The demise earlier this month of Botkeeper, an accounting automation and outsourcing solutions platform (
Over the first weekend in February, Botkeeper's founder and CEO Enrico Palmerino
Jody Padar, who worked for the company from 2018 to 2023 as vice president of partner development and strategy, compared it to an accounting firm whose client base comes mainly from a small number of large businesses; if even some of these businesses merge with others who have their own CPA firm, this could be a troubling sign for the firm's future prospects.
"You had all these firms who were combining. If this firm buys that firm and they get combined — this is not just a Botkeeper problem, but a technology in the accounting space as a whole problem — who is the surviving technology? You won't have seven different ways to do something. If you're smart, you'll say this is the one way we're doing it and we'll put everyone on that one process," she said.
Randy Johnston, founder of accounting tech advisory Network Management Group Inc., also cited the consolidation effect, though he noted that the pricing model Botkeeper used could have played a role as well. Like many vendors, Botkeeper used a flat-rate subscription model, which meant that the money it made was limited by the number of firms it could service.
"There was consolidation in effect," Johnston said. "If you think about the number of acquisition mergers that have occurred, and the consolidation across the top tiers in particular, if you're doing a flat-rate subscription instead of a volume-based subscription, you will lose when it comes to mergers. There's fewer firms. Therefore if you had $500 a firm and you had, I don't know, 2,000 firms and then suddenly you only have 1,000 firms, your dollars are radically different, whereas if you did volume-based pricing, you put it all together and the volumes should be about the same."
Botkeeper is just one example: Johnston felt similar companies would experience similar challenges as the years go on. The issue is less a matter of quality or competence and more about simple math. There are only so many CPA firms and they only have so much budget for so many software solutions at any given time. This is why he felt the trend would soon go toward volume-based pricing where people pay more for a product the more they use it.
"There's 60-plus practice management products out there, 90-plus portals, and in the U.S. market [there are] 45,000 firms. So you don't have to do much math to say, 'OK, how much market share can any one company get?' Because if we take that 45,000 number and do a simple divide by 90 [portals], that is a market share of 500 apiece. So there are going to be some winners and some losers … You have a hard time, really, making profit if you have fewer customers," he said.
Blake Oliver, head of accounting education podcast platform Earmark, also pointed out that Botkeeper suffered from having tech industry expectations on a service industry model. While the company often put its tech aspect front and center, Oliver noted that Botkeeper also ran as an outsourced services provider using accountants in the Philippines, something that the company generally did not call that much attention to as it promoted itself as a technology company. Oliver said there is nothing wrong with being an outsourced services provider, but the problem is that when you present yourself primarily as a tech company, investors will come in with different expectations.
"The problem Botkeeper had was that it was an offshoring outsource company positioning itself as a tech company. … The reason these companies failed was because, ultimately, the unit economics don't make sense. They are unable to deliver the margins they need in order to get the growth rates investors expect with a tech company. You just can't do that with service businesses," he said.
In a pure tech company, he said, people expect extremely high gross margins, sometimes as high as 80 or 90%. In a service business, he said, 60% is great but typically they are around 40%.
"And in terms of growth rates, venture capitalists expect tech companies, software businesses, to double or triple every year, and that is difficult for a service business, once it is no longer very small, to get more than 20-40% growth annually," he said.
Matters of timing
Another issue was — ironically for a company seeking to disrupt accounting — technological disruption. Botkeeper was founded before generative AI swept into the mainstream in the early 2020s, relying instead on machine learning algorithms for its automation capacities. At that time, Botkeeper was suddenly faced with a flood of new rivals in the market whose products were built on generative and, later, agentic AI models. The company that had been positioning itself as an innovator now needed to catch up.
Ellen Choi, CEO of AI-focused accounting consultancy Edgefield Group, noted that being too early can be fatal.
"Botkeeper was early — 2015, before most people were talking about AI in accounting. Being early gave them attention but also meant they built before AI was truly ready. Timing is everything — being too early or too late will lead many startups to death," she said.
