Free money for startups? It’s possible with MainStreet’s platform for economic development incentives

Startups need money. State and local governments need startups and the employment growth they offer. It should be obvious that the two groups can work together and make each other happy. Unfortunately, nothing could be further from the truth.

Each year, governments spend tens of billions of dollars on economic development incentives designed to attract employers and jobs to their communities. There are a huge number of challenges, however, for startups and individual contributors trying to apply for these programs.

First, economic development leaders typically focus on massive, flagship projects that are splashy and will drive the news cycle and bring good media attention to their elected official bosses. So, for example, you get a massive, $10 billion Foxconn plant in Wisconsin tied to hundreds of millions of incentives, only to see the project sputter into the ground.

Then there is the paperwork. As you'd expect with any government application process, it can be arduous to find the right incentive programs, apply for credits at the right time and max out the opportunities available.

That's where MainStreet comes in.

Its CEO and founder Doug Ludlow's third company. He previously founded Hipster, which sold to AOL, and The Happy Home Company, which sold to Google. After that transaction, Ludlow went on to become chief of staff for SMB ads at the tech giant, where he saw firsthand the challenges that startups and all small companies face in growing outside of major urban hubs like San Francisco.

When he and his co-founders Dan Lindquist and Daniel Griffin first started, they were focused on what Ludlow described as a network of remote work hubs." As they were experimenting last November they tried paying people to leave the Bay Area, offering them $10,000 if they moved to other cities. The offer caused a sensation, with outlets like CNN covering the news.

While the interest from customers was great, what ignited Ludlow and his co-founders' passions was that literally dozens of cities, states and counties reached out, letting us know that they had an incentive program." As the team explored further, they realized there was a huge untapped opportunity to connect startups to these preexisting programs.

MainStreet was born, and it's an idea that has also attracted the attention of investors. The company announced today that it raised a $2.3 million round from Gradient Ventures, Weekend Fund and others.

Startups apply for economic incentives through MainStreet's platform, and then MainStreet takes a 20% cut of any successful application. Notably, that cut is only taken when the incentive is actually disbursed (there's no upfront cost), and there is also no on-going subscription fee to use the platform. If you identify the credit that you're able to use six months from now, we will charge you six months from now, when you're actually getting that credit. It seems to be a business model that is aligned well with founders," Ludlow said.

Right now, he says that the average MainStreet client saves $51,000, and that MainStreet has crossed the $1 million ARR run rate threshold.

Right now, the company's core clientele are startups applying for payroll credits and research and development credits, but Ludlow says that MainStreet is working to expand beyond its tech roots to all small businesses such as restaurants. The company also wants to expand the number of economic development programs that startups can apply for. Given the myriad of governments and programs, there are hundreds if not thousands of more programs to onboard onto the platform.

MainStreet's team. Image Credits: MainStreet

While MainStreet is helping startups and small businesses, it also wants to help governments improve their operations around economic development. With MainStreet, we can report back to cities and states showing exactly what their tax dollars or tax credits are being utilized for," Ludlow said. So the accountability is orders of magnitude greater than they had before. So already, there's this better system for tracking the success of incentives."

The big question for MainStreet this year is navigating the crisis around the COVID-19 pandemic. While more small businesses than ever need help navigating credits, state and local governments have suffered huge shortfalls in revenues as taxes have dried up and Washington continues to debate over what, if any aid, to offer. There's no money for economic development, yet, economic development has never been more important than right now.

Ultimately, MainStreet is pushing the vanguard of economic development thinking forward away from massive checks designed to underwrite industrial factories to a more flexible and dynamic model of incentivizing knowledge workers to move to areas outside the major global cities. It's an interesting bet, and one that, at the very least, will help many startups get the economic incentives they rightly have access to.

Outside of Gradient and Weekend Fund, Shrug Capital, SV Angel, Remote First Capital, Basement Fund, Basecamp Ventures, Backend Capital and a host of angels participated in the round.