The Back Office Infinity Stones Gauntlet — PeakSpan’s Thesis for Finally
The All-In-One Back Office Finance and HR Platform for SMBs
The PeakSpan team is thrilled to have led Finally’s $50M Series B equity financing, just two years after leading the Series A. In that time, Felix Rodriguez (Co-Founder & CEO) and his team have achieved remarkable growth — expanding their core bookkeeping automation business by over 3x, all while building and launching an impressive suite of new software and credit products. The icing on the cake…Finally has assembled “The Avengers” (pictured below):
Avengers! Assemble!
Finally has brought in several new leaders to usher the business into this next phase of hyper growth, including Kevin “KD” Dorsey at CRO (formerly ServiceTitan, PatientPop), Roy Duval at CTO (formerly at Calendly), and Jacob Kay as our Chief Risk Officer (formerly at Divvy). With these leaders plus our already very impressive existing roster of teammates, Finally has set a strong foundation to continue building out its suite of back office finance, credit and HR products for SMBs. The Avengers have collected the first two infinity stones (bookkeeping and expense management) and are aiming to complete the gauntlet, snap their fingers and create the all-in-one platform that so many SMBs need and deserve.
Finally’s Market Opportunity
PeakSpan has identified a $65 billion opportunity for Finally supported by several different software and credit products. The opportunity to digitize and automate an SMB’s back office as robust and severely untapped, still. It is our view that through offering best-in-class software, Finally can displace traditional financial services providers with fully integrated credit products and earn consumption-based financial services revenue streams, as well as subscription fees. This thesis is currently bearing fruit in the bookkeeping market and will next be carried over to business banking and business credit cards. The central goal for Finally is simple à provide SMBs with readily available credit and financial products bundled together and tightly integrated with the back-office technology stack. As we achieve this mission, we will be alleviating the need for several technology and financial services relationships and can act as the true one-stop-shop for a small business owner to run his or her business.
Finally’s Competitive Landscape
Finally is attacking several longstanding categories. And so…the question is, why now? In the past decade, we have seen compute cost, cost to build, and cost to scale software platforms drop exponentially which has, in turn, led to an explosion of software solutions. Further, we have seen the time and cost required to launch FinTech products be reduced (albeit still challenging!). Today, business software users have become fatigued as they must juggle an ever-growing number of tech and non-tech vendors needed to automate and digitize the core areas of their business (banking, payroll, payments, accounting, credit). In this space, PeakSpan has witnessed a distinct movement towards “re-bundling.” This is Finally’s opportunity, to re-bundle. Two standout examples include Rippling, in the HR space, and Ramp, in the finance and accounting space. Rippling serves SMBs with an “all-in-one” HR product suite, while Ramp serves mid-to-large VC-backed companies with a suite of full finance automation tools for the CFOs office. Notably, both comparable companies have demonstrated how much faster a company can compound growth when providing multiple products to an SMB, including consumption-based credit and FinTech products. While these early success stories should be applauded and celebrated, as we sit back and look at the market — we still see seemingly limitless opportunity for multiple vendors to succeed with this strategy. Whether looking at newer FinTechs such as Ramp and Rippling, or traditional financial services providers such as American Express and Capital One, the market penetration rates are still extremely low at <10%. This opportunity is amplified when “honing-in” on main street SMBs with no VC funding. This segment has always been minimally serviced given the underwriting complexity and small deal sizes relative to larger companies with more spend. Finally is up to this challenge.
It’s our view that this market opportunity is still in its early innings, with so many SMBs still operating via antiquated manual processes but where the intent to adopt software is present. On the back of this Series B financing, Finally will leverage the fresh capital to continue building its all-in-one product suite while offering additional GTM resources in order to capture more SMB customers.
Key Market Drivers
1. Volume of Target Accounts. The 34 million SMBs make up 99.9% of all U.S firms, with 60% of all employed persons in the U.S. working for an SMB. These SMBs spend $75BN on software each year and generate $28T in B2B payments volume.
