General Catalyst — the storied venture capital firm that's undergoing a transformation into a broader and more ambitious financial company — is making its latest play to use AI to transform a legacy business: This time targeting accounting.
General Catalyst has put $65 million behind Accrual, a startup making artificial intelligence software for accounting. The cash influx is part of two funding rounds totaling $75 million for the startup, which was incubated by General Catalyst and is coming out of stealth this week.
Other investors in the company include Pruven Capital and Edward Jones Ventures. High-profile angel investors like Patrick Collison and John Collison of Stripe Inc., and Henrique Dubugras and Pedro Franceschi of Brex, have also signed on.
Accrual is part of General Catalyst's $1.5 billion Creation fund, which focuses on startups building AI tools for industries that are not typically first adopters of new technology — such as legal, accounting and call center businesses. General Catalyst then often helps these startups acquire more traditional companies in order to grow.
The working theory is that once regular businesses incorporate AI tools, their productivity will accelerate.
"We had this thesis three years ago around applied AI, and it manifested in two ways," said Marc Bhargava, a managing director at General Catalyst who leads the Creation fund. The first way is that the fund's team would incubate and help guide a startup in a specific industry, and help it grow organically. The second is that the new startup would buy other existing businesses in order to jumpstart customer acquisition and reach.
For Accrual, General Catalyst brought on former Brex and Stripe leaders, Cosmin Nicolaescu and Siddarth Chandrasekaran, as founders of the new startup. The pitch was that as AI improves, the technology will unlock "all kinds of advanced accounting workflows," Bhargava said.
"We got pretty enamored with the idea of being able to help accountants and as a result of that, helping the end clients have much more impact on how they actually use their dollars and maximizing the impact of the dollar," Nicolaescu said.
Accrual works with firms like H&R Block Inc., Armanino and Creative Planning, and at the moment is focused on individual tax returns. The company plans to expand into other areas like business taxes, auditing and advisory services in the future.
As part of the General Catalyst Creation fund, Accrual may also use some of the funding to acquire other businesses. While that's not the plan at the moment, it's an option Accrual may explore, Nicolaescu said.
General Catalyst will also stay closely involved as the company grows. The Creation fund's strategy is to lead the first two funding rounds, and at the third round bring in other investors.
"We're minority owners in these businesses that we incubate," Bhargava said. "We have 100% trust in the founders and it's up to them to come up with a strategy."
