AI and How it Impacts Investments in Accounting with Rohit Chande

Rohit Chande: Foreign.

Dominic Piscopo: A major thesis of PE investing in accounting firms that we cover in this episode is optimizing firm workflows that might be through deeper AI implementations or even locking in workflows that make sense for the firm. And whether you're taking on capital or not, having a practice management software like Canopy is a great place to start. So I'm excited to welcome Canopy back as a sponsor for this episode of the pod. Canopy is the practice management suite you need to streamline your firm's automation. Check them out at the link in the podcast description. Now back to the episode. Hello and welcome to the Big four Transparency podcast. I'm joined today by Rohit Chande, the CEO and co founder at uh Count. Welcome to the pod, Rohit.

Rohit Chande: Thanks, Dominic. It's a pleasure to be here.

Dominic Piscopo: Yeah, my pleasure. We've, we've spoken a number of times. I think I initially met um, uh, Tony, Tony Cord at, I, um, want to say it was PE Summit last year, who, I guess at the time, you know, you guys have either had or were just about to close on your first acquisition in the accounting space, um, which intros us a little bit into what Count does. So you are, you are acquiring some firms. But, um, and maybe to kick us off, would you like to talk a little bit about what makes uh, what makes Count unique?

Rohit Chande: Absolutely. Um, so Dominic, given the background that I have, professional background that I have, I've realized that uh, for professional services to be successful, it requires a little bit of a different strategy than your traditional flip in three to four years. Um, and so the way we like to think about our strategy is we have a long term capital structure which allows us to make investments in, uh, people in growth, in technology. Uh, and to us that is really important because we really want to fully transform the firms that we are acquiring and future proof them, not just invest and flip as a financial engineering exercise. So to that effect we are willing to uh, take some short term, um, margin compression because of the investments that we are making, because we are confident that in the longer run we will be outpacing both in terms of growth and performance than any other firm that is, uh, competing with us. And so that's really the overarching strategy that we are following.

Dominic Piscopo: Yeah, and actually since we had our initial conversation, I will say my own personal experience and impression of AI and how it's changing things has evolved quite significantly. Uh, probably within a week or so of this going live, I will have updated the entire tech stack of Big four transparency. Both the client facing, uh, as well as kind of the front facing website that all the accounting professionals use. And I did that all with Claude code, having moved from the previous generation of sort of no code tools. And it's, it's the first time that I was truly blown away by AI and where I sort of realized okay, this is, this is very much for real. And I'm happy that happened right before Firm Growth Forum because there's a lot of AI vendors there that I was always sort of like, like uh, ah, you know, big promises, whatever, uh, that I, I took more interest into than I would have otherwise and, and sort of took it a lot more seriously. And I, I am starting to see that the, the capabilities are now actually here because about a year ago there were a lot of promises and claims and it was sort of, it seemed like very situationally it was possible to do the things that they were talking about, but not across the board. And, and so my own personal thesis and stance on all of this has evolved quite significantly. Um, and so with starting Count, was that sort of one of the opportunities that made you realize that, that there's a great opportunity in accounting or was it kind of more your background which you alluded to, but you had been a director at CGI for 12 years uh, before, you know, a bunch of different kind of board, uh, seats and involvement in other, you know, large scale companies. But um, yeah. What, what sort of drove you to decide, you know, I think I want to do accounting here?

