FreeAgent takes investment from IRIS

IRIS has taken a minority stake in FreeAgent Central for an undisclosed sum and has created a joint development and distribution partnership. This is an important announcement for the UK SaaS accounting market.

In the past, start ups had to raise funds via venture capitalists whose agendas are driven by share price first, all other things second. In a call with Phill Robinson, managing director IRIS Accounting Practice Solutions, he argued this is ‘smart investing.’ I agree. Taking funds from a large market player provides important benefits to both parties when structured appropriately.

From FreeAgent’s side of the fence, it short cuts time and routes to market. IRIS claims 14,000 practices and 40% share in the professional practice market. Even if those firms only have 10 clients that can be usefully brought over to FreeAgent then it’s a huge uplift to its existing customer base. Having Phill’s experience from his time at Salesforce.com to draw upon is another huge benefit. Another benefit comes in FreeAgent gaining access to the market expertise that IRIS brings to the development table: “While we’re not yet in a position to talk specific products, we already know this partnership allows us to concentrate on some of the more important development areas we believe will benefit the practitioner,” said Ed Molyneux, CEO FreeAgent.

From IRIS’s side of the fence, it gains access to some of the latest technology that uses web standards, acquires a fresh revenue stream and allows the company to innovate around core applications: “This is a clear indication to the market that IRIS is in the cloud computing business. This partnership allows us to do that without disrupting what our customers already have and which they’re happy to continue using,” said Phill Robinson.

I’m excited about this announcement for a number of reasons. It is a solid endorsement of the saas model from a traditional on-premise player that can leverage shared knowledge to transition between a hybrid computing model and an eventual saas play. That’s some time off but you can see the direction.

While it has been obvious to me that one of the big practitioner vendors would at some stage make a cloud/saas play, I didn’t expect it to come in this way. Or maybe I did. Knowing that Phill Robinson is at IRIS was always going to be interesting and especially given he knows saas better than most. Providing FreeAgent with a partnership arrangement that has teeth in both product and salesperson’s compensation demonstrates this is way more than an opportunistic investment.

The question now is how the rest of the market responds.

UPDATE: An understandably upbeat Ed Molyneux adds more colour to the story, noting that:

Well, one upshot of the investment is that we’ll be able to aggressively accelerate our development (we’re hiring!) and tackle some of the bigger features, like automatic bank data synchronisation, as well as maintain our constant efforts to simplify and streamline and polish every part of FreeAgent until it sparkles.

UPDATE 2: Investor Robin Klein chimes in:

Accountants have a unique opportunity to help small businesses thrive, and FreeAgent will help them that to do that even more effectively by connecting them live to their clients’ accounting data.

UPDATE 3: AccountingWeb talks to the product roadmap:

The [FreeAgent] bookkeeping tool is very likely to be adapted to send a trial balance to the IRIS production database and Robinson confirmed that the next release of the IRIS suite would be equipped with iXBRL output mechanism to file iXBRL computations and Corporation Tax accounts via HMRC’s new CT Online systems.