For these software services, ScaleFactor charged around $6k annually up to $30k for their most premium plans. Graphcore, a UK-based startup that designs processors specifically for artificial intelligence… I’ll let you decide, but the one thing that’s apparent is that the challenge of interweaving accounting and AI functionalities into one platform that accomplishes tasks that are regularly performed by humans is no easy feat. Less than a month later, an article was published on Forbes claiming that ScaleFactor’s collapse was due to entirely different reasons than those laid out by Rathmann. Before diving into the nitty gritty of the Forbes article claims, let’s learn more about ScaleFactor—what they were setting out to accomplish and how they managed to raise significant funds in such a short amount of time.
“We are focused on finding great customers and making them very happy for a long time,” he wrote. Rathmann also said the company will dedicate the funding to customer acquisition. After allocating most of his time to simplifying accounting tasks and automating manual work, Rathmann decided to leave his job and found ScaleFactor.
Forbes article claims
According to former customers mentioned in the article, ScaleFactor was overpromising and underdelivering, creating erroneous bookkeeping, and being viewed as more of a bookkeeping service business than a software platform. During due diligence, one of these potential investors learned that ScaleFactor had a customer service team who they were told functioned as “account managers.” Further inquiry revealed the employees were accountants. “So the software might look automated, but they actually had all these people on the backend,” the potential investor said. Unfortunately, burning through $103 million in cash has got to be the hardest way to learn this lesson.
To bolster this effort, ScaleFactor hired The Outsourced Accountant, an offshore firm in the Philippines, to help. But no matter where they worked, the unpredictable technology continued to lead to errors in customers’ books. It was then reported that customers started to cancel, while some of them demanded refunds.
Radiation-dominated era
In the real estate sector, venture backed office-space providers Convene and Knotel have laid off hundreds of workers. In travel, TripActions, a corporate travel management software startup that lost 95% of its business as a result of the pandemic, recently secured $125 million to keep the company afloat. None of this was known publicly last month, when Rathmann announced that scalefactor 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 as demand from small businesses crumbled. About 100 people would be laid off with three months of severance, and cash would be returned to investors — a seemingly tidy end to another startup afflicted by the pandemic. Financial operations software platform ScaleFactor has raised $10 million in a Series A, announced today.
