FreeAgent flotation targets £8m investment
Cloud accounting developer FreeAgent is floating on the London Stock Exchange to raise £8m with a £31m and £35m market valuation.
FreeAgent founder and chief executive Ed Molyneux said that the admission to AIM will accelerate its growth and assist ongoing investment in its own products.
“We've got to the point in the business where there's enough predictability about the growth and maturity in our processes to be out in the public market,” he told AccountingWEB. “We don't overestimate the overhead and complexity that comes with listing, but we think there are enough reasons to go ahead and do it. Now is the right time.”
The benefits for FreeAgent will spread across the whole of the company. “Our employees will be able to have share options in a public company, our early investors will have equity, and it will bring more capital into the business,” said Molyneux.
Despite recent market turbulence, Molyneux said investors were still looking for strong businesses with “good growth prospects, and visibility of forward revenue” to invest in.
The Edinburgh-based company raised £9m through a combination of equity and debt over its nine year life so far. Last summer FreeAgent generated £1m through Seedrs, an equity crowdfunding site, and as a result gained 900 new shareholders wrapped up as one ‘nominee’. Almost all these new Seedrs investors were FreeAgent customers.
HMRC’s Making Tax Digital plans will no doubt strengthen FreeAgent's listing potential since it will affect the typical FreeAgent customer: sole traders and 'one man band' limited companies.
Extend competitive advantage
Micro businesses make up a large proportion of the market – 95% according to Molyneux. FreeAgent is banking on serving these micro businesses to “extend its competitive advantage” in this pre-MTD world and “maximise growth”.
“What's important about making MTD successful and as painless as possible is the availability of automated and smartphone accessible products,” said Molyneux. “This will allow businesses to comply with the MTD requirements with as little hassle as possible.”
But FreeAgent’s flotation potential is far from predicated on MTD. “All our projections we are able to share based on extrapolating historical growth rates. So we are not assuming anything we happen,” he said.
Digitalisation of tax will speed up businesses adopting cloud software. But Molyneux has seen the trend already moving towards this transition.
So far, FreeAgent has helped 50,000 customers transition from the likes of spreadsheet-based recordkeeping to cloud accounting.
Meanwhile, Molyneux is optimistic about the opportunity cloud accounting presents for accounting services. “Technology can't do everything but solving data problems is something it is pretty good at," said Molyneux. "Connecting accountants into this vast market of businesses who are underserved because they don't have the data for accountants to help them is something we see as a big opportunity for the profession."
*This article was amended 9 November to correct a spelling snafu*