Why We Invested: PTO Exchange
By: Anthony Bontrager, Managing Director, WestRiver Group
$365 BILLION…
Let that figure sink in a bit. It’s a massive number in any context, but what makes this figure so staggering is that it represents the amount of paid time off (PTO) that is amassed each year by employees throughout the United States. Shocking, right?
What’s even more shocking is the fact that nearly half of that amount, over $150 billion, goes unused each year – that’s 768 million days of PTO that gets left on the table. Of that amount, approximately 268 million of those days are forfeited each year by American employees either through “use-it-or-lose-it” PTO policies or simply hitting their accrual cap for a given year. And these are pre-pandemic numbers from 2019, the latest data available according to a report by USTravel.org.[1] All indications are that PTO balances have grown with COVID, due to limitations and restrictions over the last 2 years.
But think about that: roughly $65 billion in “earned value” that American employees are not receiving and by extension, that the American economy is not capturing.
This is a massive problem (and opportunity) that needs to be addressed.
The Future of Work, one of our core investment themes, can take many shapes and at WestRiver we spend a lot of time researching and analyzing emerging trends that we believe will fundamentally change the way the world works. In early 2018, we were introduced to Rob Whalen and Todd Lucas, the co-founders of PTO Exchange who had identified early on this massive wealth forfeiture and set out to do something about it. It was a fateful meeting, as they say.
As we dug into the company and its business, we were astounded at the numbers noted above and the Byzantine manner in which the IRS categorizes PTO, defining it as “nonqualified deferred compensation,” yet still eligible for favorable deferred tax treatment. Not to be deterred, the team at PTO Exchange sifted deeply through these legal and financial complexities and designed a unique solution that enables employees to access their PTO benefits in a variety of ways (e.g., 401(k) investments, student loan repayments, PTO sharing, charitable gifting and emergency cash), while allowing employers’ PTO programs to remain eligible for the favorable tax treatment the IRS affords them. Their message to the market was simple, give employees a new way to realize the value of this earned compensation without the need for borrowing, and in exchange reduce the growing balance sheet liability on the part of corporations.
An Occam-esque solution to a multibillion-dollar problem. Early market traction was promising, and we were convinced. In November 2018, we led the Company’s first seed round with a $3M investment.
Investing at the earliest stages of companies is in some ways difficult and in some ways easy. I always say, everything changes (market, customers, product, etc.), except the team – and PTO Exchange was no exception to this rule. Whether it was the market taking longer to develop than either we or the Company envisioned or the pricing models needing to evolve to drive more traction, we saw it all. But the core belief remained – American workers deserve to use their PTO benefits even if they can’t actually take paid time off.
And this is where the team element comes into play. Rob, Todd and the entire team stayed true to their North Star and relentlessly pushed forward with the business plan, adjusting where necessary to demonstrate the power of what PTO Exchange could do to help employers and employees.
Grit… Determination… Conviction…
Fast-forward to today, and the Company announced an over-subscribed Seed 2 financing led by TTV Capital on the heels of achieving record revenue growth in 2021 with customers across multiple industries that include Stratacache, Howard Brown Health, UCare, Centre College, Griffin Capital as well as some of the largest retailers, hospital systems and other credit unions in the US.
Helping gutsy entrepreneurs tackle big problems that can change how the world works for the better is how we operate as a firm. We are proud to have participated in this round alongside a great group of new investors for the Company and look forward to the many great things this team can accomplish.
#ONWARD
Anthony Bontrager - Managing Director
[1] Additional Sources: www.census.gov, www.hr.uiowa.edu, Bureau of Labor & Statistics, and Statista