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

Artificial intelligence startup investors are turning to accounting software, a traditionally subdued corner of enterprise technology, as companies brace for a potential economic downturn.

Many investors are betting that inflation, rising interest rates and fears of recession will cause companies to redouble their efforts to track and control expenses, which will drive demand for automated accounting tools. At the same time, investors say, many companies are likely to suspend spending on IT areas with no immediate impact on the bottom line.

Worldwide, startups making AI-powered accounting software raised $233.3 million in venture capital between January and the end of March, surpassing $210.2 million in funding overall of 2021, according to research provider PitchBook Data Inc. the first quarter for startups building AI-powered tools in areas such as media and entertainment, processor design and autonomous vehicles, among dozens of other software categories, said Brendan Burke, PitchBook’s principal analyst for emerging technologies.

The most advanced AI accounting platforms include features like computer vision that can quickly extract data from receipts and invoices with a high degree of accuracy, even leveraging machine learning and computer science. analytics to fill in missing entries in expense reports, say investors, industry analysts and startups. founders.

Demand for expense management and expense reporting apps is expected to increase as companies prepare for rising inflation and higher interest rates by monitoring spending more closely, they say.

Many businesses rely on these tools to streamline and automate certain financial operations, freeing up staff for higher-level tasks.

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

Although the broader accounting software market is dominated by enterprise technology stalwarts such as Microsoft Corp.

Oracle Corp.

and Intuit Inc., smaller developers are attracting attention by turbocharging standard number-crunching apps with AI and machine learning capabilities.

Lemonade Inc.,

a New York-based insurance company with 1.5 million customers and more than $120 million in annual sales, according to the company, uses an AI accounting platform developed by startup Trullion Ltd. based in Dallas to automate the process of managing entries in its general ledger and regulatory disclosures.

“No more sifting through long leases to find a handful of meaningful financial terms,” ​​said Anthony Irwin, Lemonade’s chief financial officer and controller.

PitchBook tracked six funding deals involving AI accounting startups in the first quarter of 2022, setting the year on pace to surpass the 17 deals completed in 2021.

“Investment in AI accounting automation is growing from a low base,” said PitchBook’s Mr. Burke. Many of these startups are increasingly attracting investor attention by adapting and refining computer vision systems, an area of ​​AI that allows computers to identify digital images and video, which are already spurring the growth of other fintech companies in areas such as lending and insurance, he said.

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

Yokoy Group AG, a Swiss-based accounting startup, raised $80 million in a Series B funding round in March, 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 the space of five months only.

Philippe Sahli, co-founder and chief executive of Yokoy, said the company’s enterprise clients are preparing for economic uncertainty by focusing more on reducing expenses and increasing efficiency. Demand for the platform has grown over the past year, he said.

Yokoy’s AI software automatically flags abnormal spending patterns, while its algorithmically model-linked business credit cards can identify transactions that don’t comply with a company’s spending policies, among other things. features.

Trullion co-founder and CEO Isaac Heller said macro effects on the industry such as the Big Quit, shrinking supply of CPAs and hybrid workplaces have pushed the businesses to focus on technology. At the same time, Heller said, the market turmoil has shifted the corporate mindset from revenue growth to profitability.

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

Write to Angus Loten at angus.loten@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Leave a Reply