Accounting for online retailers is broken: Why we invested in Finaloop

Commerce Ventures
4 min readJun 17, 2024

Our market point-of-view

Existing accounting and finance software is not well suited to solve the challenges of online retailers and brands. These retailers take in hundreds (or thousands) of orders per day and face a difficult choice — do they place every order inside of their general ledgers, or batch them to create their financial statements? Neither option works well — leaving retailers and brands with issues that are still not resolved if they “upgrade” to an enterprise-level ERP/accounting system like Netsuite.

Our partner, Matt Nichols, faced this specific challenge as the CFO of a fast-growing ecommerce business (along with Liz — our Controller at Commerce Ventures who was Matt’s controller at this startup). He nearly signed a $250K+ contract to upgrade from Quickbooks to Netsuite before realizing that the costs and 6–12 month implementation cycle would be both painful, and unlikely to solve the core issues they were facing as a finance team.

This challenge has been at the core of our investment thesis and it is why we are so excited about our investment in Finaloop.

The problem statement

Accounting platforms simply don’t work well for online retailers and brands. As a result, CFOs, finance teams, and accountants are forced into difficult tradeoffs and expensive workarounds to address these specific issues:

  • Revenue recognition is challenging: Revenue must be recognized upon shipment, not order date, making it difficult for merchants that batch incoming orders
  • Order level profitability is almost impossible to calculate: Most merchants have batched COGS (such as large shipments of merchandise, shared fulfillment costs, etc.) which are difficult to associate with specific orders. As a result, product and category-level profitability reporting is either delayed or non-existent.
  • Multiple payment methods further complicate accounting: The proliferation of payment styles (with sometimes limited transaction-level detail) make it difficult to line up cash/payments with specific orders.
  • Accounting/Financial statements are far from real time: As a result of the above issues, cash flow analyses and a true understanding of profitability can take 30–45 days to complete.

Three approaches to solving the problem:

There are a few approaches to try to tackle this problem — but all have largely the same goal. They hope to make the creation of financial accounting easier, more retail time, and more useful to guide decisions by retailers and brands.

  1. Rip and replace the general ledger: Startups taking this approach aim to replace platforms like Quickbooks or Netsuite with an e-commerce specific general ledger/accounting platform. Example: Fulfill
  2. Improve operational systems to minimize data gaps: This approach focuses on improved operational systems — like smart processing of inventory orders placed from factories to better associate costs with specific orders. Example: GoodDay
  3. Replace the accountant: These startups fully automate (and replace) the accountants by creating connectors to the most prevalent ecommerce platforms and by utilizing AI to deliver financial reporting. Example: Finaloop

Who is Finaloop and why did we invest?

Finalop delivers AI-powered accounting and bookeeping services for retailers and brands. The company has created connectors to the majority of ecommerce platforms, financial accounting platforms, payment providers, banks, and ad networks. It utilizes these connections to extract the relevant information required for its AI engine to generate financial reports that would mimic what brands get from accounting firms.

We invested in Finaloop for four key reasons:

  1. Minimal go-to-market friction: Finaloop does not try to convince a brand/retailer that they should utilize AI to close their books. Instead, they compete directly with accountants — delivering a lower-cost and more real time replacement for accounting services provided by traditional account firms.
  2. Margins prove that the AI works: The margins achieved by Finaloop indicate that the AI is delivering on the efficiency gains necessary to offer this service profitably, even at prices lower than what customers are paying their accountants today.
  3. $15B market size: There are 3M online sellers that typically pay $5K per year for accounting services. This represents a $15B TAM that is directly addressable by Finaloop.
  4. Incredible team: Lioran Pinchevski (Finaloop CEO) was the youngest tax partner at PWC and founded a D2C retailer that generated 7 figures in revenue. Those two experiences together made for the perfect founder/market fit.

How We Discovered Finaloop

A big thank you to Justin at Lightspeed for connecting us with the team. Investing in startups is so much about relationships. In the case of Finaloop, we were introduced by our friends at Lightspeed Venture Partners who focus on FinTech investments. Specifically, our partner Dan Rosen has known Justin Overdorff for over a decade, tracing back to his days in business development at Yelp and through his time leading investments at Stripe — Justin even attended some of our very first Commerce Summits.

Collaborating with smart investors and operators is at the core of how we have built Commerce Ventures, so we were so honored when Justin and Tal invited us to learn about the Finaloop and the round they were leading…especially given our very recent thesis work in exactly this space. We are so grateful for the opportunity!



Commerce Ventures

Early-stage venture capital firm investing in technology innovators in the retail and financial services eco-systems.