There is a shortage of 340,000 accountants in the US, and 75% of accountants are rapidly approaching retirement age. This shortage is leading to increased workloads for existing staff and a higher chance of errors, as evidenced by recent corrections from companies like Rivian and Lyft in their quarterly numbers. The industry has long sought to leverage technology to alleviate the burden on accounting teams. Materia is an AI-powered platform that automates and augments the workflows specific to public accounting. Unlike traditional corporate accounting, public accounting has unique challenges involving unstructured data and qualitative considerations, making it poorly suited for early AI applications, especially in audits. With the advent of generative AI, Materia has developed a platform that understands both the logic of accounting and the nuances of different domains using a proprietary “Knowledge Hub” that integrates internal knowledge and established accounting standards. Accounting firms can be onboarded quickly and can immediately speed up their routine tasks with pre-built capabilities; custom workflows can also be added if necessary.
AlleyWatch caught up with Materia CEO and Cofounder Kevin Merlini to learn more about the business, the company’s strategic plans, latest round of funding, and much, much more…
Who were your investors and how much did you raise?
We raised $6.3M in seed funding led by Spark Capital with participation from Haystack Ventures, Thomson Reuters Ventures, Exponential Founders Capital, and the AI2 Incubator.
Tell us about the product or service that Materia offers.
Materia is built on an AI Platform specialized to understand & reason over accounting data – the Platform integrates with key industry software providers to aggregate & organize a firm’s internal knowledge/documents. This secure Knowledge Hub enables Materia’s AI Assistant and Document Analysis Workspace to provide trustworthy workflow automation capabilities grounded in the firm’s proprietary data, as well as Materia’s library of authoritative accounting guidance/standards.
What inspired the start of Materia?
My motivation to start Materia was driven by the painful and tedious tasks that I personally experienced while working in the Audit practice at Big Four accounting firm KPMG earlier in my career. Despite many of the challenging workflows, the professional services side of the accounting world (i.e. Public Accounting and Assurance) experienced relatively lower impact from the wave of ML innovation. In some part because these markets were often overlooked or not well understood, but more critically because that wave of ML was not sufficient for the needs of public accounting workflows. Audits involve mountains of unstructured data & qualitative considerations, and the workflows themselves feature significant variation across the long tail. All of these factors together made it difficult to drive meaningful holistic improvements relying on classic ML. But, with the innovations in Generative AI, it was clear that this new wave represented a paradigm shift in what, and the strengths of generative AI also neatly matched up against the unaddressed needs from public accounting technology around handling unstructured data, dealing with ambiguity & qualitative considerations, and flexibly handling task variation.
How is Materia different?
Materia is building a broadly capable automation and augmentation system for the public accounting industry. Our approach is to build an AI system that: 1.) understands the “logic of accounting” and can perform domain-specific reasoning, 2.) has access to all of the same knowledge and context that a human professional would have, and 3.) is equipped with domain-specific tools & capabilities that are necessary for carrying out common tasks for CPAs. These building blocks come together to form a highly capable AI Agent platform specialized to the unique needs of the public accounting profession. Other approaches are either horizontal and not focused on the unique needs of the vertical or are narrow features within existing legacy software products.
What market does Materia target and how big is it?
We are selling to large public accounting firms in the US. We see a significant opportunity to drive value within accounting services workflows, for which the market is $141B in the US and $573B globally.
What’s your business model?
We sell seat-based licenses and enterprise contracts that incorporate additional services.
How are you preparing for a potential economic slowdown?
We are taking an approach that incorporates responsible growth and burn management while focusing most on creating value for customers. Luckily our customers (public accounting firms) have historically been fairly recession-resistant, and in some cases have counter-cyclical business drivers.
What was the funding process like?
It was an exciting and intense period with all hands on deck. But, I found the process of continually telling our story to be a helpful exercise. Meeting with lots of smart people and hearing their questions helped us to refine the narrative and even deepen our own understanding.
What are the biggest challenges that you faced while raising capital?
I think one challenge was when investors weren’t familiar with public accounting or couldn’t ramp up on the details particularly if there was trouble understanding the difference between corporate/internal accounting and accounting firms. They are very different markets with very different user needs, so those conversations required a lot more upfront context.
What factors about your business led your investors to write the check?
You would have to ask them, but I think it was a combination of our team, the size and timing of the opportunity, and our unique approach to solving the problems with customers.
What are the milestones you plan to achieve in the next six months?
We are primarily focused on growth through the rest of the year, but we also have few exciting products that are in the pipeline for later this year that we are really looking forward to.
We are primarily focused on growth through the rest of the year, but we also have few exciting products that are in the pipeline for later this year that we are really looking forward to.
What advice can you offer companies in New York that do not have a fresh injection of capital in the bank?
I don’t like to dispense general advice as every situation is different, but you typically can’t go wrong by obsessing over your customers and building something that they want and creates value.
Where do you see the company going now over the near term?
Right now we are focused on growth, continuing to ship product that creates value for our customers, and building out an all-star team.
What’s your favorite summer destination in and around the city?
In the city – biking on the West Side Highway.
Around the city – river tubing on the Upper Delaware River, or the South Jersey Shore beaches.