Rohit Chande: Yeah, that's a great question. So you know, it's as uh, you are aware, I've spent the last 14 or so years uh, in building firms as part of your traditional private equity build and buy strategy or uh, buy and build strategy. Uh, one of the things that I really appreciated about what I learned as part of that was um, the importance of post merger integration. Importance of building common cultures, getting the growth infrastructure in place so you are able to sustain the uh, performance over the long run. But also what was unique about our thesis across all of my career has been the tech enablement of service businesses, right? And so I had seen the impact technology is having on all sorts of service businesses. And so when I decided to focus uh, on Count, really the thesis was very simple. I wanted to get back to my roots in professional services. Accounting and financial services was uh, a very attractive sector, uh, particularly because of, you know, the succession planning issues, labor shortages, the how highly fragmented the industry is, all the traditional reasons why you would attract external capital. But we were convinced, and this is even before ChatGPT was the thing we were convinced that artificial intelligence was going to be an X factor in allowing us to accelerate our strategy in a very unique and differentiated way. And so when I co founded count, my technical co founders were PhDs in AI, uh, who had built successful AI businesses and had successful exits. And so that really was the genesis of the uh, COUNT strategy. Um, you know, as you are aware Dominic, we tend to focus on firms that are bit different. Right. We are looking for firms that are growth oriented, uh, that are convinced about the use of technologies, the way to not only sustain but also thrive in the future and are also receptive to other ideas in terms of how to grow and scale the businesses. Right. And so that makes us unique in terms of uh, the types of firms that we are looking for, the investments that we make, how we make those investments, et cetera.

Dominic Piscopo: Yeah, yeah. Well, so it's interesting to see that you know, some of the co founding was done alongside some sort of AI, uh, native professionals, which I think that's really interesting. And when we were talking about the model of count, right, like every one of these private equity or family office investors, they kind of go in with like a thesis of what they want to do and uh, you know, have this sort of shared services model where they can provide support to the teams. And one of the things you shared that stood out to me is that you have this in house team of AI engineers who look into uh, you know, deploying new technology into the acquisition target. Um, how has that been like, I assume that's been like hugely, hugely impactful. But then at the same time, you know, you are waiting. You said, you know, there's two more acquisitions that are in the works right now, uh, four Count. So one being an advisory, one being an accounting. Are you trying to buy one practice and refine it to the max and then kind of move on to the next or how has that uh, gone?

Rohit Chande: Yeah, that's a great question. So we like to think about our overarching strategy in five pillars, uh, tax specialties, where we began, that's where we made our initial investment last year. Uh, full service accounting and CPA firms is our second pillar. Office of CFO is the third pillar, wealth management is the fourth. And then other advisory uh, capabilities is the fifth pillar. And the way we think about our strategy is we are looking for the right firms that fit our uh, strategy and cultural criteria and then giving them the resources to unleash the true potential of the firms. And part of that is giving them access to the in House team of AI engineers that we have both at Count as well as Long Lake Management, which is a much larger holding company that Count is part of. Um, and the whole premise is very simple. We want the operators to have unparalleled access to AI talent where they can really sit shoulder to shoulder with the professionals, understand where the friction is, where the bottlenecks are, quickly build a prototype that can be tweaked, uh, based on the constant feedback that we are getting. And so we are focused on the workflow augmentation. Ah. And that is where we stay focused on. We definitely want to continue to leverage the advances that are happening technology, whether it is through use of third party solutions, different models, et cetera. But that's where our core strategy resides, is how do we future proof these businesses and embed AI, uh, from day one. So the workflow augmentation, uh, is inherent to our competitive moat.

Dominic Piscopo: Yeah. And so where you talk about future proofing these businesses, uh, there's something really interesting to me again before when we spoke, uh, offline, um, you talked about how when CLAUDE dropped its new models in, I think it was February, it changed some things about the investment thesis and things like that. So I have a couple questions about that. I guess one of them is, is how do you run the reevaluation process of these firms? Like when something new drops? And then the other question about it is, you know, what's the difference between a service line or specialty that you think, yes, this will benefit from these advancements in technology versus this will be hindered by those advances in technology?

