and, so, you know, part of, part of the argument as well. Yeah. You might generate a little bit of tax revenue, but it’s not clear what’s lost, you know, and like, or. Our investors gotta be disincentivized from the investing in the earliest stages of companies, you know, people with a great idea.
Jon Fish: And, you know, our companies like a lot of companies, company founders, and early employees, you know, take reduced salaries from what they could make in jobs elsewhere, to, to run these startups and, and get them going and, and partly. Part of their, their calculation all these years has been well. If we, if we do really well and have a great game, this payday, you know, in the future from the stock could offset a lot of the lost income that they had had, you know, throughout this process of trying to start the company.
Jon Fish: You know, I know I said a lot there, but you know, basically for us, the, the second this amendment was released. We were able to mobilize a community. And, I think within the first 24 hours, we had about 175 people sign up and it’s its company founders, its investment funds. And, and then we were able to join forces with an industry group, like the national venture capital association.
Jon Fish: The angel capital association Carta as a company is also involved. And they kind of coalesced around, you know, around this issue and so we’re, we’re continuing to work with them where we’re actively meeting with members of Congress and trying to point out to them, you know, just how impactful this is too small businesses and to investments in the startup ecosystem and innovation in America.
Jon Fish :And, hopefully, hopefully we’ll get to take it out of the package, but we shall see what, what happens.
Brett Calhoun: I think it’s too cool that, that CapGains is turned into a vehicle that, that truly empowers employees and founders of startups. And, you know, has, has your customers, you know, for the first top of mine, and I, you know, I think it is, it is kind of interesting to think that they would like to cut down on the QSBS gained because of not just the.Wealthy people, but, you know, there’s, this is an incentive that employees and founders have. And, you know, also even if, even if there is a wealthy investor that, you know, removing these, this, this tax exclusion is going to give them fewer dollars to reinvest into other founders and employees. And so, it, it, it is an interesting topic, without taking a political stance, obviously, you know, would be nice to see this not go through.
Jon Fish: We’ll see what happens. But anyway, you know, it’s, it’s interesting because. I have happened to have lobbied in the past and, and my, past about 20 years ago, it was more of an internship, with lobbyists in DC. But you know, a lot, one of the things I learned from that. A lot of lobbying comes down to education and just pointing out, you know, the ramifications of some of these proposed legislations and, you know, as something like this, it, it really seems that the intent was not too kind of, change QSBS because of like, disagreeing, about being, good legislation, the, or good incentive, you know, that, that seems to have the agreement on both sides.
Jon Fish: It was really done more for generating revenue. And so. Yeah, no, that being the case, it’s, it’s kind of a, an easier thing to point out to people, you know, like here’s the impact of this and, you know, see, see where they take it. Cause it’s, you know, there, there are some other ways to spur innovation, but, but the qualified small business stock has been a key one to help really, push, investors and entrepreneurs to, to, start and invest in the company.
Brett Calhoun: Right. And at the end of the day, you know, it indirectly increases tax revenue because it’s an incentive. You know, increasing various startup ecosystems and building businesses and creating jobs, which all of these things have a sales tax, you know, income tax. And so anyways, especially like founders, and I know in the scale cohort, there are a lot of.
Jon Fish: Founders who’ve, this is, they’re not the first company that they’re starting there, the serial founder or it’s on their second or third, company. And it’s very true. Like a lot of these people who are creating companies create a bunch of them and create a lot of jobs for people and, yeah, exactly. If there’s a lot more tax revenue generated from every, you know, having the company exist that.
Brett Calhoun: Well, Jon, this was fantastic. It was great to learn a little more about cap gains and, just give us a platform to talk about your company and figure out, you know, what really is behind the scenes with the CapGains team.
Brett Calhoun: And so we’re, you know, we’re looking forward to seeing you grow through this cohort and, and seeing what happens over the next five to 10 years. So anyway, have a great one, and thank you so much.
Jon Fish: Thank you!
Scale is a high-growth accelerator fund and venture studio that is introducing Founder-First Incubation. Scale’s thesis — The greatest driver of venture returns is the selection of founders strengthened by struggle.
If you are an investor and want to learn more about the Scale portfolio companies reach out to Brett Calhoun at firstname.lastname@example.org.