These factors, in turn, affected the company's ability to get new funding. While it had raised almost $100 million, Padar noted that much of that was raised prior to generative AI breaking onto the scene. By that time, she said, much of that money had already been spent.
"AI got to a certain stage, but at that point you don't have money. That $100 million was already gone," she said.
Padar noted that unlike many CPA firms, Botkeeper was powered primarily with venture capital, which comes with certain strings. A CPA firm, she said, will usually have a specific amount of cash that it will draw upon to run the business and make investments. This has led some observers in the accounting world to wonder how Botkeeper could have had $100 million and still shut down. But she noted that Botkeeper was not an accounting firm and so it had a different set of economic pressures.
When a venture capital fund invests in a company, it usually does not just give the company a big pile of money to do with as it wishes. It will usually condition the money on enacting certain spending patterns and meeting specific targets. While the founders might want to hang onto the cash, they are often required to spend it, and fast. And Padar noted that with Botkeeper in particular, there were some very aggressive goals that came with the funding, which meant spending on things like sales and marketing at levels most CPA firms would never consider;.
"Firm owners are comparing their own business to a VC-backed startup, and that is [not] the nature of what they were doing. That was the whole point: to innovate and see if they could change things, not get $100 million, then spend $5 million to get referrals," she said.
"Ask me what CPA firm is reinvesting all their profits into technology when they're only that size. Botkeeper got $100 million, [but] they were never making $100 million," she later added.
Choi noted that this is more common than people outside the startup tech world and Silicon Valley may think.
"It can happen for many reasons," she said. "Usually it's because they raised in a hot market, were looking for product-market fit and didn't find it. So it became a really expensive experiment. Or they had revenues but were unprofitable and counting on a fundraise that fell through. They were probably spending significantly on both sales and marketing and R&D (Palmerino
Johnston agreed that venture capital funds will often require very rapid cash burn, but added that investor relations should be more of a back and forth.
"My position on that is when dealing with an investing partner, the management team is responsible to push back on irrational expenditures. A lot of times they make big asks but they ought to have [reasonable] targets for various expenditures like sales and marketing and R&D. … Botkeeper probably made commitments to spend in different categories and the VC expected them to burn it that way. A problem, potentially, is when the market changes you can't respond to the market," he said.
Oliver pointed out that this plays into the aforementioned technological disruption. Developing technology can be very expensive, and if the investors demand a high pace of spending in other areas, it might make it more difficult to respond to sudden changes.
"The other possibility is simply that they were spending this money, investing in building the tech, and just never got there. And I can see why: Building AI and ML tech is very expensive. Many companies failed before OpenAI and Anthropic figured it out, so perhaps that is where the money went," he said, though he added he would not be surprised if there were other governance issues at play that amplified the problem.
Not entirely a surprise
While the shutdown may have seemed abrupt, Choi noted there were some troubling signs — namely, the company had gone some time without a successful fundraising round, with its most recent one having been in November 2021.
"Four years without raising in an era when AI companies were raising constantly ... that means you're either profitable or in a precarious capital situation. The suddenness was partly manufactured. Many tech companies fold seemingly overnight, but internally they've been trying to dig themselves out of a hole for a long time. It's just that the public doesn't see it," she said.
Regardless of just how sudden it was, there are firms that had been relying on Botkeeper before its sudden shutdown. This is not the first time firms have faced such a situation, nor will it be the last. Johnston said that firms faced with the sudden loss of a software platform at a critical time should have already prepared backup options. If they didn't, they should instead prepare for some difficulty.
"This is an old playbook I used for over a decade: No matter what platform you're on, you always have your second and third options in reserve, so every year you evaluate your alts and, when something dies, you go to your second or third reserve immediately," he said. "People try to use these platforms without a backup, but you always need somewhere to go. If Microsoft fails, you better have Google as your backup, and if you use Google you better have Microsoft as your backup. If they didn't have this planned out, they would need to do a lot of rapid evaluation, which is just poor operational planning."