Rohit Chande: Great question. Um, I am convinced that we are now operating in a world where strategy gets revisited, it no longer gets revisited annually. Right. To me, this is an iterative process and AI advances are making it even more imperative that you stay ahead of the curve as soon as changes are happening. And the reason behind that is whenever these major models are new, uh, releases are dropping, uh, it can materially change the economics involved, the workflow designs, the staffing assumptions, the competitive advantages, et cetera. Right. And so, um, as, as you are aware when, uh, earlier this year the new version of CLAUDE came in, we had to take a material pause and reevaluate our strategy. Uh, as part of this whole process, uh, there was some significant advances in capabilities, particularly around reasoning, long context, uh, processing, coding assistance, workflow, orchestration, all of those things. And what that meant was some of our, uh, experimental use cases have now moved into production level use cases, which is materially different, and that changes the priorities pretty quickly. And we are not looking to chase the shiny object. Right. We have a very disciplined process where we take a look at uh, what has really changed from the model capability perspective. So we go through the whole reassessment process and really understand what workflows have now crossed that threshold of human, ah, assisted to AI layer, because that's where the economics starts to change. Then we take the next step of doing the workflow level mapping, leveraging our domain expertise, understanding what new capabilities can materially advance some of the workflow work, uh, that we are doing. That then feeds into unit economics recalibration. Uh, right. So as we revisit some of these assumptions around labor realization rates, margin profiles, pricing power, et cetera, it can fundamentally alter uh, your delivery economics. And then the last but the most important piece of this is do these advances and the workflows that we are changing, do they elevate our people or do they replace judgment? We are not in the business of uh, eliminating professionals. Right. We are trying to eliminate low value, repetitive work. But we still believe, uh, that we are operating at the intersection of human intelligence and artificial intelligence. And so having gone through those exercises, we came away with a conclusion that X number of service lines that we were focused on are going to get fully automated away where the human judgment is going to be less important. And that opens up those types of service lines for pricing, compression and potential AI disintermediation risks. Right. And so then those service lines are no longer attractive acquisition candidates for us. Uh, so yeah, that's a whole process that we go through every time a major release comes out. Um, it's a very disciplined and thoughtful process and we do that in conjunction with the subject matter experts.

Dominic Piscopo: That's cool. I've never gotten that into the weeds around this, which I find very interesting. And there are some examples that maybe seem more obvious than others. And you know, feel free to let me know if this is sharing too much of your own strategy, but can you give us an example of maybe one of the service lines that you think there, you know, might end up becoming, uh, a race to the bottom?

Rohit Chande: Uh, yeah, I mean, I think, uh, it's already was happening and I think that it's going to accelerate even further. Um, one of the areas that we are constantly paying attention to is how the valuation service line is going to continue to evolve. Right. Uh, Carta had already started to make a big dent into the pricing power, ah, particularly on the 409A valuations piece. Um, and so we still believe that specialty valuations particularly when it comes to forensics and litigation, et cetera, still have a defensive moat around it. But your run of the mill business valuations are probably going to get fully automated away. And so I would give you that one example where we've been cautiously watching this space, how it is evolving, how the capabilities are evolving and uh, what the market reaction is to that. Right. If we start to see more product first companies entering the market space, that's a clear indication that the pricing power has diminished significantly.

Dominic Piscopo: Yeah, the valuations thing is actually interesting. That's not one that I would have expected necessarily, but when you say that as soon as you mentioned Carta, uh, they're always in my inbox asking me about, oh yeah, dear, are you looking for a 409A? Are you looking for a 409A and Big Four transparency? It's growing, it's doing okay. But like this isn't, this is not a 20 million dollar tech company that, that needs that and I have absolutely no need for it. So I keep declining. And then they keep saying, oh, if price is an issue, we could talk. Uh, so I think maybe that definitely, as you mentioned, that probably is one of those things that's kind of plummeting pretty quickly. Um, which is, which is fascinating. It's crazy to think that yes, some service lines will probably benefit hugely where people still feel like they need that, that assurance from a professional. Right. Um, and technology will enhance and then others. Yeah, technology may replace and result in that race to the bottom. That's very interesting. And it's, it's good that you're taking that measured approach. Right. Um, and so where you talk about how a lot of the idea here is to replace a lot of the sort of rote, repetitive work rather than replace the need for the professionals. I'm quite on board with that. Like, I've communicated quite broadly. Like I think when PE is coming in with a growth thesis, as they are in accounting in general or, or family office or outside capital. Anyways, um, it's quite different than people who have this lived experience of, you know, my uncle worked at this manufacturing plant and private equity came in and they just squeezed the juice out of it. You know, it was all about margins, margins. And then eventually the business sort of declined, although they were able to squeeze out their profit. Right. And I think that's something people get wrong a lot where I think when you're coming in with a growth thesis, that's different. But how much of your time do you find is spent having to try to Communicate that to people because there is still that negative gut reaction when outside capital comes in.

