Coin toss term sheet-signings and AI in bookkeeping with Botkeeper’s Enrico Palmerino
Enrico Palmerino, founder and CEO of Botkeeper, created an AI solution to simplify bookkeeping for CPA firms, reducing the work of 2-3 accountants to 1.
While it’s tempting to pick the highest valuation in an investment round, Enrico finds that it’s better to select the partner that brings the most expertise and insight to the company.
Enrico believes the next big idea can come from what current users are doing with the platform. Idea-sharing between firms can propel innovation in the industry.
Enrico Palmerino knows the pool of accounting talent is shrinking, and he’s using bots to fill the gaps.
After a successful exit from the company he built in his college dorm room, ThinkLite, he realized the struggles a startup can have with accounting when on a fast growth trajectory.
“I'd started a business in college that grew fast and we had accounting challenges. And while there was a nice exit, it was still one of those that was the thorn that I was going to go solve. I think [for] most entrepreneurs, you solve the problem you had at your last venture,” Enrico explains.
With his latest venture, Botkeeper, Enrico is alleviating some of the grind of bookkeeping by allowing AI to take the wheel where possible.
“From an efficiency or performance standpoint, we're at least giving you a 30% cost reduction. Arguably, we're trying to get you to a point where one of your accountants is doing the work of two or three. So the payback, the ROI, is really high,” Enrico says.
Enrico shares his journey with selecting the right investors, challenging the accounting industry to be better, and what’s next for Botkeeper with Karbon CEO and podcast host Stuart McLeod on an episode of the Accounting Leaders Podcast.
Closing the gap between supply and demand
It’s no secret that the accounting industry is facing a talent shortage. According to the AICPA, 75% of CPAs are set to retire in the next 15 years. Meanwhile, fewer students choose accounting as their career path in school.
To compound the upcoming shortage of CPAs, there are more businesses needing accounting services than ever. This creates a real supply/ demand gap between businesses and accountants.
Enrico saw this gap and felt it himself in his own business ventures. After his exit with Thinklite, Enrico worked with a husband-wife accounting team to grow their practice. He found that there was plenty of business to be had, but too much of a backlog to properly onboard new clients, with waitlists sometimes exceeding three months.
He developed Botkeeper to relieve both the onboarding tension and allow accounting firms to spend more time on higher-level services instead of bookkeeping. Botkeeper’s smooth onboarding process makes it easy to bring on new clients without the headache.
“We allow you to literally just stamp out clients. You sign a new client? Cool. Drop them into the onboarding tool, and it onboards, grabbing a bunch of info. You fill in the gaps and then the next thing you know, the company's books are being done,” Enrico says on the podcast.
Finding the right investors
Botkeeper’s clear product-market fit has been reinforced by its many eager investors. Enrico has been highly successful in raising capital, with $90 million total raised to date. However, Enrico says, it’s important to not just look at the dollar signs of a valuation, but to consider what an investor brings to your team.”
“For all of our rounds, the partner that we chose did not have the highest valuation, which just tells you that you're trading the right partner over a higher valuation. I wish more firms and more founders realized how important that is. A little higher valuation doesn't actually move the deal at the end of the day,” Enrico says.
In Botkeeper’s seed round, Enrico and his board joined forces with Ignition Partners. The VC group’s managing partner, Nick Sturiale, served on the board of Bill.com. Enrico knew the expertise Nick would bring to Botkeeper would be invaluable, and far more beneficial than the extra capital that would’ve come with selecting the highest bidder.
The kickoff coin toss
Even when an investment partnership feels like a perfect match, there’s always an element of risk. So, what better place to sign a term sheet, than at an NFL game? Enrico recalls the poetic way he officially signed-on with his seed investor.
A huge Tom Brady fan, the investor flew out to Boston for a Patriots game.
“I signed my term sheet on his back at the coin toss of the Patriots game in Foxboro Stadium.”
While it was a cheeky way to talk about startup investing, Botkeeper means business when it comes to funding rounds. It recently closed a $42 million Series C round in November 2021. Throughout its investment rounds, Enrico and his team have looked at each potential partner as someone who can provide expertise and experience, not just a bigger valuation.
Leveling up the accounting industry
In their conversation, Stuart and Enrico both express frustration with where fintech and the banking industry stand today. The slog of fetching statements or reminding clients to provide documentation is time that could be better-spent elsewhere.
Enrico feels that a collaborative solution from the accounting side would be the best way to push banking and fintech forward.
“Our vision was to enable the industry, not disrupt it. Disruption usually means you throw it into a little bit of chaos, and there's a winner and a loser,” Enrico says.
Despite the frustrations from time-to-time, Enrico finds a great sense of support, community, and innovation in the accounting industry. He discovered that one of the firms using Botkeeper had built new functionalities to suit their needs, and they were willing to share what they’d done.
“They've literally turned the Botkeeper platform into their internet. They've got all these links and different applications. They've got embedded widgets set up in it. And they've got their company page and news there,” says Enrico.
“It was a proud moment, where they were using it in a way I'd never imagined but it makes total sense. I would relate it to eBay when people started selling cars. No one expected eBay to be an auto dealer. That kind of stuff is super cool.”
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Growth in revenue—not staff
Growth hasn’t been hard to come by for Botkeeper. In January 2022, the company saw a 9.5x revenue YOY increase, and the following months are on-pace to (at least) double. But with 350 employees scattered between the U.S. and the Philippines, Enrico doesn’t see much growth in seats in Botkeeper’s future.
“I think what you'll see is our headcount stays relatively flat over the years, or grows by a smaller and smaller percentage. That’s because we're seeing the AI start to take much higher percentages of the processing. For perspective, we 4.5x’d the number of firms on our platform last year, but headcount grew 30%. Play that trend out a few more times and it looks like a flat line,” Enrico explains.
Flat employee growth doesn’t mean big changes aren’t on the horizon for Botkeeper. The accounting side of Botkeeper has been on the market for three years. But on April 16, 2022, Botkeeper plans to release its next big advancement—its very own operating system: ‘BOS’ (Botkeeper Operating System).
Whatever BOS looks like, it’s sure to delight Botkeeper’s growing customer base and push accounting into a more tech-fluid future.