FreshBooks, one of Canada’s early subscription software success stories, has become the 14th Canadian company since the start of the pandemic to become a “unicorn.”
Toronto-based FreshBooks, which sells online accounting software by subscription to small-business owners, said Tuesday it had raised US$130-million in funding. That means the company, legally known as 2ndSite Inc., is now valued at more than US$1-billion.
Private technology companies that achieve such a valuation are referred to as “unicorns,” a term coined by venture capitalist Aileen Lee in 2013 that implies mythical, rare status. As private capital providers have increasingly chased deals globally and as Canada’s tech sector has matured, however, unicorns have proliferated here like raccoons.
Long-time FreshBooks investor Accomplice, a Boston-based early-stage venture capital firm that has backed Canadian unicorns Dapper Labs Inc. and Hopper, led a US$80.75-million equity financing. Past investors JPMorgan Chase & Co., Gaingels, Bank of Montreal and Manulife Financial Corp., as well as new investor Barclays, a FreshBooks partner, also participated. BMO provided US$50-million in additional debt financing.
Accomplice managing partner Jeff Fagnan said the funding was part of a larger plan that included switching CEOs. Michael McDerment, who founded FreshBooks in his parents’ basement in 2003, handed the CEO job of his own volition in late 2020 to Don Epperson, a veteran Boston-based software industry entrepreneur and executive brought onto the board in 2019 by Accomplice. Mr. McDerment remains executive chairman.
Mr. Fagnan said FreshBooks is a “resilient,” customer-focused company that has had solid but not stellar growth. “It took a more traditional approach of ‘Go build a good business.’ It got to a place where we saw this could be a very large, global company,” which led to a mutual decision with Mr. McDerment to bring in a new leader to spearhead the effort.
“This was something we had so much conviction for, we just said, ‘All right, let’s back the truck up’” and make the largest single investment in Accomplice’s history, Mr. Fagnan said.
FreshBooks was set to hire an investment bank to find a new lead investor when Accomplice decided to pre-empt the effort with an offer. “We were like, ‘Screw somebody else telling us we have a good business, we know we have … let’s just give them a term sheet,’” Mr. Fagnan said. “We’re patient capital, so we’re taking another 10- or 15-year view of this.”
FreshBooks and Canadian software companies such as Shopify Inc., Lightspeed POS Inc., Jobber, Clio and Jane have all built prosperous businesses by bringing online tools to small-business owners previously underserved by technology. The 515-person company, which offers invoicing, payments and other core accounting functions through its online platform, competes against Intuit’s Quickbooks and Xero. FreshBooks generates almost US$100-million in annual revenue, Mr. Fagnan said, and has been used by more than 30 million people in 160 countries to date, but it doesn’t break out its current customer count.
Mr. Epperson said in an interview that during the past two years FreshBooks has increased the number of segments it serves and expanded its customer base beyond its core in North America. It has broadened growth efforts beyond strictly doing digital marketing for self-serve clients by hiring salespeople and partnering with banks and companies such as Ingram Micro that sell to small-business customers to bundle FreshBooks into their offerings.
It made its first acquisition last fall, buying a small Mexican company that sold electronic invoice management software to small businesses and startups. Mr. Epperson said he expects to continue acquiring about one to two companies a year.
The company should also benefit from a pandemic-fuelled surge in new business creation and regulations in several countries that require small businesses to file their taxes electronically. “That means you need an accounting software like ours to do that, so we have a lot of tailwind,” Mr. Epperson said.
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