Rohit Chande: Yeah, that is very true. And, um, oftentimes we do end up spending quite a bit of time educating the firm leaders on, um, not only the advantages of taking external capital with the right partner, of course, but also the differentiation that we bring to the table. Um, and yes, everybody has heard some horror stories about, uh, external investments being taken. Um, and frankly, our approach is very different in the sense that we believe firmly in the power of human judgment, and we will protect that at all cost. And so what that also means to us is we are passionate about investing in people. We are passionate about getting ownership down into the hands of employees at lower levels. Uh, one of the things that we have seen is some of the earlier transactions that took place or deals, uh, that took place in the accounting space came at the benefit of older and retiring partners. The younger partners and future partners were like, okay, what's going on here? What's in it for me anymore? Right. And given our emphasis on people, that's the last thing we want is having a line out the door when the deal gets announced. Um, and so we consciously look for opportunities where we can get equity down into the hands of people who are actually going to be the future leaders. Uh, I am really passionate about, uh, upskilling and reskilling, uh, and preparing, uh, the next generation of leaders to take the business to even greater heights than we were able to take, uh, under our, uh, leadership. So there are a lot of different factors that come in. At the end of the day, I feel constantly that firms that rely purely on technical skills are going to get replaced by firms that actually leverage technical expertise with technological expertise. Right. And that's where we want to be, uh, as part of our strategy.

Dominic Piscopo: Yeah. So where you talk about the upskilling and reskilling, uh, the importance of that, um, you know, one of the big questions people have is, if technology is coming in and we're getting rid of a lot of these repetitive tasks, how are you going to continue to feed the talent pipeline needed to support these firms into the future? Um, are there any sort of novel approaches that you've taken on that front? Or, like, what does that look like versus the traditional model at Cal?

Rohit Chande: Yeah, that's a great question. So. And we do spend a lot of time, uh, at the management level discussing some of these strategic imperatives. Right. Um, I think the traditional apprenticeship model in professional services is going to change materially. There is no doubt about that. Because the way we as you also pointed out the way we trained juniors was repetitive work, manual testing, uh, document preparation, et cetera. AI is now automating most of that, if not all of that. So then the question becomes, what happens to the kids that are graduating from college that are entering the profession? How do we prepare them for this? And this is where I go back to my roots in management, uh, consulting. Because this was a problem that management consulting firms faced 25 years ago, 30 years ago, and they were able to solve it. Right. So when I joined as a, uh, management consultant, I was thrown at the deep end of the pool where I had to go and start interacting with the clients on day one. And what that did for me was to, it taught me the critical thinking and client communication skills. It made me better at framing the problems and then coming up with solutions. And this is where, you know, synthesis of your thoughts, uh, the judgment, the relationship, management, all of that starts to play a very vital role. And I think that is the model that can still be very successful in the accounting industry. Right. It all depends on uh, having more mentorship, having earlier client exposure, cross functional training, and getting the employees ready for an environment where AI is basically doing most of the work. So how do you manage AI agents but also at the same time, how do you use AI, uh, from a learning capability perspective. And so, uh, we often talk about having an upskilling academy where we can then continuously send high potential leaders, uh, through newer skills that are required as they continue to make progress in the organization. But at the entry levels I still believe that AI can be a very good uh, learning environment for the new uh, employees that are coming on board. And frankly the fact that kids, uh, of my kids generation, they don't think accounting is an interesting field, uh, if we are technology forward, if we are relationship forward, I think that starts to change the equation pretty quickly. Right. And so oftentimes we talks about how do we make the profession sexy? This is one of the ways we can make the profession more sexy.

