Accounting firm FreshBooks hits unicorn status, plans global growth after raising US$130-million

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Toronto’s FreshBooks has joined the ranks of Canada’s unicorns with a US$130 million funding round that the accounting and invoicing software startup plans to use to launch an acquisition-fuelled growth strategy.

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The round involved US$80.75 million in equity financing and was led by Boston-based Accomplice, an existing investor that made its largest single investment in a startup to date, with previous investors Barclays, J.P. Morgan, Gaingels, Manulife and Bank of Montreal’s technology and innovation banking group also taking part. An additional US$50 million in debt financing was also provided by BMO.

FreshBooks claims that the round raises its valuation to more than US$1 billion — a milestone for tech startups known as unicorn status — putting it among a series of Canadian companies to reach the marker in the past year, including Visier, Clio, Thinkific, Wealthsimple and Clearco.

The 17-year-old company provides cloud accounting software that allows small businesses to invoice, receive payments, file taxes and manage payroll on its platform. Since the startup’s last funding round in 2019 — an investment from JPMorgan Chase & Co. for an undisclosed amount —  FreshBooks has seen demand for its software climb as the COVID-19 pandemic forced businesses to digitize their accounting systems and people increasingly pivoted to freelance work and launched their own ventures, according to  chief executive Don Epperson.

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“We saw a slowdown of economic activity as everybody pulled back, and now it’s the opposite,” Epperson said of the change from the early days of the pandemic. “Everything is accelerating with a higher number of invoices and higher values per invoice. There are a lot of people wanting to start their own thing or become freelancers, so we have a lot of new businesses as well.”

Two years after joining FreshBooks as a board member and executive director, Epperson took over the top spot in January from Mike McDerment, who co-founded the company in his parent’s Toronto basement in 2004. McDerment had bootstrapped FreshBooks for more than a decade to scale it from a three-person startup to a 500-person company with customers in more than 160 countries, including Canada, United States, Ireland, United Kingdom, Singapore, Australia and Mexico. When McDerment stepped down as CEO, he took the helm of the board of directors as chairperson.

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The move, proposed by McDerment, would allow him to focus on the company’s vision and direction while Epperson could spearhead its accelerated growth plan, according to Jeff Fagnan, founder and managing partner at Accomplice.

As FreshBooks saw an uptick in people using its software as pandemic restrictions eased, it started receiving calls from potential investors asking whether the startup was considering a funding round. The cloud accounting software company was looking to hire a bank to manage the round when it received a call from Accomplice proposing to lead an internal round, Fagnan said.

We have so much conviction for the opportunity given the growth of small business and people working for themselves

Jeff Fagnan, Accomplice

“It’s our largest investment ever in any company,” he added. “We have so much conviction for the opportunity given the growth of small business and people working for themselves. We also saw great product improvement and accelerated growth, the partnership with Don and Mike, and we thought this is one of our easiest investment decisions in 22 years of venture capital.”

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FreshBooks aims to grow its 500-person team as it sets its sights on global expansion, potentially with its first office in Asia. It opened its first international office in the Netherlands in 2019 and has since launched in Croatia, Mexico and the United States.

It is also looking to add new products and apps, and has invested in growing its sales team in an attempt to grab more market share from competitors including Xero Ltd. and Intuit Inc.’s QuickBooks software. Since its early days as an online invoicing system, FreshBooks has added accounting, expense tracking, payments, project management and financial reporting software.

To further expand its footprint, FreshBooks is targeting one or two acquisitions each year in new countries, with the first expected as soon as this year. It made its first and only acquisition in September when it purchased Mexico-based invoicing company Facturama for an undisclosed amount, gaining more than 19,000 self-employed professionals, small businesses and startups in the deal.

“We want to reach as many customers as we possibly can,” Epperson said.