Follow the Money
Today's featured startup is helping businesses avoid the terrible headaches that inevitably follow due diligence.
Project Overview
Every startup should be lucky enough to deal with the headache of due diligence. Why? Because it means the buyer is serious. They invest their own time and money into this process after signing a term sheet, which outlines the purchase terms. Due diligence is usually the last hurdle before finalizing the deal.
But due diligence is often an absolute nightmare for buyers and sellers alike. It drains time, energy, and patience from both sides.
Clarum aims to simplify and accelerate this process using AI, taking most of the burden off their shoulders.
Here's how it works:
The buyer uploads relevant documents to the Clarum platform—financial reports, presentations, contracts, business process guidelines, and other key materials.
The buyer can then ask the AI any questions about the business, and the system will generate responses based on the uploaded documents.
Each AI-generated answer is backed by source references—whether from text documents, spreadsheets, or presentation slides.
Professional buyers who routinely acquire businesses typically have long due diligence checklists. Instead of manually going through them, they can upload their list, and Clarum will generate a document with answers to all their questions.
Clarum recently graduated from Y Combinator, securing the standard $500,000 investment. The startup itself was founded in late November last year.
What's the Gist?
Interestingly, another startup from the same Y Combinator batch is also tackling business acquisitions.
Before using Clarum, buyers first need to identify potential acquisition targets. This involves sorting through thousands of businesses to make preliminary assessments of whether they're worth pursuing.
Right now, this process is manual. Even professional buyers can only evaluate around 100–150 companies per week. But to find a single viable target, they typically need to sift through about 10,000 businesses.
Given the lengthy scouting, negotiation, and due diligence processes, buying even a small business can take 18–24 months, making acquisitions time-consuming and expensive.
Clarum automates due diligence, while another startup, OffDeal, uses AI to optimize the search for potential acquisition targets.
OffDeal leverages the internet and public data to generate a shortlist of businesses based on criteria like industry, location, estimated revenue, and employee count. Buyers can then filter and refine this list within minutes instead of spending weeks or months manually researching companies.
Once a shortlist is created, OffDeal's AI can even send personalized emails to each company, initiating conversations with those interested in selling.
Why did two startups tackling business acquisitions emerge in the same Y Combinator cohort?
Business acquisitions are a business in and of themselves—they present lucrative opportunities.
Acquiring small regional businesses is one of the easiest ways for companies to expand their footprint.
A massive ownership transition is underway globally. Over the next 20 years, aging business owners will either pass their companies to heirs or sell them.
In the U.S. alone, research suggests that $90 trillion in business assets will change hands in the coming years. Currently, 51% of U.S. business owners are over 55, while another 41% are between 35 and 54. Many of them will start thinking about selling their companies soon.
Selling to investors or other businesses is one exit strategy—and that's exactly what Clarum and OffDeal are optimizing.
Another option is selling to employees. Some startups are facilitating this:
Teamshares (covered in a previous article) acquires companies and gradually transfers 80% of ownership to employees over 20 years. They have raised $245M.
Common Trust (also previously covered) doesn’t buy companies but helps owners transition them into employee or customer-owned trusts. They have raised $2.6M.
Other startups are focusing on consolidating local businesses within specific industries:
Platform Accounting Group first integrates small accounting firms into its centralized platform and later acquires those that successfully adapt. It has raised $85M.
Pipedreams takes the opposite approach: acquiring local HVAC (heating, ventilation, and air conditioning) businesses first, then implementing a centralized platform. It has raised $35.7M.
Key Takeaways
From a tech standpoint, neither Clarum nor OffDeal are reinventing the wheel. AI is already being used to create company knowledge bases (like Clarum) and to identify potential B2B clients and partners (like OffDeal).
What sets them apart is their focus on an unconventional application of existing AI technology. Instead of building “better” AI, they’re applying it to areas with little competition. This could be a promising approach for launching AI startups—finding untapped industries rather than chasing technological superiority.
So, one potential direction: Identify industries where AI could make a difference but hasn’t been widely adopted yet.
Where else could AI be useful? What overlooked business processes could benefit from automation?
Another possible path: Enter the business acquisitions space, which is set to grow significantly over the next two decades.
There are multiple ways to enter this market with different business models. One strategy is to sell the “picks and shovels” that enable others to dig for gold—essentially building tools like Clarum and OffDeal, or even combining their functionalities into a single platform.
Company info:
Clarum
Website: https://clarum.ai/
Last funding round: $500k, 01.12.2023
Total funds raised: $500K