Middesk - Efficient Business Identification and Verification

Oddup Team
July 18, 2022

Online fraud and identity theft has more than doubled in the past decade. This was further accelerated during the pandemic,when most of the world and businesses had to move completely online. This also meant that the identity verification and compliance industry also saw a surge in both solutions and the companies that offer these solutions both to verify individuals and companies.  Seeing this opportunity made two ex-Checkr employees, Kyle Mack and Kurt Ruppel, co-found Middesk.

The startup helps its clients with modern tools and infrastructure to verify, identify, and analyze their customers efficiently. Middesk was one of the exclusive subset of start-ups in Y Combinator’s 2019 winter batch. It has recently gotten financial backing from some of the top venture capital firms like Accel, Sequoia Capital, Canapi Ventures, and Insight Partners. Both of the co-founders have years of experience in business verification from their time at Checkr.

"What we’ve built from the ground up is a product to help companies understand who their customers are and what those customers do for their business," Kyle Mack, the CEO of Middesk, explained.

Let us take a deep dive into what Middesk has to offer and figure out whether it will be successful in its goals.

Creating Middesk from the Lessons Learned at Checkr

The current CEO of the company is Kyle Mack, who has a bachelor’s degree in economics from Concordia University. As he hailed from a family of business owners, Mack aspired to be a true entrepreneur and set up a business. At a Montreal-based start-up, Mack interned with Patrick Hannigan, who later co-founded Hive. Mack was inspired by seeing how a tech breakthrough allowed Hannigan to create a useful app that is now used by several thousand people.

"When entrepreneurs start a business, they’ll need a bank account and credit card within weeks of forming the company." Within months, they’ll need access to working capital, insurance, payments, and payroll providers to grow the business. We take for granted how easy it is for a person to access a financial product made possible through strong infrastructure products. Businesses don’t have this, "Kyle Mack said.

But unfortunately, Vermont could not give Mack the type of technical exposure that he needed. So, following graduation, Mack applied to Y Combinator's winter 2012 batch as a solo, non-technical founder with no active product. Mack’s first job was at AnyPerk (currently, Fond) in 2014 as an account executive, where he managed the enterprise sales. He shifted to San Francisco to join the 6-person team and learn the basic mechanics of sales.

As a small startup, it was important that people could take ownership of their work. I’ve found that people do better work when they own the responsibility. You should write your own issues. You should understand why the code is delivered the way it is and be able to reflect on what different paths you can take along with their time costs and tradeoffs.

According to Kyle Mack, his time at AnyPerk allowed him to learn a lot about company culture. In the meantime, Mack’s friend and co-founder of Hive moved to San Francisco as their startup got accepted into YC. Mack learned about Checkr for the first time from Hannigan as "a background check company that seems cool." Shortly after meeting the co-founders of Checkr, Mack joined them as the sales lead.

Checkr is a well-known HR-tech platform that helps pre-employment background checks and screening operations in some industries. Mack spent about 4 years as the 5th employee of the company and transformed it into a successful business. Checkr employed 300 people and raised about $150 million through funding. Mack oversaw their go-to-market strategy as the Director of Strategic Sales and Solution Consulting.

Mack continued his YC exposure while being associated with Checkr and got acquainted with a colleague and future business partner, Kurt Ruppel. Ruppel holds a degree in Cognitive Science from the University of Berkeley. Starting off his career as a software engineer in San Francisco enabled Ruppel to browse through various professional opportunities. In 2012, Ruppel worked at Zendesk as a senior software engineer for the next 2 years.

From Zendesk, Ruppel shifted to Checkr as the engineering manager to direct and handle several teams in different domains. During his tenure, Ruppel enhanced the customer experience within Checkr products. Both Mack and Ruppel realized the problems that businesses go through when establishing trust through verification and identification of sensitive data. Within the regulation industry, applying manual steps became a major hindrance in scaling the process.

“Without access to reliable data, newly formed and small businesses deal with unnecessary friction to access products that are critical to growing their business. And with the recent market downturn, we expect businesses to be even more risk-averse. "Unfortunately, this results in a disproportionate number of new and small businesses being unable to access critical products and services like bank accounts, working capital, and corporate credit when they need it," Mack said. "Middesk’s goal is to build the infrastructure to enable instant identity-related decisions between all businesses and counterparties."

To lower the dependence on 3rd party data, Mack and Ruppel formed Middesk by changing the scope of requirements, adding headcounts, and continuing the manual review process. Together, they sent an application to YC in October and received an encouraging acceptance in November. The duo finally started working on Middesk in December as Middesk joined YC’s winter 2019 batch successfully.

"Middesk means something different to each decision-maker," Mack said. “For the product manager, the key pain point is the number of manual follow-ups required from internal teams or the customer. Middesk can help by improving funnel conversion, delivering a stellar customer experience, and managing compliance and risk requirements. For the operations leader, the key pain point is that supporting growth and reducing risk are often in contention with one another. Middesk can help by meeting internal service-level agreements, managing the capacity of the team, and ensuring consistency and accuracy of the output.”

