How the “AI software” company ScaleFactor failed and lost $100M in a year

ScaleFactor has shut down. ScaleFactor was one of the hottest startups that claimed to replace companies’ teams of accountants and bookkeepers with AI-automated software. “Because evenings are for family, not finances” was their motto.

But instead of having a working software product, ScaleFactor was actually just a glorified bookkeeping firm that hired accountants and bookkeepers and outsourced work to accounting firms in the Philippines. They promised customers that they would receive real-time data about how their business was doing. In reality, customers only received monthly financial statements (which is what you usually get in Xero & Quickbooks) but with a ton of errors.

Customers of ScaleFactor later learnt that they would get billed double for certain expenses that they had already paid for. Income and expense transactions would be categorised wrongly. Their once clean books would now be messy and in complete disarray. Forbes interviewed one of ScaleFactor’s customers, Reinders, who said “We had really good, clear, clean books when we hired them”.

Instead of helping Reinders’ eCommerce company, ScaleFactor ended up crediting $17,000 to one of her eCommerce customers by accident. Worse, that mistake was only realised 6 months after so she couldn’t get back the $17,000 that was incorrectly given to her eCommerce customer. Her contract with ScaleFactor ended up costing her much more than her payments to the company for their “AI accounting software”.

Their CEO Rathmann, had started the company after working as an auditor in KPMG and saw the need for technology to replace the messiness of accounting. But Rathmann isn’t a software engineer or AI researcher and didn’t understand how technology works. Instead, he lied to investors, customers & employees and wasted millions of venture capital funds.

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