ScaleFactor Raised $100 Million In A Year Then Blamed Covid-19 For Its Demise

What “fake it till you make it” looks like when the product is accounting: a company that raised $100M, blamed COVID, and had customers calling it a glorified bookkeeping service.

As Kyle filed it: ScaleFactor Raised $100 Million In A Year Then Blamed Covid-19 For Its Demise. Employees Say It Had Much Bigger Problems. Accounting Firm 2.0 Tech-Enabled

Kyle’s highlights

• For a fraction of the cost, ScaleFactor (Dead) promised to take care of bookkeeping, bills and taxes. If customers had doubts, they were reassured by the $100 million invested by big-name venture capital firms. “Because evenings are for families, not finance,” ScaleFactor’s website proclaimed.
• Customers were the first to cry foul. “If you’re one of the investors that gave these clowns $100 million…You should know they’ve flushed it down the toilet with poor product and poor service,” Lindsey Reinders, a ScaleFactor customer, wrote online after seeing the news. “COVID-19 is just a convenient scapegoat.”
• 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. But ScaleFactor used aggressive sales tactics and prioritized chasing capital instead of building software that ultimately fell far short of what it promised, according to interviews with 15 former employees and executives. When customers fled, executives tried to obscure the real damage.
• “That’s what I found out ScaleFactor is: pretty much a glorified bookkeeping firm,” says one accountant, who, like other former ScaleFactor employees that spoke to Forbes, asked to remain anonymous because they signed non-disclosure agreements and feared retaliation from the company.
• To bolster this effort, ScaleFactor (Dead) 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.
• **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.”
• Potential investors were coming to similar conclusions. Ahead of yet another funding round, multiple venture capital firms passed on investing, according to people familiar with their decisions, having determined that ScaleFactor was more of a services business than a software platform.
• 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.
• At the end of the day, Kurt Rathmann explained to Forbes last month, customers were craving a person, rather than a computer to do their accounting. “We really thought we could automate the entire back office of a small business,” Rathmann said. A lofty goal that more money couldn’t achieve.

How it connects

• ScaleFactor (Dead)
• The Outsourced Accountant
• Tech-Enabled
• Fraud