In late 2022, Noah Pepper, a former Stripe business lead for the Asia Pacific region, founded Multiplier, a startup that aimed to sell software to tax accounts. But soon after ChatGPT was released, he realized that AI can change how professional service firms use technology.

“I realized I was barking up the wrong tree by trying to build a SaaS business, and instead I should figure out how to make these people more effective,” he told TechCrunch.

The startup acquired Citrine International Tax, a boutique provider of cross-border tax accounting services, and enhanced the firm with AI capabilities built by Multiplier.

It quickly became apparent that the strategy was working. By eliminating manual work, Multiplier’s AI tools helped Citrine more than double its profit margins. So, Pepper decided that instead of building software for accounting firms, Multiplier would acquire existing professional service businesses and outfit them with its AI solution.

Today, Multiplier, which is now called Multiplier Holdings, is announcing that it raised a total of $27.5 million in seed and Series A financing. Lightspeed Venture Partners led the Series A funding round for the startup, following Multiplier’s seed round, which was led by Ribbit Capital with participation from SV Angel.

Multiplier is part of a growing trend: startups acquiring existing service businesses and scaling them with AI. The PE-style roll-up strategy has recently gained popularity among VCs, with investors such as General Catalyst, Elad Gil, Thrive, and Khosla Ventures backing startups that develop AI solutions and integrate them into existing people-focused companies.

“Until AI existed, none of this was possible,” Lightspeed partner Justin Overdorff said. In addition to Multiplier, Lightspeed has invested in three other yet-to-be-announced AI-powered roll-up companies.

Overdorff is convinced that this strategy is most effective when the startup buys small companies because they are more open to changing their existing processes. “If you go to an accounting firm that has 200 accountants, it’s unlikely to get adopted at a [high] rate.”

Prior to being purchased by Multiplier, Citrine was a two-person tax entity. Multiplier not only helped increase its margins but also helped Citrine grow, Overdorff said.

Multiplier’s  goal is to expand beyond offering personal tax compliance to create an AI-powered competitor to the Big Four accounting firms.

Pepper said that Multiplier is looking to purchase high-recurring-revenue service firms helmed by people who are excited to integrate and help customize AI to take their businesses to the next level.

“It’s a little bit like a venture-style business where you’re looking to make a bet on this leader who you think is just amazing in their category,” Pepper said.