Within months, Middesk added several well-known clients to its platform that belong to various industries. Middesk is now helping companies like Plaid to help small businesses get financial benefits like a bank account and/or credit cards. In the year 2020, the company experienced large-scale growth. Existing investors in Middesk believe that the start-up can establish a new category involving verification and trust for businesses.

Middesk Solutions

For a long time, there was no service to run background checks on businesses so that they could apply for any financial product. The traditional solutions available for companies in this space date back to the 1800s. Mack and Ruppel’s brainchild is offering an up-to-date database on various company clients along with the tax identification and incorporation documents for 75 million businesses.

At the end of 2018, Middesk was based in San Francisco. Even before COVID-19 wreaked global havoc, businesses struggled to verify their identity in order to gain access to financial products. The co-founders couldn’t predict that Middesk would be heavily used by small businesses for paycheck protection program applications during COVID-19’s wave.

Allowing businesses to verify their identity and easily access significant services by coursing through regulatory risk is Middesk’s aim. One of their products, Middesk Agent, allows clients to

  • Register businesses with the Secretary of State.
  • Set up payroll and taxes to pay employees based in new states.
  • Automate annual reports to fix business standings.

"We (the Middesk team) talk about this idea of becoming a single source for all the external signals you might want to have about a business," Mack said. "Plaid has built a single place to get a host of transaction data on people and businesses. We think about Middesk as a single place to find high-quality and trusted information for a single business.

Who is it for?

Regulatory risk requirements, customer base identification, and business verification are mandatory for all sorts of businesses, mostly those which belong to the following sectors:

  • Payroll
  • Lending
  • Payments
  • Expenses
  • Credit

Middesk solutions are tailor-made for all B2B entities that experience difficulties in managing relationships with customers. Some proposed regulatory changes, such as "The Honest Ads Act," could mandate verifying one’s business customers for all advertising marketplaces. The primary directive of Middesk and its team is to provide comprehensive tools and business infrastructure that build trust within the online economy. Those who can directly benefit from Middesk are:

  • Finance teams 

Teams that are working on ways to reduce business risk by defining credit terms and payment methods on a large scale often need to use customer intelligence. Middesk can provide verified customer data to the finance teams.

"Middesk applies machine learning techniques to... identify and enrich businesses across a broad spectrum," Mack explained. "With its technology and infrastructure, we have the ability to provide a lens into a wide range of businesses—along a long tail—and the opportunity to expand both the breadth and depth of the information we supply."

  • Risk and compliance teams

In every type and size of business, there is a requirement for a risk and compliance team to make sure that the company follows all necessary regulations and compliance orders. Such a team would need to consolidate complete workflows in order to review customer credentials. Middesk’s tools facilitate the capturing, verifying, and consolidation of this sort of data.

CEO Mack added, "Our customers require industry classification as a critical input in their business on-boarding and loan underwriting processes today." Banks need to identify businesses operating in high-risk and restricted industries for compliance purposes, and lenders use industry classification as an input to disqualify loan applicants from specific industries early on in the funnel, calculate a risk score for loan decisions, and understand the extent to which they have diversified their portfolio.

  • Developers

Due diligence has become a necessary step for businesses to move forward and remove the restrictions on verification. Developers looking for API integration can benefit from Middesk’s platform and services.

Middesk’s industry-product gives a start-up’s customer a comprehensive and detailed view of the nature of the industry.

Competitors, market growth, investors, and partners

The target market for Middesk can be the personal identification and background check markets. According to an estimate, the global market for identity verification has now touched a level of $20 billion. The same value, but for the U.S. alone, could reach even further by 2030 if institutions start adopting digital ID services. If businesses switched to digital IDs for customer verification, they would get an additional economic value of $1 trillion.

"Effectively, anyone that’s touching money that’s a B2B business has regulatory requirements to do what we do," Mack said. "There is a whole new wave of companies applying consumer-style experiences to business products, but the risks they deal with aren’t designed to manage those risks at scale."

During the aftermath of COVID-19 in 2020, more than 4 million U.S.-based small businesses rushed to apply for employee identification numbers with the Internal Revenue Service (IRS). It was the kind of use case scenario that none of the co-founders at Middesk could predict beforehand. During the same time, the company helped 200,000 businesses and served around 1 million customers in a year.

"When people hear ‘identity,’ they think of ‘identity verification,’ but identity means something different based on who is asking or interested," Mack told TechCrunch in an email interview. For a bank, it means simplifying the process of opening commercial bank accounts. For a lender, it means accelerating the process for businesses to access capital. For the government, it means ensuring businesses are registered and paying their taxes appropriately. "

In the previous years, Middesk’s revenue jumped 5x, but the company's officials have not announced the specifics. The growth of its business model continues after receiving fresh funding from renowned VCs. Kyle Mack, the CEO of Middesk, calls it a wave of entrepreneurship that came knocking right after the pandemic subsided. The company is trying to help startups primarily with its up-to-date database of potential company clients.

