The U.S. is facing an accountant shortage. Fewer first-time candidates took the CPA exam in 2022 than in 2006, according to the American Institute of Certified Public Accountants. One possible reason people aren’t as interested in the field is the large amount of drudge work involved: Accountants have to rifle through large amounts of unstructured data to perform audits or even just to find answers to their questions.
Kevin Merlini, the co-founder and CEO of Materia, left the field for that very reason and is now working to reduce that burden for other accountants.
Materia integrates into a firm’s existing workflow software and applications like Microsoft Excel and Teams to help break down the silos that exist in accounting firms’ troves of unstructured data. Because of that, it can automate and augment the mundane and tedious parts of an accounting audit so accountants can focus more on high-risk areas that need special attention. It also offers a way for accountants to easily search across their firm’s data and documents to get answers. The firm uses generative AI platforms like OpenAI to process information from a firm’s documents.
“Accounting professional services has been interesting because it is almost underlooked, and has been underserved, so there is a pretty compelling story to tell there,” Merlini told TechCrunch. “There is also a lot of pressure on firms to improve efficiency. There are a lot of PE acquisitions. There are a lot of forces that are incentivizing firms to invest in their efficiency and quality.”
The company is emerging from stealth with $6.3 million in funding. The round was led by Spark Capital with participation from Haystack Ventures, Thomson Reuters Ventures, Exponent Capital and the Allen Institute for AI, among others. The company has five customers so far that range from the top 100 accounting firms in the U.S. to the top 15, Merlini said, some of which have rolled out Materia to their entire auditing group.
Merlini’s journey to launch Materia was not a straight shot, though. While he majored in and got a master’s in accounting, he only lasted about four months as an auditor at KPMG.
“If you study accounting, it is actually pretty interesting,” Merlini said. “You are figuring out a way to bring all this complex stuff that happens in a year and boil it down to numbers that could be compared across companies. But when it came to being an auditor, and doing the work at a big four [accounting firm], there is a lot more drudgery.”
Despite realizing the industry’s problems then, he worked in tech for eight years before launching Materia. Merlini was a product manager at Amazon for more than six years, and more recently, he was at Meta working on its large language models and how these models classified journalism.
Merlini always wanted to be a founder, though, and the pain points he felt in his short accounting career remained with him. He left Meta in 2022 to figure out what he wanted to build. He landed on Materia because he realized he could actually fix the problems that existed in accounting with the advances he was seeing in AI.
“It was clear to me that large language models were a huge paradigm shift in what was possible,” Merlini said. “I had a decent amount of friends from college that work in accounting services and had a preexisting network there and started to do discovery. What are these big pain points, and where are the current solutions falling short?”
Merlini and co-founder Lucas Adams incubated the company at the Allen Institute for AI in the summer of 2022. As ChatGPT started to roll out later that year, they were able to take advantage of the tailwinds of the AI boom.
The company takes security and accuracy really seriously, Merlini said. Its agreements with OpenAI and other AI companies restrict the LLMs from learning off of Materia’s customer questions. Materia also cites where it gets all of its information from. So whether information appears in an audit, or as an answer to an accountant’s question, someone can always double check that it’s correct.
The startup has been offering a white-glove service to a select group of firms thus far, as Materia has been operating in stealth. Now that it’s out of stealth, Merlini said the company is targeting the top 200 accounting firms in the U.S. to start with plans to move downstream in the future.
“How exciting the opportunity is, not for us as a company but for the professionals,” Merlini said. “One of the reasons that there is a shortage of folks [in accounting] is there is a lot of attrition. Until recently, this automation wasn’t practical or possible. We are just excited to get started.”