When a Startup Is Born Inside a Company: ZSuite’s Spin-Out Story:

Starting a company is never easy, and spinning one out from an established company comes with a unique mix of advantages and challenges. On one hand, you may have access to existing infrastructure, built-in credibility, and a clear market need. On the other hand, you’re tasked with defining your own identity and untangling shared systems. 

So what’s the difference between a spin-off and a startup? A traditional startup typically begins from scratch–an idea, a founding team, and finding the capital and resources to develop a product. A spin-off, by contrast, is launched from within an existing company. This separation occurs when a technology or product offering holds potential as a standalone product, independent of the parent company. Spin-offs benefit from institutional resources, such as capital, expertise, and infrastructure to build, but still need to prove they can succeed independently. 

This month, I sat down with Nathan Baumeister, CEO and Co-founder of ZSuite Technologies, a fintech helping banks grow low-cost commercial deposits with digital escrow and sub-accounting services. Nathan shares how a piece of internal bank software evolved into a standalone startup — and what it really takes to make that leap successfully.

Startup Boston (SB): Could you tell us a little about your background and what led you to start ZSuite? What market gap or problem did you first identify?

Nathan Baumeister (NB): I’ve known since high school that I wanted to build and run startups. Since then, I have been doing just that. In 2007, I found myself in the banking technology world and haven’t looked back. I connected with Jay Tuli, President of Boston-based Leader Bank, when they wanted to spin out a piece of technology they’d developed in-house. The technology helped property managers run their businesses as long as they banked with the bank offering it. When he and I connected, we both became excited about the opportunity for banks to grow their commercial capabilities by having purpose-built tools for specific industries. 

At what point did you realize that spinning out was the best path forward? What motivated you to take the leap and launch ZSuite as an independent company?

NB: By the time I came on board, Jay and the Leader Bank team had already decided to spin out the technology. He and I were connected based on the decision to spin out. After Leader Bank developed the technology in-house, other banks started reaching out asking if they could license the product and use it as well. I believe the bank realized that they are not in the business of building and selling technology for other banks. So to give it a chance to become what it could become, they decided to spin it out. 

What were the key challenges in transitioning from an internal project to an independent startup?

NB: When moving from an internal project to an independent startup, the key challenge is understanding the full scope of what the business was dependent on from the larger organization. When you don’t have the support of the larger organization anymore, you have to figure everything out, including things as small as who buys the computers, to things as big as who oversees the cloud infrastructure. Part of the challenge is to figure out the tactical part of who does what; the other part is understanding what the actual cost is to run the business independently. I’ll give you a hint, it’ll be more expensive than you think. 

How did you navigate ownership, intellectual property, or funding discussions with the parent company?

NB: Since Leader Bank made the decision to spin out this technology, the conversations about ownership, IP, and funding were straightforward. We had open, honest conversations about what was fair and worked together to reach an equitable outcome. I could imagine this being hard and perhaps even impossible if the parent company did not want to execute a transaction. 

What are the biggest legal hurdles in spinning out?

NB: Spinning out a software company from a bank presents unique legal challenges. Bank entities are rightfully held to very specific standards because they handle money. The standard a bank is held up to cannot be the same standard that a small software company is held up to. We had to figure out how to separate ZSuite as a completely independent organization that was not in any way still considered part of the bank was a big legal challenge. 

How did being associated with an established company impact your ability to raise funding or attract talent?

NB: The biggest question any new startup faces is: What type of value can you drive to an organization? The fact that we started our company with the bank as our first client provided instant validity to the problem we were trying to solve and how we were solving it. 

What is your relationship with the parent company today?

NB: We continue to have a great relationship with Leader Bank. They remain a fantastic client of ZSuite and are seeing great results not just from the products we spun out, but from the new products we have developed since the spin-off. 

What do you wish you had known before starting the spin-out process? (Are there any misconceptions about this process?)

NB: One thing I wish I would have realized sooner is that when you spin out an internal product, it often has the revenue profile of a completely new startup but the operational and product maturity of one that is several years old. This creates a disconnect between the revenue coming in and the costs to support it.

Final Thoughts

Spinning out a startup from an established company is a balancing act - one that offers a head start but comes with its own set of hurdles. As ZSuite’s story shows, success depends on alignment with leadership, clear separation of systems, and a deep understanding of what independence actually costs.

Whether you’re eyeing a similar path or just curious about what goes on behind the scenes, stories like Nathan’s offer a rare look at how new ventures emerge from legacy institutions - and it’s exactly the kind of insight we share regularly in the Startup Boston Newsletter. Subscribe to stay in the loop with everything happening in the New England Ecosystem.

About the Author: Kaitlyn Shevlin is a Business Analyst at Stratyfy, a startup offering transparent and interpretable AI solutions that help financial institutions make better-informed decisions in credit risk, fraud prevention, and compliance.