In 2022, Middesk announced partnering with Unqork to ease on-boarding processes for business clients. Unqork is better known as a top no-code application development company whose marketplace is integrated with Middesk post collaboration. Together, these companies are providing an opportunity for businesses to create easy-on-boarding applications for commercial use. Teams working with Unqork would not require experience or knowledge of coding to create an app.

Now let’s take a look at a few direct competitors of Middesk;

  • Checkr

Checkr is one of the closest competitors to Middesk. The company was established in 2014 by its co-founder and CEO, Daniel Yanisse, in San Francisco. The Checkr platform offers employee background checks and also screening services for both the hospitality and retail industries. Currently, the total workforce of the company consists of 1,000 people. Checkr generates around $400 million in employee revenue annually. In the past, it has completed several funding rounds, rising up to $537 million, and also acquired GoodHire and ModoHR for an undisclosed amount.

  • First Advantage

Scott Staples’ First Advantage is a background screening company based in Georgia that also provides case management and fingerprinting solutions for the retail and banking sectors. The company started in 2003 and has slowly worked its way to the current level. Around 5,500 employees work at First Advantage, generating more than $700 million in revenue. Recently, Staples’ company announced its initial public offering and received $382 million in funding. The company also acquired Corporate Screening Services, Inc. in the previous year.

  • GoodHire

GoodHire has been based in the Bay Area since 2013. The company was formed to offer services similar to Checkr by entrepreneurial brothers Brian and Matthew Monahan, while Mike Grossman acted as CEO. Checkr announced the acquisition of GoodHire in April 2022 for an undisclosed amount. Max Wesmann became the new CEO of GoodHire right after the acquisition became official. This company has around 100 full-time workers and estimated yearly revenue of $25 million.

$77 million in over 3 rounds of funding

Middesk has emerged as a leading identity verification platform, especially for start-ups that require automated business verification and underwriting services. Since it was co-founded in 2019, the company has received $77 million from 3 previous funding rounds. Throughout its business journey, Middesk has also garnered the attention and support of six notable international VCs, like Insight Partners, Sequoia Capital, Accel, and Canapi Ventures.

Walker Forehand, Partner at Canapi Ventures, added, "Middesk is the new standard for small business digital identity and trust. The identity product is orders of magnitude better than legacy competitors – stronger data integrity, significantly higher attach and approval rates, and better outcomes for customers."

After a thorough research about the company’s business model, use cases, relevant industries, and customer profiles, our internal team has allotted Middesk the Oddup score of 61.74. Although this score is not that bad, it is not encouraging for most top-tier investors. The score represents the chances of success for Middesk in the days to come. The following breakdown for Middesk’s funding rounds paints a clear picture of investors' interest in the company.

Seed - $4 Million

The early-stage venture announced a seed funding round in September 2019 as a part of Y Combinator’s winter batch of the same year. The business idea of Middesk remained one of the most innovative at the time. Before even the co-founders’ pitch was complete, the company received $4 million from YC, Sequoia Capital, and Accel. Accel led this particular round.

"One of the nice things about this job is that if you have a chance to do it right, you can build relationships with people and work with them across multiple companies," Accel’s General Partner, Richard Wong, told TechCrunch.

Series A - $16 Million

The series A round of Middesk was announced last year by the co-founders. This time around, the San Francisco-based company raised $16 million from the participating venture capital investors, who were all existing investors from the previous financing round. Sequoia Capital’s partner, Stephanie Zhan, entered the board of Middesk once series A was over. Middesk also launched their new agent product.

"Small businesses are very much the heart of the American economy. There are more than 30 million people in the U.S., yet many struggle to access the financial resources they need to work with each other," Forbes Partner Stephanie Zhan says. "We think there is a massive opportunity ahead to build a whole new category around business identity."

Series B - $57 Million

Recently, Middesk made headlines after a successful series B funding round co-led by Canapi Ventures and Insight Partners that raised $57 million. Other participants in this round were the company’s existing investors, namely, Sequoia Capital and Accel. Gaingels also provided additional funding as a participating investor. The capital raised is expected to be used to expand the company's product suite and scale the team.

"Middesk provides financial institutions with the breadth and depth of identity data they need to verify their business customers and mitigate fraud without sacrificing the customer experience," said Jeff Horing, co-founder and Managing Director at Insight Partners. "Middesk is building infrastructure to support all identity-questions for all industries." We look forward to partnering with the Middesk team as they continue to grow. "

Middesk’s Future

As one of the obvious signs of its success, the early-stage venture of Middesk has grown exponentially within the last 4 months. The company doubled its headcount and expects to do it again by the end of 2020. As Middesk’s comprehensive and innovative tools spread into the market, it is soon to become a full-fledged business identity platform.

Mack states, "We're looking for people who want to stretch beyond their comfort zone, learn how companies are built, and directly impact company strategy, vision, and mission. We have challenging problems, an entrepreneurial team, great early customers, a strong product, top-tier investors, and an opportunity to impact the way businesses interact with one another fundamentally.

Under the guidance of the co-founder duo, Middesk is powering swift and hassle-free onboarding for several large-scale banks and popular lenders. Among the many objectives of Middesk, one is also to bring awareness around business identity.

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