CEO Kurt Rathmann blamed Covid-19 for almost halving ScaleFactor’s $7 million in annual recurring revenue as demand from small businesses crumbled. Though the pandemic may have been a death knell, ScaleFactor was on rocky ground long before
Kurt Rathmann told his big-name investors he had developed groundbreaking AI to do the books for small businesses. In reality, humans did most of the work.ccounting is the bane of small business, a tedious task made worse by its costly expense. Kurt Rathmann’s startup had a magic fix: artificial intelligence-powered tools that could replace the accountant, and do so much more. For a fraction of the cost, ScaleFactor promised to take care of bookkeeping, bills and taxes.
Lindsey Reinders' business lost $17,000 from a ScaleFactor error. She was offered a partial refund on the condition she not discuss her experience.Though the pandemic may have been a death knell, ScaleFactor was on rocky ground long before,found. Technology startups are often rewarded for a “fake it ‘til you make it” mentality by venture capital firms willing to throw money at a product until it meets expectations.
ScaleFactor promised to digitize this process with a dashboard centered on five main automated tools: bookkeeping, financial forecasting, bill pay, tax completion and payroll. Customers just had to hand over paperwork, receipts and login information for their sales software. Now that the company is closing, other ScaleFactor customers are reckoning with the risks of doing business with a startup that might over-promise and under-deliver. San Francisco-based coffee shop owners Cornelia and Robert Stang, are hiring a new accountant to scrub months of erroneous bookkeeping. “How hard can this be? We are a coffee shop,” Cornelia recalled telling ScaleFactor when she abandoned her contract this year. “If you can’t fix our problem you can’t fix anybody’s.
to save for his first business. At 17, he owned a company that installed lighting in Houston homes. By the time he launched ScaleFactor in 2014, he had worked as an auditor at KPMG, and as a CFO at a small telecommunications company. In these roles, Rathmanna glaring need for technology to help small businesses with their bookkeeping services.
Despite the votes of confidence from well-known investors, customers were finding that ScaleFactor was falling short. Patrick Coddou, whose e-commerce business paid ScaleFactor more than $10,000, requested to cancel in April 2019 after his statements, expected to be delivered on a real-time basis, were delivered monthly because they were being processed manually. “They just didn’t deliver on the promise,” he says.
Byron Deeter, a prominent cloud-computing investor and partner at Bessemer Venture Partners, led ScaleFactor's $30 million funding round.In the end, the only tool with a true automation component, the potential investor found and employees confirmed, was an internal workflow engine, or “a guided to-do list” for ScaleFactor employees that organized tasks required to close a customer’s books.ScaleFactor scored a term sheet for a $60 million funding round at the start of June 2019.
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ScaleFactor Raised $100 Million In A Year Then Blamed Covid-19 For Its Demise. Employees Say It Had Much Bigger Problems.ScaleFactor CEO Kurt Rathmann told his big-name investors he had developed groundbreaking AI to do the books for small businesses. In reality, humans did most of the work
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