When the government creates a startup opportunity

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It is a truism amongst mentors that startups have to solve problems, and eventually do so profitably. What I like to see is what I call a forcing function, an exogenous force that creates a problem that a startup to solve.

A great example of this is in The Wall Street Journal article IRS Sending Warning Letters to More Than 10,000 Cryptocurrency Holders. “Taxpayers should take these letters very seriously. The IRS is expanding efforts involving virtual currency,” IRS Commissioner Chuck Rettig said.

While the price of Bitcoin and other digital currencies bounces up and down like a drunken yo-you, you can rest assured that like death, IRS taxes are a sure thing. So now everyone investing in crypto currencies has more to worry about than the value of their portfolio: their income tax obligations. But who’s been tracking their crypto gains and losses?

Chandan Lodha and Jon Lerner, the founders behind CoinTracker, spotted this problem and built a company to solve it. Cointracker supports fee tracking, margin trading, and the most integrations, while handling traders with millions of transactions. They support over 300 exchanges and 2500 cryptocurrencies.

The two are former Googlers, and cofounded the company after going through the prestigious startup program Y Combinator. They secured a seed round of $1.5 million. As the saying goes, the way to make money on a gold rush is to sell the picks and shovels and that’s certainly the tack that Cointracker has taken, with the IRS forcing crypto traders to track their transactions and file returns covering their crypto investments.

The origin story of Cointracker is typical; the founders were trying to find something to track their own crypto investment hobby. When they couldn’t find anything suitable they built it themselves. As with many tools, ease of use is critical:

“The key reason we’ve had some success to date is due to focusing on the UX,” Lodha said. “There are tons of other tools but one thing that really resonates with our users is that we’ve made it easy to use for mainstream people, not just expert cryptography folks.

And like many services, the business model is freemium: the basic tracking service is free but users pay from$49 up to $999 per year for more advanced features centered around optimizing tax filings by computing capital gains reports using FIFO, LIFO or HIFO accounting.

So if you are looking to start a new venture, pay attention to new government laws and regulations, you may well find that they are creating a new problem for taxpayers – one that you can profitably solve.

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

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