2. Propensity to Buy. 83% of SMBs report that they will boost their use of software platforms across their business in the next two to three years.
3. Technology’s Impact on SMBs. 84% of SMBs who have adopted technology saw an increase in profits, while 82% saw an increase in sales.
4. Demand for Financial Software. Nearly half (46%) of SMBs use personal credit cards and fail to separate expenses between their personal and professional lives, while less than 50% of SMB owners are confident that they are paying their taxes correctly. (Note: This mean’s at the very least, half of Finally’s market is greenfield.)
5. Accounting Pain Point. Around 70% of SMBs don’t have an accountant, and most rely on the owner or manager to handle their finances, while 9 in 10 small business owners say their accounting professional contributes to the business’s success.
6. Expense Management Value Prop. A survey with more than 500 SMBs found that up to 530 hours per finance employee could be saved annually by using an integrated travel, expense, and invoice solution.
7. Bookkeeping Still Top of Mind. 25% of small businesses are still reliant on pen and paper to close their books, while 45% report not having an in-house bookkeeper. This, coupled with the fact that 40% of small businesses claim bookkeeping and taxes are the worst part of owning a business. (Note: Finally is helping SMBs with their least favorite part of running a business)
8. Card Spend Rising. Small business credit cards account for roughly $430 billion in spending — in other words $1 out of every $6 is spent through cards. This is growing over 10% per year.
9. The B2B Payment Opportunity in SMB. Small businesses in the US process $28 Trillion in B2B payments each year. (Note: Assuming a 1% take rate, this equates to $280 Billion of additional opportunity for Finally by monetizing B2B payments for small businesses)
10. SMB Payroll Opportunity. While roughly 60% of SMBs handle payrolls themselves, doing so “in-house” means 2X the probability of realizing an error. Further 29% of businesses use legacy payroll systems that are 10 years or older.
Jarvis, Talk to us About the AI Opportunity for Finally
It’s no secret or surprise — of all the business software segments one could target, accounting enjoys one of the most robust and straightforward paths to significant value creation through AI-enablement.
The global bookkeeping services market is expected to grow 10% per year from 2023 to 2030 with the US growing at an even faster clip. Overall, the accounting services space is expected to reach $1.5 trillion by 2032. And yet, it is anticipated that up to 75% of CPAs could retire in the next ten years and we suspect that this labor will largely be replaced with software and artificial intelligence, as opposed to more CPAs.
At Finally — our AI opportunity is even more clear given we are a “DIFM Automation” solution; meaning, our clients pay us to close their books for them (importantly, we are not asking our customers to adopt AI, we eat out own dogfood and use AI to close the books of our customers rapidly). With continued use of AI, what we are effectively able to do is drive down the effort and resource required to close our client’s books through modules such as AI expense classification. This module alone will increase our efficiency by ~10x over time, which drives up the gross margin we can deliver from our bookkeeping product. Combine this with the size and growth and importance of the bookkeeping space and you are looking at a very attractive opportunity for AI disruption!
Further, our all-in-one positioning, allows Finally strategic access to real time customer data, a statistically significant training data set (acquired over a ~10 year span) and a superior customer relationship — all of which enable Finally to close the books accurately, quickly and with a superior customer experience. Finally’s positioning as the one-stop shop for an SMB is critical to supporting the bookkeeping AI thesis and is an opportunity that very few vendors are able to attack given a lack of access to the key data streams required to rapidly close one’s books. If we are the bank, the bookkeeper and the payments provider — our 360-degree view of an SMB cannot be matched. Not only are we excited to continue growing our bookkeeping automation solution, but we really see today as the dawn of “bookkeeping 2.0” enabled by significantly more software, as well as AI.
Congratulations to the Finally team on the phenomenal progress. We could not be more excited to expand our partnership and scale to the next peak together.
