FreeAgent Acquires 60mo–Plans US Expansion

Big news in the SaaS accounting space this morning as FreeAgent announces that it has acquired US accounting provider 60mo and will be using the company as its vehicle for a US expansion. 60mo is a small SaaS provider that has quietly been going about building a small following for its financial forecasting tool. They’ve purposely taken a lightweight approach to the problem – seeing that as both the pain point and the opportunity.

In announcing the deal, Ed Molyneux of FreeAgent says that 60mo will be their entre into the US market, and FreeAgent will leverage the knowledge about US accounting and taxation that the 60mo team have. To fund the acquisition, FreAgent tool on a round of funding from Lightbank, a Chicago based VC.

60mo has now shut down new signups and according to Molyneux is building a US-centric version of the FreeAgent application, in doing so they’re squarely going to move into competition with Xero. FreeAgent intends to backwards-integrate some of the cashflow focused functionality of 60mo into its own product.

MyPOV

This is big news for the SaaS accounting space. UK is a busy market with a number of vendors competing for market share – FreeAgent has arguably the biggest slice of the market there, it’s 20000 or so customers making it close to twice the size of Xero with other vendors such as KashFlow also in the mix. Moving to the US now makes sense since no one has yet gained any real market awareness there. While Xero has been building a local US team over the last few years, it’s safe to say that they are very much still in the initial stages and haven’t cornered the market yet. For the record – since the start of 2011, FreeAgent have grown from 4000 to 20000 customer, a growth rate that puts them at the forefront of this nascent sector – that’s an indication of the validity of their approach, regardless of the fact that ny of those customers have been gained through a low-margin partnership with a UK bank.

It will be very interesting to see the approach that FreeAgent takes with regards their go to market. Xero is strongly focused on partnerships with accountants and the like. In the UK FreeAgent has varied approach that sees them partner with a variety of organizations (accounting firms and banks for example) but is also a strong direct sales company.

FreeAgent has a rabidly supportive customer base in the UK – if they manage to have users as satisfied in the US as those across the pond, it’s going to be super-interesting to watch as they go head to head with Xero.

FreeAgent Eases Life for Freelancers and their Expenses Conundrum

Like many freelancers, I incur significant expenses in the course of my contracting work and have to on-charge these expenses to clients. Ideally I’d tick a box in my accounting application and that would allow that cost to flow through to a client invoice without me having to enter it in two places. One of the business that I have this particular need for uses Xero and I raised this issue on the excellent Xero LinkedIn group.

As I said in my post;

I do a lot of consulting work, and have significant numbers of expenses (both entered as expenses and rolled through from bank feeds) that need to be on-charged to clients. In an ideal world I’d tick a box in either the expense or the reconcile bank account window that would allow that cost to flow through to a client invoice without me having to enter it in two places..

The conversation generated a number of replies, with others suggesting workarounds or agreeing that this is a pain point. The commitment of some users was amazing with one person going so far as to design their own complex workaround with their accountant;

Set up a different Chart of Account for each client as a Current Asset – this will display your rechargeable costs as an asset on the balance sheet also removing it from your P&L. Each time you have a rechargeable cost run it through as an AP and put it against that account. You can also type into the reference box the client name for ease of reference. I apply the date of the cost on the cost date and the date of the expected invoice on the due date. When you invoice the client run a report called “Account Transactions”, selecting the relevant client account as above and the dates between which you wish to invoice. This can then be pdf’d into a nice looking document which shows all the detail in the description, from and dates boxes for every AP assigned to that account.

This pdf can then be sent in as an attachment to your regular AR invoice. Don’t enter the total into the AR as well or you will be double invoicing within Xero. When the money comes in you will then have to pay off each AP.

That’s a pretty intense piece of work for what is a very simple functional need. I’m always a little disturbed when businesses, especially small businesses who are time and resource constrained, have to design their own systems to automate what is, or at least should be a fairly standard process. I asked Xero CEO Rod Drury about this need and he agreed saying that;

[this is an] obvious hole to fill this year. Pretty easy just hasn’t hit the top of the priority list yet.

