Back in the early days of cloud accounting, before Xero had enjoyed its meteoric rise to fame and Intuit had finally agreed that cloud was a thing and applied hyper-innovation to its QuickBooks product, a plucky vendor from north of the border was quietly plugging away at achieving scale for its solution. Indeed, FreshBooks’ founder and CEO, spent over a decade focusing on his product being self-funded. But network effects, viral uptake and the benefits that come from being Canadian only go so far and a few years ago McDerment relented and took on some external investment – a $30 million institutional round.

Amazingly, that funding round was the only capital the company raised other than a $100,000 friends and family round early in its existence. Given that FreshBooks is in a market against some huge and well-cashed players (Intuit with a $20 billion + market capitalization and Xero with hundreds of millions of dollars in funding and a million customers of its own) it was staggering that FreshBooks got so far on so little fuel.

There was also the slight issue (some would say semantic, others existential) about what FreshBooks actually WAS. Rather than jump in head first and take a position stating like-for-like competition with the other accounting software players, FreshBooks spent its first few years calling itself simply an invoicing service for self-employed professionals. It didn’t purport to be full-service accounting and was happy to scoop up huge numbers of customers through its freemium offering.

Times changes, however, and a few years ago FreshBooks made the product investment and, perhaps, more importantly, the messaging and positioning investments, to move into full accounting and, in doing so, to take on the likes of Intuit and Xero (as well as Sage, MYOB and plenty of other smaller vendors) headfirst. It has to be said, however, that the moniker of “cloud accounting product” and the reality are different. While FreshBooks uses the descriptor, its longer explanation is that it delivers easy-to-use invoicing, time tracking, and expense management features. No mention of fixed assets, taxation or business reporting, three examples of the myriad of services a true accounting solution needs but… no matter.

This slight disconnect hasn’t seemed to have hampered FreshBooks any – the company has helped more than 10 million people worldwide process billions of dollars for its businesses. No mention of how many of these 10 million customers are still regular users and, perhaps even more importantly, no mention of how many actually pay for the service.

New cash, new hopes for growth

FreshBooks is today announcing an additional $43 million funding led by existing investor Georgian Partners. Previous investors Accomplice and Oak Investment Partners also participated in the funding round. The company suggests that it plans to invest in fueling its growth in North America, and continuing platform innovation for billing, reporting, accounting, and partner integrations. Mike McDerment, the usually understated CEO of FreshBooks, seems to have adopted much Silicon Valley-style excitement and gushed about the deal:

Our mission is to reshape the world to suit the needs of self-employed professionals and their teams. Building a global technology company in Toronto and launching the new FreshBooks platform helps us live the mission. The new FreshBooks was designed to be easier, simpler and modern, with the benefits of natural collaboration and faster product improvements.”

The channel question

Building a beautiful product, and achieving market success aren’t necessarily connected. indeed, while Xero leads front and center suggesting that its mission is to “make accounting beautiful”, the fact of the matter is that its growth has been borne out of serious work building both a direct and indirect route to market – Xero spends millions of dollars on marketing and wines and dines its accounting channel well. This is par for the course – the more traditional accounting software vendors – Intuit, Sage, and MYOB – all do similarly.

FreshBooks, however, isn’t accountant-centric. it doesn’t have strong accounting channel relationships that it can leverage in order to scale. This far its primary strategy has been to leverage network effects – FreshBooks offers its basic service for free, secure in the belief that the customers of FreshBooks’ own users will be introduced to the platform, sign up and grow both the free and paid users.

I suspect that FreshBooks may be nearing the end of the scalability of its viral potential, however, and that we will start to see FreshBooks target a new range of channel partners – banks, lending agencies, and the like – in order to keep accelerating its growth.

MyPOV

I like FreshBooks, they’ve always come across as casual and fun, the quintessential Canadian company. Raising close to $100 million means that there are going to be heightened requirements on the company to deliver results – the next 12-18 months will be instructive as FreshBooks navigates a path to continued, and accelerated, growth.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

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