Dominic Piscopo: Yeah, yeah, I mean from like an investor perspective, um, someone I like to listen to a lot in terms of podcasts and whatnot, who famously has been wrong on a couple big things. But I do like his thought process is like Professor Galloway and he runs through the sort of like thought experiment. A lot of, you know, a lot of other technologies, it hasn't necessarily been that the value accrues to the creator and or distributor of the technology, but it's actually flowed elsewhere. Right. So the examples given being, uh, you know, the Internet, it's not typically like the, the core Internet providers who saw a lot of that value. It was actually, you know, social media companies and, and places who were able to build on top of Internet. I'm probably ruining this analogy a little bit, but that's the general idea of it. Or again vaccines was an example that was given where uh, a lot of these companies that were manufacturing vaccines were not necessarily the ones that got a very large share of that benefit. It was actually society as a whole and, and you know, individuals who were able to extend their lives or live better lives and things like that, where um, in the event that, that happens with AI, where they find themselves in a race to the bottom, where they're all competing against each other, which seems like it's very possible, then like where does that value flow? And to me I think, you know, the hands of professionals who are trusted to verify that that works out like, does make a lot of sense to me. So a lot of these sort of knowledge work service, uh, you know, service oriented industries like accounting, like it makes a lot of sense to me that they could be net beneficiaries of this disproportionate to their involvement in actually creating the technology.

Rohit Chande: Right, absolutely. Um, and Dominic, this is an interesting intellectual point that I often wonder about. Right. Um, and the way we like to think about it is, and I think you're right, as the foundational models continue to get more and more uh, capable there is going to be a lot more competition with different models offering similar capabilities which could eventually result into pricing compression, um, access becomes more democratized, models become more interchangeable. Uh, so we are not locked into one particular ecosystem anymore, which is really what happened with even the prior technologies. And we think that the value is going to shift towards workflow ownership, towards uh, owning customer relationships, having proprietary data and domain expertise, having the implementation capabilities. So how do you leverage the capabilities of the models would build an engine on top of that that is going to fundamentally change the way we do the business, the way we take care of our clients, the way we take care of our employees and how do we distribute that knowledge all across the board. So as you are aw, we have uh, a global uh, scope in mind because AI does reduce the cost of coordination which in theory improves the access to talents wherever they are spread across the globe, which allows us to have around the uh, clock coverage wherever the clients are. And so uh, the way we think about this is white collar service firms, maybe one of the biggest beneficiaries of AI modernization layers, especially the Firms that are able to successfully integrate AI into the delivery while maintaining that trusted advisory relationship, uh, with the client. Right. I think that's really where the success of the firms are going to be. We believe that the biggest winners in AI may not be the companies that are building, uh, the models or the engines. It's the companies that learn how to operationalize those engines inside that trusted customer relationship. And that's where we operate.

Dominic Piscopo: Yeah, very well summarized. I like that. Um, so where you talk about this global approach, um, I guess zooming out, this got very theoretical on AI, which is cool because I haven't had a lot of those discussions, which I like. Um, but when you talk about this global approach, so are you evaluating a lot of firms, let's say outside of the US for potential acquisition? Um, and if so like, how, how does that compare? Because I imagine the US market, well, I imagine, and I know because I have a lot of conversations about this has gotten very, very competitive. Yeah. And being in Canada myself, I feel like there's, you know, there's a lot of interest. Everyone's talking about going into Canada, but there isn't that much action from like an outside capital perspective, uh, which I think even just looking at my own country, I'm sort of like, oh, there's probably a lot of opportunity here for outside capital. Um, have you found that, you know, PE's heavy involvement in the US has raised, you know, uh, trading values globally or has that been mostly isolated to the US creating a lot of, of opportunity elsewhere?

