FreeAgent Holdings has become the first equity crowdfunded business to IPO, raising £10.7m and achieving a market capitalisation of £34.1m.

The Edinburgh-based cloud accounting software company FreeAgent Holdings completed its IPO on the 16th November with its first day of trading on the LSE AIM. Proceeds will be used to accelerate product development with a focus on the digital tax agenda, to scale-up customer acquisition with a particular emphasis on large accountancy practice customers and to repay existing debt.

Key takeaways

  • Ultimately raised £10.7m in total proceeds (more than the originally planned £8m)
  • Implied market capitalisation at IPO of £34m
  • First ever UK IPO of an equity crowdfunded company
  • Reinforces London’s status as leading venue for technology company fundraising

‘FreeAgent launched in 2007, hewn from the frustration that managing company finances was just too damn hard for most small businesses and freelancers,’ reads the company’s About page. ‘Since then we’ve doggedly stuck to our mantra of demystifying accounting and redefining the relationship people have with their finances.’

‘Trading as a public company is a really important step forward for FreeAgent,’ writes Ed Molyneux, FreeAgent’s CEO and Founder. ‘Because of the detailed scrutiny that quoted companies undergo, our customers and partners can be even more confident that we are a robust, well-managed business.’

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About FreeAgent

FreeAgent is one of the leading cloud accounting software providers in the UK for microbusinesses/freelancers.

The company’s premium-priced, award-winning platform has been designed to cater for all the requirements of a UK freelancer, including workflow and tax. The addressable market is significant, with more than 4m non-employing businesses in the UK vs the company’s current subscriber base of around 50,000.

Since the business was established in 2007, FreeAgent has focused on building its UK subscriber base in parallel with developing new features for its business and accounting software solutions. Over the past two years the number of active subscribers using FreeAgent’s SaaS solution has grown rapidly, scaling up from 32,000 as at July 2013 to ~52,000 currently. As explained below, the directors believe the total addressable market for microbusiness financial management software to be worth nearly £500m annually.

Key strengths

Specific focus on the significant UK-microbusiness market

FreeAgent’s accounting software solution and mobile applications have been designed specifically for UK-based microbusinesses, defined as sole traders and companies with fewer than ten employees, and their accountants. There are more than 5m microbusinesses in the UK, and the market of financial management software for these businesses is estimated to be worth nearly £500m annually.

Proven product with high levels of adoption

FreeAgent’s SaaS solution has the depth of functionality required by sole traders and microbusinesses and, to facilitate rapid user adoption and drive high customer satisfaction ratings, the software has been designed not to require user training. The Group’s solutions and applications are used by ~52,000 customers, predominantly in the UK, and receive very high customer satisfaction ratings, attracting an NPS of 72 in September 2016.

Favourable market dynamics and growth drivers

The markets in which the Group operates are experiencing a period of structural growth with steadily increasing demand driven by the rise of self-employment, the increasing acceptance of cloud-based software, the ubiquity of mobile touchscreen smartphones and regulatory change due to the UK’s planned migration to a digital tax regime. The directors believe these market drivers make it favourable for the Group to continue to grow revenue and expand its presence in the market.

Strong financial KPIs and excellent revenue visibility

FreeAgent has a proven track record of revenue growth, which grew at a compound annual rate of 34% between 31 March 2014 and 31 March 2016. ACMRR at financial year end stood at £6.8m and at 30 September 2016 had further increased to £7.7m, with a gross profit margin exceeding 80%.

Experienced management team

FreeAgent is led by a management team of eight, which includes all three co-founders, and is headed by Ed Molyneux as CEO. The management team has demonstrable experience in leading growth businesses.

Clear strategy to drive future growth

The directors believe that the FreeAgent SaaS solution is highly scalable, supporting future growth in its active subscriber base with only modest further expenditure on infrastructure. Future growth will be driven by focusing on the UK Government’s digital tax agenda and by scaling-up customer acquisition, with a particular focus on large accountancy practice customers.

Sources: Publicly available information, Bloomberg, Company Pathfinder.