As large companies face uncertainty, some prefer to pay consultants who run their own shops rather than employees, even for high-level roles. The typical single-employee S corporation that uses Collective has annual revenues between $80,000 and $1 million and works in marketing, software development, design, law, medicine or consulting, Radfar said. More than 80,000 business owners across the country have applied to use the service, which costs $299 per month.
Radfar said Collective focuses on S corporations because of their tax advantages over sole proprietorships. But setting up and managing the businesses can be a labor-intensive, distracting problem for small companies, he said.
“How do we help people focus on their passion, not the paperwork?” he said.
The company raised $20 million in 2021 in a funding round led by venture capitalist firm General Catalyst. The list of investors includes several founders of companies that enable freelancers to earn significantly, including Steve Chen of YouTube, Kevin Lin of Twitch, Sam Yam of Patreon and Hamish McKenzie of Substack. Sound Ventures, co-founded by actor Ashton Kutcher, also participated.
Collective’s services include help with company formation and fixed tasks such as payroll and tax. Some of the services are automated on a dashboard, while others happen with the assistance of tax experts, accountants and bookkeepers.
Some Collective users told the company they started their own businesses as a result of pandemic-related restrictions or layoffs, a trend mirrored in New York, where the number of businesses fell 1% from late 2019 to late 2021, according to a report by State Comptroller Thomas DiNapoli. Instead, new businesses proliferated, most with fewer than five employees. In 2020, 81% of all US small businesses had no employees, according to the Small Business Administration.
Radfar said his company will add staff to handle the influx of demand, particularly from New York companies. All Collective employees are remote-first, so the new employees will not necessarily be located in New York.
In addition to individual accountants and bookkeepers, there is some local competition from back-end businesses and tax preparation technology companies, including Muse Tax, which uses artificial intelligence to look for missed deductions on personal and business tax returns.