Rohit Chande: Yeah, that's an interesting question. Um, let me start off by saying this. We believe in supporting our clients wherever they are. And a lot of our clients are global companies, uh, and have distributed workforce all around the globe. So it becomes imperative that we are finding firms in local geographies that are able to support them, these companies wherever they are. We talked about the access to talent, et cetera. Um, coming back to the core question that you asked. Yes. I think the activity that is happening in the US has definitely inflated pricing. Uh, there is a lot of FOMO going on. Ah, with a lot of different investors to a certain extent. We have seen that in one particular market in Europe where there is little bit of more uh, uh, pricing escalation going on because of similar dynamics there. But rest of the world, especially in Canada and other English speaking countries, we haven't seen that to that level yet. And this is where if we were to think about our differentiation, having that global scope and being able to support our clients wherever they are, um, allows Us to start thinking about opportunities in different sectors or different uh, regions. Uh, and yes, so we are constantly looking for the right opportunities that fit our strategy in North America, South America, Europe and Asia.

Dominic Piscopo: Yeah, yeah, yeah. Because when you're able to provide local work where like the knowledge there is very strong, like I think that's a huge differentiator. I remember when I was at Deloitte, uh, you know, I was on the back when this was the hot thing on the blockchain tax team. But you know, it was like, oh, we want to launch this out of Singapore or you know, whichever country or like got involved in like some Chilean mining operations and things like that. And we're like uh, we're gonna have to charge you something absolutely crazy. Unless uh, Deloitte Chile says that they have capacity to take this on. Because we're like, we have to then like go figure out all the interactions, like figure out what's going on in Chile and all that. Um, Canada and Chile at Deloitte like have a very close integration. And so it was like, it was actually turned out to be no problem for that one. But every once in a while when there wasn't capacity or presence of the firm there to take that on and we had to do that within our country, it was always like we, we're gonna have to charge you something absolutely crazy. Like you know, we're borderline sorry for this because like it's just gonna take that much more work. Right. So I think the global strategy is very uh, interesting and I think, think for those who are, you know, bold enough to be some of the first entrants in those areas, I think there's probably quite a world of opportunity there because again the multiples maybe haven't caught up to what we've seen with all the activity in the US which is, which is really cool. Um, my last sort of question for you, very different from the topic we've been on. More about your kind of personal journey. Um, I'm always fascinated about how these, these sort of PE backed or family office backed platforms come to be. Um, did you go to uh, Long Lake or did they come to you to set this thing up with Count? Like how does that happen?

Rohit Chande: Uh, it's an interesting story in fact.

Dominic Piscopo: Um,

Rohit Chande: so when we started Count, we had originally raised capital through a venture capital fund, uh, because of the AI orientation it. But we always knew that we will be looking for the right long term capital partner, uh, that allows us to execute on our strategy effectively. And it turned out that um, one of the board members of Count was at a dinner, um, celebrating a friend's birthday in French Alps. And, uh, he was sitting right next to one of the principals at Long Lake Management. And long story short, we were pursuing exactly the same strategy with exact same mindset around leveraging AI and it made perfect sense for us to combine forces instead of competing with each other. And so that's how it all came together. Uh, again, we talked about the power of relationships. Right. And this is, to me, this is a great example of power of relationships.

Dominic Piscopo: Awesome. Well, I appreciate your time. And again, like I said, I really appreciate that we were able to get into kind of some of the, the theoretical things around AI. I think that's really cool. And just hearing your thought process where, you know, I think you've applied far more resources as well as your own time into thinking about this, about the industry, some of the very high level questions which I think is very important to get into. So, uh, I really appreciate you taking the time today, Rohit, and I'm going to include, uh, all of your contact information for anyone who might be interested in pursuing a conversation with you after hearing all of this.

Rohit Chande: This. Yeah, absolutely. Dominic really enjoyed the conversation. This allowed me to take a mindful pause and go through some more thought process. Uh, really appreciate it and, uh, always enjoy your podcast. So, uh, looking ahead, uh, to, uh, more discussions in the future.