Small and midsize businesses (or SMBs) make up over 99% of all businesses in the US, generating more than $1.4T in revenue annually, and employing nearly 30% of the American working age population. And yet, tools to help these companies do business are largely outdated and antiquated, especially when it comes to verifying identity.
Identity serves as a gating factor both in establishing and maintaining customer relationships. Whereas several tools have emerged to verify identity for consumers, validating business identity is a much more complex and cumbersome process, and one that still depends largely on legacy solutions such as LexisNexis (founded in 1970) and Dun & Bradstreet (founded in 1841).
The identity problem
The problem with incumbent solutions is not their age, but rather their reliance on third-party datasets. Because these solutions are ultimately aggregators of external information, they do not control their own destiny (or the destiny of their customers) when it comes to the recency and quality of information. It can take
months for a startup to even register on a LexisNexis search; Canapi team members felt this pain acutely when attempting to set up an LLC via Stripe Atlas Example – because the LLC did not register on traditional identity databases, it was ineligible to open an account with a traditional financial institution.
This does not square with the ongoing evolution of banking and financial services. Today, managing a business is omni-channel from the start, and increasingly skewing digital. The same can be said for financial product delivery. But while you need just 30 minutes to set up a company, you need weeks (if not months) and multiple phone calls and in-person visits to set up the bank account that is needed to run a company and deliver its services. For both businesses and consumers, having a bank account isn’t simply a nice-to-have: it’s a necessity. And if a bank cannot verify your identity, it cannot give you an account. Considering that nearly 5.4 million new business applications were filed in 2021, this is a big and rapidly growing problem that neither businesses nor banks can afford to have.
Middesk. Managing risk at scale
Middesk’s infrastructure enables banks, fintechs and other platforms to verify, underwrite, and grow their businesses using their identity-as-a-service APIs. Middesk customers are able to manage business identity and onboarding at scale by integrating directly with government sources – including the Secretary of State records across all 50 states. Consequently, Middesk uniquely solves for three key problems:
Ease of implementation: Middesk is API-enabled, and easily plugs into existing workflows, allowing for seamless adoption and integration. Access to data: Middesk allows users to access real-time (or near-real time) data when they need it, helping to avoid significant delays that can mar customer experiences. Accurate data: Middesk’s integration with government sources results in ground truth, high-integrity data that serves as their core differentiator.
Taken together, these aspects have allowed Middesk to build an onboarding experience that is not only frictionless, but safe. In turn, businesses are able to provide their own customers with delightful interactions, scaling trust and accelerating the economy. It’s no wonder then that top 10 banks and fintech leaders, including Shopify, Affirm, and
Ramp are building their platforms on top of Middesk. And already, they’re seeing results – users have reported a 50% increase in automated decisions and a 35% decrease in manual reviews and operational workload.
Middesk’s success thus far is by no means limited by temporality – rather, the team is actively expanding its data moat by way of other value-add products. For example, Middesk recently launched Agent, and is now in the flow of company filing, allowing the team to build a proprietary data set. The team is also building a broader set of risk and trust solutions, including those for liens, bankruptcy, and ongoing monitoring for SMBs. Over time, the company’s data advantages will only compound as it continues to invest in customer relationships as well as its product suite (including business onboarding, underwriting, and entity management).
In the months and years to come, we expect Middesk to take its place as the de facto identity hub and command center for both businesses and B2B relationships. By providing critical infrastructure for any fintech, bank, or software company that interacts with businesses in a digital environment, Middesk is giving us plenty to be excited about, and we’re still in the early innings.
A future of optionality
We’ve been fortunate enough to spend the last two years building a meaningful relationship with Kyle, Kurt, and the Middesk team. Over time, our conviction in their talent and their potential has only grown stronger, and since their Series A, the company has continued to expand their human capital, with team members joining from Stripe, Gusto, and Plaid. Their ability to hire great talent is not only a testament to a compelling management team, but also the quality of the product and vision.
We could not be happier to be joining the Middesk rocket ship alongside world-class investors including Sequoia, Accel and Insight. We look forward to helping Kyle, Kurt, and their colleagues unlock their next leg of growth within the fintech and financial services markets.