ScaleFactor folds after $100M in funding

Emailed on July 24, 2020 in The Friday Forward

ScaleFactor, an Austin based startup, claimed to use AI to handle small business bookkeeping and accounting for a fraction of the cost. On June 23 Kurt Rathmann (CEO) announced the startup, which raised $100M over its lifetime, was closing.

In an interview with Forbes on June 23, the CEO blamed the Covid-19 pandemic for almost halving ScaleFactor’s $7 million in annual recurring revenue, but it turns out the software just straight up didn't work.

Customers were the first to cry foul. “If you're one of the investors that gave these clowns $100 million...You should know they've flushed it down the toilet with poor product and poor service,” Lindsey Reinders, a ScaleFactor customer, wrote online after seeing the news. “COVID-19 is just a convenient scapegoat.”

The problem: The typical process of accounting involves thorough consultations to understand the nuances of a company’s books; for instance, whether to consider an Amazon purchase as an expense or bill payment. Errors in this process can lead to bills being paid twice or not being paid at all, snowballing into disaster.

After cancelling her contract in April, one customer, who complained online, says that she learned a ScaleFactor employee had incorrectly credited $17,000 to a customer of her e-commerce business. (ScaleFactor offered her a partial refund on her annual $23,000 contract, Reinders says, if she signed a non-disclosure agreement barring her from talking about her experience; she didn’t.)

What we can learn: AI is automating many tasks we do everyday, but we're really in the first inning (if that) of this movement. It's clear that business owners want their service providers to take a tech-forward approach, but they also value having a human they can trust with something like their books.

So while AI isn't coming for bookkeepers anytime soon, your customers have spoken: they're willing to switch to providers who offer a more technological solution...