Steve Stagner on Building Crete's $500 Million AI Roll-up to Modernize Accounting

Crete bets $500m that AI can modernize accounting firms

Crete is building a national accounting platform by buying US firms and using AI to make their existing software more productive. The bet is that AI amplifies accountants rather than replacing them, and that firms facing a talent shortage and a steep technology curve would rather join a platform than climb it alone. Backed by Thrive and Bessemer, Crete plans to deploy over $500m in two years.

Takeaways

• Crete buys accounting firms and AI-boosts their tools. Crete makes the software firms already use more productive rather than building agents to do everything. Early tests show 30 to 50% time savings on trial balance normalisation and 25 to 30% on audit testing.
• Acquired firms keep their brand and get equity. Firms keep their culture and name. They take distributions from their own firm and gain liquidity at a premium multiple. They receive playbooks rather than rule books, choosing what to adopt, with a dedicated integration team behind them.
• Roll-ups are back on talent shortage and tech. Stagner points to a shortage of accountants and a steep technology learning curve. Private equity's entry into the sector is also driving the roll-up wave. Building scale alone is slow, which is why firms sell to a platform.
• AI predicts from data and cannot sign off. Stagner says AI does not invent anything, it predicts from the data it has. You could not yet rely on it to sign off on an audit or a tax return.
• Thrive and OpenAI engineers back Crete. Crete is backed by Thrive Capital, an investor of over $1bn in OpenAI, along with Bessemer Venture Partners. Five OpenAI engineers, whom Stagner calls the Fab Five, work with Crete on the build.
• Financials lag client and employee success. Stagner treats financials as a lagging indicator. He tracks client success, employee success, firm success and the financials that follow, and cites research that 77% of clients want a wider suite of services and 80% would switch for best-in-class technology.
• Mattress Firm taught him process before technology. His $12m Microsoft Dynamics rollout, signed with Steve Ballmer, stumbled on training rather than software. He credits $10m a year and 200 hours per employee in learning and development for a 30% higher store average than acquired chains.

Stagner's career before Crete

1. At 24 he became a Mattress Firm franchisee with $1,300 in one store, doing the accounting and advertising himself.
2. He built it into a $60m business and sold to corporate when private equity arrived, becoming CEO.
3. He grew the chain from 200 to almost 3,000 stores, taking it public with 10,000 employees and $3.8bn in sales.