AccountingBookkeepingSmall Business & Startups

Why Are VCs Funding Outsourced Accounting Services For Startups?

By September 20, 2019 No Comments

outsourced accounting servicesAs the CEO of Acuity, it’s my responsibility to keep an eye on current events, industry trends, and generally what’s happening within the market that we serve. One ongoing trend that I’ve noticed is the funding of outsourced accounting services by venture capitalists. If you’re wondering why VCs are funding bookkeeping startups, here’s how I’ve been explaining it to the Acuity team:

1.The TAM and SAM are notable.

Ready for a little VC lingo? Total Addressable Market (TAM) and Serviceable Addressable Market (SAM) are a major reason why VCs fund these startups. Why? Bookkeeping is part of every single business. It’s a necessity that most entrepreneurs see as an incredible nuisance, if not a full-on pain point. I think that companies under $5 million in revenue are perfect candidates for outsourced bookkeeping. As of 2019, there are 30.2 million small businesses in the US alone. And if you charge clients approximately $5k per year, that equates to a $151 billion US TAM. The TAM/SAM stuff can be fuzzy math, but the bottom line is that investors want to see a BIG market before they get involved, because a big market can mean big opportunity.

2. Technology components are appealing to VCs.

In the past 18 months or so, several bookkeeping companies have raised significant funds, including: Bench ($49.1M over eight rounds), Indinero ($9.9M over five rounds), Ceterus ($20.2M over three rounds), Pilot ($40M Series B), Scalefactor ($30M Series B), and Botkeeper ($22.5 over two rounds). Each of these companies have one thing in common: proprietary software. Most of them are also exploring AI, automation, and other forms of technology — all factors that are appealing to tech-obsessed VCs. We’re even seeing the reverse with tech companies like Intuit getting into the bookkeeping services space.

3. Financial software is expensive.

When we started Acuity, I really wanted to build our own software, too. To have our own intellectual property was pretty appealing, but honestly the cost and effort required to build something of our own when there were solid software tools readily available seemed too high. Plus, through our own customer development process, we found that our clients really wanted access to talented bookkeepers and accountants. Had we gone the route of Indinero and Bench, we absolutely would have needed outside capital.

Instead, we opted to partner with other technologies and startups like Gusto,

which recently raised a whopping $200M through Series D funding. Xero and Bill.com, two more of our partners, are also killing it in the industry, and we hope to continue to partner with companies developing new and innovative technologies designed to fix the problems and address the pain points that Acuity customers are facing. Ultimately, if we had created our own tech, we might be stuck. Instead, we’re more agile because we can deliver an entire tech stack to our customers. Find out more about our tech-savvy partners and our tech stack.

In the end, VCs are funding bookkeeping startups because it’s a big business. From market potential to innovative technology, the industry is an essential one that’s continuously evolving — and investors are taking note.