VCs target AI accounting startups as companies seek to control spending in an uncertain economy

Artificial intelligence budding investors are turning their attention to accounting software, a traditionally understated corner of business technology, as companies prepare for a potential economic slowdown.

Many investors are betting that inflation, higher interest rates and fears of a recession will prompt companies to redouble their efforts to track and control spending, increasing the demand for automated accounting tools. At the same time, investors say many companies are likely to stop spending on IT with no immediate impact on bottom line.

Globally, startups making AI-powered accounting software have amassed $233.3 million in venture capital between January and the end of March, more than the $210.2 million in funding for all of 2021, according to research provider PitchBook Data. By contrast, funding declined in the first quarter for startups building AI tools in areas such as media and entertainment, processor design and autonomous vehicles, among dozens of other software categories, said Brendan Burke, PitchBook’s senior analyst for emerging technology.

Fast data extraction
The most advanced AI accounting platforms include capabilities like computer vision that can quickly extract data from receipts and invoices with a high degree of accuracy — even using machine learning and predictive analytics to fill in missing entries in expense reports, say investors, industry analysts and startup founders .

Demand for expense management and expense reporting apps is expected to grow as companies brace for rising inflation and higher interest rates by keeping a closer eye on spending, they say.
Many companies rely on such tools to streamline and automate certain financial operations, freeing up staff for higher-level work.

“Core accounting has become increasingly complex due to economic factors such as supply chain disruptions, labor shortages and inflation,” said Bonita Stewart, board partner at venture capital firm Gradient Ventures, an investor in AI accounting startup Botkeeper Inc.

While the broader accounting software market is dominated by large tech companies such as Microsoft, Oracle, and Intuit, smaller developers are turning heads by equipping standard math apps with AI and machine learning capabilities.

Lemonade, a New York-based insurance company with 1.5 million customers and more than $120 million in annual revenue, is using an AI accounting platform developed by Dallas-based startup Trullion to simplify the process of managing bookings, according to the company. in its ledger to automate and regulatory disclosures.

“No more sifting through lengthy leases to find a handful of meaningful financial terms,” said Anthony Irwin, Senior Director of Finance and Controller at Lemonade.
PitchBook followed six financing deals with AI accounting startups in the first quarter of 2022, putting the year on track to surpass the 17 deals closed in 2021.

“Investments in AI accounting automation are growing from a low base,” said Burke of PitchBook. Many of these startups are gaining more investor attention by adapting and refining computer vision systems, an area of ​​AI that enables computers to identify digital images and video, which are already driving growth for other financial technology companies in areas such as lending and insurance. he said.

According to market research firm Technavio, the global accounting software market is expected to grow at a compound annual growth rate of nearly 10% over the next five years, or about $7 billion per year.

Yokoy Group, a Switzerland-based AI accounting startup, raised $80 million in March in a Series B funding round led by Sequoia Capital. Founded three years ago as Expense Robot, the company, which designs end-to-end automation for invoice processing and expense management, has raised more than $100 million in just five months.

Philippe Sahli, co-founder and CEO of Yokoy, said the company’s corporate clients are preparing for economic uncertainty by sharpening their focus on austerity and increased efficiency. Demand for the platform has grown over the past year, he said.

Yokoy’s AI software automatically flags anomalous spending patterns, while the company’s credit cards are linked to an algorithmic model that can, among other things, identify transactions that are inconsistent with a company’s expense policies.

Focus on profitability
Trullion co-founder and CEO Isaac Heller said companies are turning to technology through industry macro effects such as large layoffs, a shorter supply of certified public accountants and hybrid workplaces. At the same time, Heller said, the market turmoil has shifted the company’s mindset from revenue growth to revenue and back to profitability.

Trullion’s AI algorithms are trained to recognize and extract data from a company’s financial records and to generate detailed accounting data and regulatory disclosures. The company has brought in more than 100 new business customers in the past six months, Heller said. Over the same period, sales have more than doubled, he said. In February, the company closed a $15 million Series A financing round co-led by Aleph and Third Point Ventures.

from WSJ

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