Reconcile is a New York-based startup offering embedded tax solutions for brokerages as well as financial planning and tax software providers. The startup has raised pre-Seed funding from The Fintech Fund and angel investors. 

In an interview with The Financial Revolutionist, Jaimin Desai, Reconcile’s Co-Founder & CEO, shares an early-stage founder’s view on breaking into a crowded tax-solution market, describes Reconcile’s operational strategy for growth, and outlines the upcoming year for his startup.

This interview has been edited for length and clarity.

The Financial Revolutionist: Why was tax the sector you wanted to commit to, given how many competitors exist in this space?

Jaimin Desai, Co-Founder & CEO: You’re right on the filing side of things—everyone’s playing in that space. There’s a brawl for market share there. There's a lot of competition there, and I didn't really want to play there. It makes more sense for us to focus on providing quality tax advice to people proactively so they can pay a lower tax bill at the end of the year. When you give proactive advice in terms of which credits and deductions to take, which strategy to employ to lower your tax bill, and even start to plan for tax bills as you get married and move into a higher income, there’s more margin and money to be made. You’re seeing people save up to seven figures over the course of their lifetime.

So when you think about the tax landscape, there is year-round planning and tax optimization that typically gets done alongside a financial adviser or an accountant. We're looking to play in that planning space, understanding that the average accountant is 60 years old right now, which, as they retire, will cause a reduction in the supply of accountants who can actually give tax advice. And then on the other hand, the financial advisory space is still so focused on folks that have a six- or seven-figure portfolio that there's a humongous demand for tax help from folks who can't necessarily afford an advisor or go find an accountant.

How are you hoping to execute on that operationally and strategically?

We're starting off with helping folks on the capital gains side of things. Less about taking credits and deductions related to W2 income, but more so related to optimizing your capital gains from trading stocks and crypto and alternative asset classes. That’s where we think there's a wedge and an opportunity to play in this space. 

Did you specifically see a promising gap in the capital gains space compared to something else?

That came to me mostly from my own experience of trading during the pandemic and then finding out that I had a pretty big tax bill because I wasn't keeping track of all this stuff. And retail investors have hopped onto Robinhood, Coinbase, Public, and other platforms, and they need tax advice for their cap investments. Since capital gains build wealth, we can get them started with tax help and advice, and then as they grow wealthier and have a family and have a bit more of a complicated life, we can plug into other apps they’re using and help them take the right deductions and credits.

So capital gains are really the hook for Reconcile becoming more comprehensive through partnerships.

Right, exactly.

And we're just getting off the ground. We’ve recently gone more B2B and embedded. We had one brokerage go live last month, and we’re getting Alpaca and a couple smaller fintechs off the ground later this quarter. We previously focused on B2C and B2B2C, selling to consumers directly and to accountants and advisors. The biggest challenge was getting quality data in the system to provide good tax advice, and a solution is to get data from these brokers directly. This told us to go B2B and let them give us the data, with us providing back to them the data engine and them serving as a customer that way. At the same time, as we build out these partnerships, we're also building piping into them, so we can always go back and build a B2C company down the road if we want to, or have those data integrations owned and managed by us to some degree, without us reliant on a data aggregator.

What did it look like internally for you guys to switch to B2B operations?

We had the engine built out already; we just had to build an API on top of it to be able to give that as a solution to customers like the brokerage we went live with. For Alpaca, we’re building out a white-label app similar to the B2C solution we had already. It just involved building out a white-label version of that for Alpaca’s branding. 

You mentioned wanting to become more comprehensive over time through partnerships. Do you then envision having your own ecosystem rather than being part of other people's ecosystems?

An ideal state would be for us to have plugins into the Airbnbs, Shopifys, Angel Lists, Robinhoods—any place where there’s a taxable event being generated, and being able to provide tax advice there. It’s a way for us to become a platform, offering dev apps on top of our data set as a capability. So a use case there could be something like: Adam, we know you've owned some Airbnb properties, and I know you were looking for some liquidity instead of selling this Bitcoin—maybe we can take an asset-backed loan against that Airbnb rental you've got, and then bring on lending companies in that upsell. When I think about the ecosystem play, that’s how I envision it playing out for us down the road.

What do you see for Reconcile in the next year?

From a product standpoint, it's getting us out there and completing these products, and also proving out the business-model side of things. On the product side, we’re assembling a conversational AI piece that's not necessarily built on top of GPT-4 but something that we’re driving IP for. As we get some of these pilots off the ground and next couple of months, we can build those case studies to really then go back to the bigger fish like Robinhood and Coinbase and prove out to them that we can drive incremental revenue for them and help with retention and engagement, especially as it relates to end-of-year tax-loss-harvesting season.