Why Genial Technology Can Transform Auditing
日本語／English
Hello everyone! My name is Aya, an associate at Incubate Fund.
For this article I am excited to write about Genial Technology (“Genial”), a startup that we had the privilege of investing in last August.
Genial is a startup that specializes in the field of auditing, a rarity both in Japan and abroad. With the industry’s strict regulations and intolerance for error, at first glance it may not seem like the most optimal space for a startup. I imagine that few VCs have seriously considered auditing as part of their investment thesis.
I had the opportunity to join the team in a 6 month secondment arrangement, during which time my conviction in Genial grew. While I can’t deny that I have some bias, I hope this article gives you an insight into Genial’s potential.
A Solid Market with an Urgent Need for Innovation
The shortage of accountants in Japan is becoming a serious problem.
As shown in the chart above, the number of companies listed on the 1st Section of the Tokyo Stock Exchange (now restructured as the TSE Prime market) has increased by 30% from 2011 to 2021. With the recent emphasis on compliance and transparency, the scope of audit services has expanded to include non-financial information such as environmental and human capital disclosures.
On the other hand, the number of accountants is not keeping pace. The number of people who passed the CPA exam in 2021 was 1,360 — just ⅓ of the peak number. Accountants often have to manually review thousands of transactions across a large volume of paper documents and electronic files. The heavy workload and long hours lead to a very high turnover rate — 50% of accountants leave their jobs within 7 years.
In order to meet increased demand while protecting accountants’ hours and ensuring quality of service, the industry has begun to recognize the importance of improving efficiency in the workplace. In fact, the Big 4 accounting firms have announced plans to invest more than $9bn in AI and data analytics products. Leveraging technology in auditing is emerging as a top priority.
In terms of market size, according to the International Accounting Bulletin, the total global revenue of the top 10 auditing firms was $70.3bn in 2020 and $73.5bn in 2021.
In Japan alone, external audit fees amount to approximately JPY 300bn (total revenue exceeds JPY 700bn). Even if limited to vouching*, which is Genial’s target business, the addressable market size is about JPY 140bn. Once Genial’s capabilities extend to self-auditing procedures in accounting, back-office, and operational departments of corporations, the company could capture additional market share in the JPY 260bn domestic RPA industry.
The Potential to Become a Major Player
Genial has the potential to become a major player in this industry, first by developing a tool to automate “vouching*”, the most time-consuming task in the audit process.
Vouching is a procedure in which the auditor selects a sample of dozens to thousands of similar transactions and checks the dates, counterparties, product names, amounts, etc. of these transactions against supporting documentation.
Currently this is done primarily by the accountant’s visual inspection of a large number of paper documents and electronic files, and takes up about half of their time. Genial will start with this painstaking part of the process, which in turn will have the greatest impact.
In addition to Genial, three other automated vouching tools have been identified for use in Japan. Two of them are in-house tools developed by major auditing firms, but still have room for improvement in versatility and accuracy. The other is a tool developed by an overseas startup, but it is incompatible with Japanese documents and rarely used for vouching.
Against this backdrop, Genial aims to develop a product that can better serve customers. They have obtained patents for core technologies and are implementing measures to optimize accuracy. In addition, detailed settings for matching Japanese documents have already been implemented.
Another major advantage of Genial is that, unlike the in-house tools mentioned above, they can offer their products to any auditing firm as a neutral third party. Genial has been able to work closely with several firms in the development of their product, and aims to provide a wide range of high-quality tools to all players in the entire industry.
Genial’s strength lies in its founder and CEO Aki Abekawa. He worked for 7.5 years at PwC Arata LLC and other firms before earning an MBA from Carnegie Mellon University and founding Genial in Silicon Valley. Abekawa-san had dreamed of becoming an entrepreneur since middle school and came up with his business idea while studying computer science in his MBA program. He is unique, not only as an accountant-turned-entrepreneur, but also as a Japanese founder who can write code.
It was not smooth sailing for Genial from the beginning. Due to the change in the U.S. administration, which made it difficult to continue working in the country as a foreign founder, and COVID-19, which put sales promotion activities on hold, the company relocated from the U.S. to Japan. Through it all, Abekawa-san overcame various hurdles, including two CTO changes and a major product pivot. It has been five years since he started his company, but Abekawa-san has never lost sight of his goal. I am confident that by leveraging his deep domain expertise and engineering skills, he will become a leader in innovating the auditing industry.
Innovative Work Environment with a Diverse Team
As I mentioned at the beginning of this article, I was seconded to Genial for six months until February this year. I had asked for the opportunity mainly because, as an aspiring seed stage VC, I felt I needed to gain first-hand experience and a better understanding of what entrepreneurs go through on a daily basis.
I’ll spare you the details of what I did, but as Genial was a team of only four people at the time, I was able to cover a fairly wide range of responsibilities, including:
- Conducting expert interviews to develop use cases
- Sales support
- Preparing collaboration / partnership proposals and conducting business negotiations
- Planning and executing SEO / digital marketing strategies
- Improving client onboarding experience
- Developing post-launch business plan
- Exploring financing options including applying for and obtaining grants, etc. ….
It would take a whole article to write about all of the lessons learned during my secondment, but the most important thing I learned was to stop overthinking and just try. One of the pitfalls for people like me who come from consulting or banking is that we tend to overemphasize doing things in a logical and efficient way from the start. But even if an idea looks good on paper, in the end there is no way to know until you actually make a sales pitch or get feedback from a potential customer. Often the quickest way to arrive at the right answer is to just get out there and try things out in an agile way.
I also became more convinced of Genial’s potential. Talking to accounting firms, I understood not only the need, but also the importance of having an industry insider as a founder to gain client trust.
I can only thank Abekawa-san and members of Genial for welcoming such an inexperienced person like myself into their team. Finally, I would like to close with my perspective on why Genial is a fantastic team to be a part of.
Fully Remote with Flexible Working Hours
Genial gives its team members more freedom than most other workplaces in Japan. They are fully remote, with employees living anywhere from Hiroshima to Chiba. Employees are also allowed to set their own hours.
To that end, Genial has a system in place to ensure that members are able to focus on the company’s mission and work closely together through daily team meetings, weekly company-wide meetings, and ad-hoc huddles. Face-to-face gatherings are held once a quarter, which helps create a strong sense of togetherness.
Diverse Team Members
Currently, Genial is a team of nine people including one corporate staff member and seven engineers, all of whom come from different backgrounds. Some have been engineers straight out of college, while others have worked as salespeople, artists, and even detectives (!). Genial has an open and collaborative environment that welcomes diverse perspectives, and everyone has something to bring to the table.
Abekawa-san
Abekawa-san’s presence as a leader is unparallelled. His integrity, authenticity, open-mindedness and endless curiosity are a driving force in the organization. I had the opportunity to work closely with him during my secondment period, and know that it was because of his guidance and receptiveness that I was able to try different things through trial and error and deepen my understanding of his vision.
