KfW Capital
How Hypatos is capitalising on AI
The Potsdam-based start-up Hypatos wants to enable a future in which artificial intelligence (AI) accelerates business processes and enables people to make decisions and develop innovative solutions. The VC fund UVC Partners, in which KfW Capital also invests, has recognised the company's potential.
For businesses, processing an invoice is a time-consuming, expensive and far from trivial task, at least when it is done manually. If the invoice comes as a letter or digital file, many details must be entered into the accounting system: the customer’s name, their address, customer number, order and invoice number are just part of it.
“Lots of steps are involved, and many people. And it is not uncommon that details need to be adjusted”, says Ulrich Erxleben. “On average, each invoice costs 12 euros to process”.
Born in Potsdam, the 43-year-old has devoted almost all his working life to accounting issues and trying to achieve the highest possible efficiency. After pursuing a master’s degree in accounting and finance in St. Gallen and earning his PhD in finance in Darmstadt, he worked as a consultant at McKinsey and as head of North American operations at Rocket Internet in the US. After several years in the US, Erxleben returned to Germany in 2013, where he initially managed early-stage investments by ProSiebenSat1 Media SE.
Together with a friend, he founded the start-up SMACC in early 2015. Their goal: to automate the processing of financial documents. In order to automate such processes, Erxleben and his team are using artificial intelligence (AI) for linguistic and textual understanding and feeding machine learning models with customers' accounting data. In mid-2018, SMACC brought the AI software to market and made AI models available for testing on their website. This was met with an unexpectedly strong response – from SMEs, but primarily from large enterprises.
“Quite a few of them called and told us: This works much better than our own automation systems. But they needed to integrate it into their SAP system.”
Dr Jörg Goschin
Co-CEO of KfW Capital since 2018.
Erxleben accepted the challenge and, in late 2018, founded his Potsdam-based firm Hypatos. The name is borrowed from the Greek mathematician Hypathia. It soon attracted venture capital funds that recognised the potential of Hypatos, including UVC, a Munich-based VC fund in which KfW Capital is also invested.
“AI already plays a key role in our everyday lives and has enormous potential to profoundly change our world. Through our investment in UVC, for example with Hypatos, we are financing innovative AI solutions for SMEs and large enterprises that want to increase their productivity in the long term”, says Dr Jörg Goschin, Senior Managing Director of KfW Capital.
Hendrik Leitner, Head of Partnerships and Danail Delchev, Head of Partner Success Managemen
Hypatos is continuously perfecting its software with the aid of AI to power document understanding. This involves the processing of all kinds of financial documents – from invoices, travel and expense claims and loan applications to the automated processing of insurance claims.
“We are helping businesses increase the productivity of their back-office processes five- to ten-fold”, says Erxleben. “Our products and solutions can also protect companies from double invoicing or missed discounts and, thus, from substantial financial losses”.
In addition, Hypatos is addressing a growing skilled labour shortage in Germany. Many accountants in companies are approaching retirement age, and successors are in short supply. The automated processing of financial documents closes gaps that are emerging. Hypatos also supports ESG reporting, which is becoming increasingly important for businesses.
With his team of around 100 AI and software experts and offices in Potsdam, Berlin, New York, Miami and Wroclaw, and with an eye on Asia, Erxleben already sees himself as a “pioneer in the field of autonomous finance”. Some 50 corporations with billions in turnover and tens of thousands of employees now rely on the services of Hypatos across a range of sectors and national borders. These include automakers, media corporations and, increasingly, healthcare businesses. Whether companies pass efficiency gains on to final consumers is obviously not in his hands. It could happen. But one thing is clear for the Hypatos boss:
“People can dedicate themselves to other, more meaningful tasks than copying and entering data.”
Hypatos wants to attract more funds through a B series financing in 2024. Erxleben says that the further development of AI technology is very expensive. He continues to focus on international but also on German venture capital providers as well as public institutions. He would like the latter to not only support research institutes in Germany but to do more for AI businesses that are already active in the market. As for Germany and, specifically, Potsdam as a location, Erxleben is full of explicit praise – particularly based on the experience he gained in Silicon Valley. Of course, Americans are more willing to take risks, he says, and successful businesses and entrepreneurs for their part provide start-ups with lots of money. People in Germany are more cautious, he says. Erxleben therefore believes it is important that KfW Capital lends a helping hand and generates momentum by investing in VC funds.
“It is certainly worth the effort in Germany, too. As a high-tech location, Germany is awesome. It’s really buzzing. The greater Berlin area is highly attractive for start-ups. I came back from the US for good reason.”
Erxleben feels “completely at home” with Hypatos in Potsdam. Clearly, the agile entrepreneur does not share the pessimism that has been spreading in Germany of late.
Published on KfW Stories on 29 January 2024.
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