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Venture Firms Target Accounting Roll-Ups with AI Automation Play

A handful of venture investors are pushing into one of 2024’s most active buyout investment themes and are now attempting to acquire mature accounting firms.

Venture Firms Target Accounting Roll-Ups with AI Automation Play

The angle they’re playing: AI-led automation.

“For 2025, I see a new asset class emerging around AI enabled roll ups,” writes Marc Bhargava, managing director at General Catalyst.

Bhargava and other Silicon Valley investors believe there’s an opportunity to transform legacy professional services, and they think the best way to do so might be via a departure from the traditional venture model.

GC’s strategy is to first invest in an AI-native startup and then provide more capital for the startup to acquire companies that would normally be its customers. The firm has allocated $1.5 billion from its recent $8 billion fundraise to its Creation strategy, which executes this playbook in a small group of target verticals.

“We’ve funded AI-enabled buyout teams in call centers, HOA management, HR solutions, mobile gaming, property management, MSPs, legal, healthcare, and accounting,” says Bhargava.

“Unlike private equity, we rely less on debt funding and cost cutting, and focus on adding software and AI-oriented productivity improvements,” Bhargava adds.

One of the firm’s first attempts at this approach is Accrual, led by former Brex CTO Cosmin Nicolaescu, which has raised an initial $16 million to acquire and technologically transform accounting practices.

“We do think there’s a huge opportunity to roll up accounting firms and automate a lot of the workflow and let the same accounting firms take twice as many clients,” says Bhargava. “The idea is not to cut people with AI, the idea is to enable them to do two-to-three times the work.”

Bessemer Venture Partners has also been active in the space, but they’ve taken a more opportunistic approach through co-investments with later-stage partners.

In November, Centerbridge brought Bessemer into its deal to invest in accounting firm Carr, Riggs & Ingram (CRI). According to CRI CEO Bill Carr, Centerbridge sought out Bessemer specifically to add AI expertise and accelerate implementations at CRI.

Carr thinks AI-driven growth can push CRI, which generated $502 million in revenue last year, to $1.2 – 1.3 billion topline within five years.

Bessemer and Thrive Capital also joined private equity firm ZBS Partners last May with an investment in Crete Professionals Alliance.

Brian Feinstein, a Bessemer partner focused on enterprise software, acknowledges the speculative nature of the AI thesis: “There’s not some magic AI accounting product today that automates the audit function or the tax function or the bookkeeping function. But there are dozens of startups that are doing exciting things in these areas.”

“In a base case, we expect this to be a really good private-equity deal,” Feinstein told the Wall Street Journal, referring to both CRI and Crete. “The tech automation and the AI tailwind is a source of upside that helps us get to a home-run case.”

Not all early-stage investors share the enthusiasm.

Slow Ventures partner Yoni Rechtman thinks the more obvious roadblocks built into the accounting thesis—particularly for firms without intensive roll-up expertise—are enough reason to steer clear.

“These assets are going to be insanely competitive and we don’t think it’s worth doing,” says Rechtman.

“The only part of the market that isn’t insanely competitive are the smallest deals — there’s nowhere to grow into: you’re going to be forever stuck doing really small deals and that will put a cap on how quickly you can grow.”

“There are few-to-no midsize CPA firms and the prospect of needing to do 50-plus deals per year is brutal,” Rechtman adds.

He also sees fundamental flaws in the core AI strategy.

While agreeing that “there’s lots of rote work that AI should make much more efficient,” he cautions that the second-order consequence of such automation could just as easily backfire on investors.

“There’s a real chance LLMs are value destructive: the work will be commoditized, automated, and cheap instead of newly margin rich.”

“The product is obvious and hard to differentiate. You’re not going to rebuild the actual tax preparation, so instead everyone is building the same admin and customer communications.”

Sam Hillier

Sam Hillier is a reporter at Transacted covering private equity and investment banking. He previously spent time as an investment professional focused on middle market buyouts.