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AIA

Cloud vendors raise capital to boost products

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30th Oct 2013
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With cloud adoption among accountants on the rise, specialist online software developers are finding new ways to raise funds to improve and launch their solutions.

Some are even breaking out from the traditional approach to raising finance and opting for alternatives such as crowd funding and seeking private investors.

The firms that dominate the small business accounts market - Sage (Sage) and Intuit (US) - are public companies that raise capital by selling shares on mainstream exchanges.

Xero also took the public route and floated on the New Zealand stock exchange in 2007, shortly after it was founded. The company recently raised another $150m from a range of investors, including existing shareholders.

Xero UK managing director Gary Turner said that becoming a PLC at such an early stage contributed to Xero's success.

“Being a public company early enabled Xero to have a large amount of cash early - around $10m - before it really had many customers.

“Xero has subsequently raised more than $300m and has used this to accelerate growth in staff and product development,” Turner said.

The recent injection of funds from investors including Matrix Capital Management helped to fund Xero's expansion into the US market - not a cheap undertaking.

Clear Books, which registered as a PLC, took a different approach. Founder Tim Fouracre turned to crowd funding for his expansion finance, using an in-house platform. Members of the public - including several AccountingWEB members - can now buy shares in Clear Books for a minimum investment of £8.94 until 31 October.

Crowd funding relies on the collective cooperation, attention and trust of people who network and pool their money together - usually via the web - to support efforts initiated by other people or organisations.

Clear Books has recently announced that it has actually raised its full target of £839,913 and will use it to launch its new offering, Clear Books Pro.

The developer surveyed customers in December 2012 to gauge interest, and 200 of which replied saying they would be interested in investing in the company.

Around 5% of these investors are accountants, Fouracre said, and they remain a “key channel of growth” for Clear Books.

"What we want to do is build a competitor to Sage and IRIS and decided to crowd fund as we didn’t want to go for something like venture capital. The reason for this is we have a long term plan to grow our business in partnership with our customers so we didn’t want to be subject to a shorter term view,” Fouracre said.

Their new cloud offering, Clear Books Pro, is what Fouracre calls a “one-stop shop” of their existing and new software which will integrate with each other.

New software the company is working on and will release in coming months includes tax and practice management/CRM solutions.

Another software firm taking a similar, yet slightly different approach, is BI vendor Smeebi.

It too has opted for crowd funding to raise capital, but looked for a smaller amount, £250,000, which it sought in larger investments starting from £1,000.

Smeebi is using FundedByMe, an established external crowd funding platform, and wants to raise funds to grow its product, which investors can access for free.

“Equity crowd funding was chosen as the best way to raise extra funds needed post launch to help with stepping up a gear in marketing and product expansion,” Smeebi founder Rob Connell said. 

But using an external platform has been a learning experience for Smeebi, who had some setbacks while FundedByMe ironed out their technical solution. But now it has relaunched, Connell said it has extended the investment period until 4 November, and has three parties already interested. 

Using an external platform means you can't conduct your own due diligence on prospects, Connell said, and praised Fouracre for using his own system and customer base to source investors. 

And also dissimilar to Clear Books, Connell said that the firm wasn't crowd funding to set up a specific product, but more to ensure the continuity and further, long-term development of their existing solution. 

For more on crowd funding and alternative finance, see: 

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Replies (3)

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By abelljms
30th Oct 2013 11:43

funding

 

the under-lying BIG issue for Smalltwat Co. Ltd is that lenders only lend against hard assets, primarily property or large machinery that is immovable like a heidelberg press etc.

 

Unfortunately banks lie to aspiring borrowers ....."oh thank you for your enquiry, please pop in with a full business plan" [costing £giga] " and we will talk through your requirements".......

aaaand then say "**** off not interested as you don't have a massive property to pledge."

 

they should a] tell truth upfront

b] come up with a way of lending safely to assetless companies.

 

i know how to do it, but i'm charging whoever wants the secret.

 

PS. i 'm looking for £100m to set up a bank, (un-secured) loans welcome for the cause.

 

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By User deleted
01st Nov 2013 12:30

Interesting statement in ClearBooks share offer ....

Page 3 – Risk Factors – Security & data

‘.. Loss or theft of data and other security risks could adversely affect the Company’s reputation and revenue. Such risks cannot be eliminated but the Company does its best to reduce them by ensuring its cloud accounting software has been accredited by the Institute of Chartered Accountants in England and Wales (‘ICAEW’) and the Institute of Certified Bookkeepers (‘ICB’). The Company currently has Professional Indemnity Insurance cover of up to £1,000,000 ..’

Questions/Issues

Does ICAEW accreditation adequately address the issues surrounding securityIs it appropriate to rely upon ICAEW accreditation in this mannerWhat 'white hat' testing has been done by ICAEW (i.e. SQL injection etc.) to check for known issues in certain areasHow can ICAEW accreditation reduce or identify the security risks identified

Rather confused about this statement especially as it forms a material part of addressing security issues in the share offer
 

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By keithas
01st Nov 2013 14:27

Agree with abelljms, but even worse

"the under-lying BIG issue for Smalltwat Co. Ltd is that lenders only lend against hard assets, primarily property or large machinery that is immovable like a heidelberg press etc."

Having been with Smalltwat Co. Ltd and refused lending from the bank for large machinery which would cut production costs by a huge amount whilst, at the same time, they were perfectly happy to finance luxury cars for the directors. The banks' criteria isn't what makes financial sense for the company but how easy it is to liquidate the assets.

If it wasn't so tragic, it would be laughable, given the state the banks are in due to cavalier lending.

 

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