AI, new rules for accounting mark opportunity for startups

PARIS — For years in France, accountants have been more than just number crunchers, instead serving as important advisers to businesses of all sizes.

But artificial intelligence and a wave of new regulations are forcing the profession to adapt to an evolving world in which balancing companies' ledgers isn't enough.

It is a change software startups are seeking to capitalize on.

Among them is Pennylane, a six-year-old upstart whose bookkeeping software is now used by roughly a third of France's small or medium-size businesses. Its success has driven its ambitions of expanding across Europe and has drawn the attention of big investors, who valued the company this year at about US$4.25 billion.

“We think we can build a €500-billion company,” said Arthur Waller, a founder of Pennylane and its CEO.

Pennylane aims to inject modern efficiency into a historically hidebound profession. Traditionally, businesses compiled financial information, sometimes gathered from scores of paper documents, and sent it to their bookkeepers through an array of unconnected software.

The result was often an out-of-date picture of a company's finances.

And for years, the industry has been dominated by a handful of big companies, including Cegid and Sage, that sold bookkeeping as part of expansive and expensive software packages.

Pennylane offers what it likens to a financial operating system. Companies and their accountants work from the same platform — “a single source of truth,” according to Quentin de Metz, one of the company's founders and its chief technology officer — to produce a quick and accurate readout of a business' numbers.

The company, which is named for the Beatles song and began life with a small in-house accounting business, quickly switched focus to selling software to accountants. It pitches itself as an indispensable tool for accounting firms and ultimately for their clients.

Nearly all of the company's business customers come through their accountants.

“People told us, ‘Please don't build something that will get rid of my accountant,’” Waller said.

The company also adopted a charter with accountant-friendly policies, including a cap on price increases and a refusal to help customers switch accounting practices without their bookkeeper's permission.

Pennylane's tools have produced tangible benefits, said Laurent Lamoureux, head of accounting services at BDO France, who first began using the startup's software four years ago. Bookkeepers can process clients' ledgers much more quickly and cheaply, while customers can more easily get a handle on their day-to-day financial health.

Pennylane now has about 1,200 employees and hit €222 million (US$250 million) in annual recurring revenue. It has raised roughly US$460 million from investors including Sequoia Capital, Capital G and Blackstone.

“When it comes to AI accounting, they are by far the most exciting company globally,” said Luciana Lixandru, a partner at Sequoia.

National and European Union regulations may give companies like Pennylane another boost.

Last month, France began requiring many businesses to start receiving and issuing electronic invoices for tax purposes, using approved platforms to process the data. Thanks to its tight relationship with accountants, Pennylane says, it has about 20 per cent of the e-invoicing market in France.

“We think we have an opportunity to create a European giant,” Waller said.

But rivals aren't standing still.

Sage CEO Stephen Hare told analysts last month the software company was seeing “increasing traction” in e-invoicing. And Qonto, a fast-growing French banking startup, has quickly emerged as a rival, buying up several accounting businesses.

— New York Times