The United States is facing a shortage of accountants. According to the American Institute of Certified Public Accountants, fewer candidates will take the CPA exam for the first time in 2022 than in 2006. One possible reason people are less interested in the field is that it involves a lot of tedious work: accountants must comb through large amounts of unstructured data to conduct audits or simply find answers to questions.
Kevin Merlini, co-founder and CEO of Materia, left the industry for that very reason and is now working to ease the burden for other accountants.
Materia integrates with accounting firms' existing workflow software and applications like Microsoft Excel and Teams, helping to break down the silos that exist in accounting firms' mountains of unstructured data. This allows it to automate and enhance the mundane and tedious parts of audits, allowing accountants to focus on high-risk areas that need special attention. It also gives accountants an easy way to search company data and documents to get answers. The company uses generative AI platforms such as OpenAI to process information from company documents.
“Accounting professional services is an interesting space because it's largely overlooked and underserved, so there's a really compelling story to be told,” Merlini told TechCrunch. “And there's a lot of pressure on firms to improve efficiency. There's a lot of PE buyouts. There are a lot of forces driving firms to invest in efficiency and quality.”
The company emerged from stealth with $6.3 million in funding led by Spark Capital, with participation from Haystack Ventures, Thomson Reuters Ventures, Exponent Capital and the Allen Institute for AI. Merlini said the company now has five top 100 to top 15 U.S. accounting firms as clients, some of which have deployed Materia across their audit groups.
But Merlini's path to starting Materia was not an easy one. Although he studied accounting and earned a master's degree, he only worked as an auditor at KPMG for around four months.
“When you study accounting, it's actually really interesting,” Merlini says. “You're figuring out how to condense all the complicated events that happen over the course of a year into numbers that you can compare across companies. But when you become an auditor and work for one of the Big Four, [accounting firm]there are many more hardships.”
Although he saw problems in the industry at the time, he had worked in the technology industry for eight years before starting Materia. Merlini was a product manager at Amazon for over six years and most recently at Meta, where he worked on large-scale language models and how these models classify journalism.
However, Merlini always wanted to be a founder, and the troubles he felt during his short career as an accountant never went away. He left Meta in 2022 and started thinking about what he wanted to create. Witnessing the advances in AI, he realized that it could actually solve problems that existed in the accounting industry, which is why he came up with Materia.
“It was clear to me that large-scale language models were a major paradigm shift in what was possible,” says Merlini. “I had quite a few friends from college who worked in accounting services, so I already had a network there, so I started looking into it: What were the big pain points and where were the gaps in current solutions?”
Merlini and co-founder Lucas Adams launched the company at the Allen Institute for AI in the summer of 2022. When ChatGPT began rolling out later that year, they were able to ride the wave of the AI boom.
The company takes security and accuracy very seriously, Merlini says. It has contracts with OpenAI and other AI companies to limit LLM's ability to learn from questions posed by Materia's customers. Materia also clearly identifies where all information comes from, so whether the information shows up in an audit or as a response to an accountant's questions, someone can always double-check that the information is correct.
The startup has so far offered its white-glove services to a select group of companies because Materia has operated in secrecy. Merlini said the company plans to target the top 200 accounting firms in the U.S. to begin with, before moving downstream in the future.
“This opportunity is very exciting not only for us as a company, but also for our professionals,” Merlini said. “One of the reasons for the talent shortage is [in accounting] “The problem is high turnover. Until recently, this automation wasn't practical or possible. We're excited to get started.”