VCs Target AI Accounting Startups as Companies Look to Control Spending in Uncertain Economy

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Many investors are betting that inflation, higher interest rates and fears of a recession will prompt companies to double down on efforts to track and manage spending.

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Worldwide, startups making AI-powered accounting software raised $233.3 million in venture capital between the end of January and March, surpassing $210.2 million in all 2021 funding, according to research provider Pitchbook Data Inc. Gone. Conversely, funding declined. The first quarter for startups building AI-enabled devices in media and entertainment, processor design and dozens of other software categories such as autonomous vehicles, said Brendan Burke, senior analyst for emerging technology at PitchBook.

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Investors, industry analysts and startups say the most advanced AI accounting platforms include computer vision-like capabilities that can rapidly extract data from receipts and invoices with a high degree of accuracy—even machine learning and predictive analytics. To fill in the missing entries in the expense report by using founded by

The demand for expense management and expense-report apps is expected to increase as companies keep a close eye on spending for rising inflation and higher interest rates, he says.

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Many companies are relying on tools that help streamline and automate certain financial tasks, freeing up employees for a higher level of 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.

Although the broader accounting-software market is dominated by enterprise-tech giants such as Microsoft Corporation

Oracle Corporation

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

lemonade Inc.,

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

“No more sifting through long leases to find a handful of meaningful financial terms,” ​​said Anthony Irwin, Lemonade’s senior director of finance and comptroller.

Pitchbook tracked six funding deals involving AI accounting startups during the first quarter of 2022, surpassing the 17 deals in 2021.

“AI accounting automation investment is growing from a low base,” said Pitchbook’s Mr. Burke. Many of these startups are gaining widespread attention among investors by customizing and fine-tuning computer-vision systems, a field of AI that enables computers to recognize digital images and video, which is already a feature of other financial systems. There are developments in areas such as lending to technology companies. Insurance, he said.

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

Switzerland-based AI accounting startup Yokoi Group AG 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, raised more than $100 million in a span of just five months.

Philip Sahli, co-founder and chief executive of Yokoy, said the firm’s corporate clients are preparing for economic uncertainty by increasing their focus on cutting spending and increasing efficiencies. He said the demand for the platform has increased in the last one year.

Yokoy’s AI software automatically flags inconsistent spending patterns, while its corporate credit cards linked to an algorithmic model can identify transactions that don’t conform to a company’s spending policies, among other capabilities.

Isaac Heller, co-founder and CEO of Trullion, said the widespread effects on the industry such as great resignations, a short supply of certified public accountants and hybrid workplaces have led companies to focus on technology. At the same time, Mr. Heller said, the market turmoil has shifted the company’s mind away from top-line revenue growth and toward profitability.

Trulian’s AI algorithms are trained to identify and pull data from a company’s financial records and generate detailed accounting entries and regulatory disclosures. The company has brought in more than 100 new corporate customers within the past six months, Mr. Heller said. In the same period, the revenue has 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 [email protected]

Credit: www.wsj.com /

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