FreeAgent has beaten Xero to the mark and has rolled out its own solution to this problem. With FreeAgent’s solution, any kind of expense (out-of-pocket, bank transaction or bill) can be associated with a project (for a given client) from a super simple drop-down menu;


When a new invoice is created against that project, there is an option to automatically include any expenses associated with that

project which haven’t already been rebilled. Invoice items will be created for each expense. Once invoiced, the expenses drop out of the system and hence users have the security of knowing that expenses aren’t being charged for twice (or worse still, missed).

Aware that there are some complexities when on-charging expenses, FreeAgent users can also elect to rebill expenses with a certain markup, or at a fixed price, when they associate the expense with the project. And in a final piece of transparency assurance, FreeAgent also gives users the ability to attach copies of the relevant expense receipts when the invoice is emailed.

This is beautifully simple and fills the need of most of the users who commented on the original LinkedIn thread – it’ll be good to see Xero ramp up their development pace to accelerate the roll out of features like this.

FreeAgent Nabs Series B

News just in that UK SaaS accounting vendor FreeAgent has nabbed GBP2M in investment from SM Trust and Torch Partners. It’s an interesting development given the other two main players in the UK market, Xero and KashFlow are both currently well funded – Xero via an IPO and some subsequent private investment and KashFlow from a recent GBP4M top up from one of it’s original backers.

Ed Molyneux, FreeAgent CEO says the investment will be used primarily for design and engineering investment.

FreeAgent recently inked a high profile deal with Barclays bank that sees the bank push FreeAgent to its small business customers. While the Barclays deal is high profile – scuttlebutt says that it’s a poor commercial arrangement but if FreeAgent are able to leverage the profile of the Barclays deal and the product development that this funding round enables, they’re well placed to build a stronger position in their home market.

FreeAgent Bags Barclays Bank.

One of the many SaaS Accounting vendors I keep an eye on is FreeAgent – a company I’ve written about many times in the past. FreeAgent are a UK based vendor that are, quite rightly, focusing on their home market rather than getting all starry eyed about opportunities over the Atlantic. That focus seems to be paying off in spades for FreeAgent who are this morning announcing that they have been chosen to be the bookkeeping component for MyBusinessWorks, a business support package being rolled out by Barclay’s Bank, one of the UK’s largest banking groups.

MyBusinessWorks is set up as a one-stop-shop for SMB software tools. In addition to FreeAgent for accounting, it offers;

All these tools are packaged together and obtained directly from the bank – easing the billing and provisioning hurdles for SMBs. The deal includes single sign on support and automatic provisioning (via SAML). All billing goes through Barclays

This is a fantastic route to market for FreeAgent, I’ve always been a little concerned about SaaS accounting vendors relying primarily on accounting practices as their route to market – accountants (and this is a gross generalization) tend to lack the agility, flexibility and innovativeness to really deliver a sufficient number of customers for a SaaS accounting vendors – especially so given the fact that if a SaaS accounting product does (as many of us contend) save practitioners time and money, then that might in fact lead to reduced revenue for said practitioner. A topic discussed on Adrian Pearson’s post.

ANyway, back to this deal. FreeAgent CEO Ed Molyneux didn’t divulge pricing for the deal but did say that;

Margins are lower than direct customers, as you’d expect, but the rapidly increasing surface area of FreeAgent customers makes word-of-mouth even more powerful and allows us to build in some really interesting network effects.

This is a great win for FreeAgent, but also a great “Cloud goes mainstream” story too. This deal should see FreeAgent gain a real toehold in the UK market which, in turn will help some of the other players gain a bigger toehold in the marketplace. Molyneux did tell me something very interesting in that with the soft-launch of this product into Barclay’s branches;

we’re now growing several times faster than Kashflow, Xero etc.

That’s a pretty bold statement and one that is even more interesting given the combined facts of Xero’s high level of capitalization and the recent news that Kashflow has pulled the pin on fundraising efforts for now.

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Until very recently, the accounting software industry was evenly split among the “big three” vendors: Sage broadly owned the U.K. market, Intuit the American, and MYOB the Australasian. Bit players rounded out the other countries not covered by these big three.

But in the past few years, several innovative new companies have been founded with the stated aim of disrupting these big vendors. Most notable among them is Xero, but similarly FreshBooks, Kashflow, FreeAgent and others had a crack at the problem space.

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