Led by chief executive and co-founder Ed Molyneux – a former RAF fighter pilot – the company is hoping to join the Alternative Investment Market (Aim) next month via a share placing with institutional investors.
The firm, which was founded in 2007 and develops accounting software aimed at the UK’s five million “micro-businesses”, was tight-lipped on its fundraising plans, but is understood to be seeking to raise £8 million through its flotation on London’s junior market, valuing it at between £31m and £35m.
The move comes after a number of other companies – including fitness chain Pure Gym and software group Misys – recently pulled the plug on their planned listings amid volatile market conditions, but Molyneux told The Scotsman that FreeAgent was willing to brave the turbulence.
He said: “We’re hearing from the investors we’ve been talking to that there’s no doubt that strong businesses coming to the market with good business models and visibility of future revenues will always be in demand because that’s what investors are looking for. Of course we’re very much aware of the wider market environment but the fact remains that we have a very strong business.
“We want to raise enough to be able to make a meaningful difference to the speed at which we can move forward in the market. That’s our goal.”
FreeAgent has raised about £9m though a mixture of equity and debt over the last eight years, mainly from angel and early-stage technology investors across Europe and the US.
Molyneux, who left the RAF in 2003 to become a defence technology consultant, added: “We’ve now got the business to the point where it’s mature, stable and well-established enough to attract public markets investment, which is a great sign that we are on to something.”
FreeAgent concentrates its efforts on the “micro” end of the market – firms such as hairdressers, coffee shops and florists that have fewer than ten employees. Its own headcount now stands at more than 100 and Molyneux said he was looking to take on more staff over the coming years “as we take on more challenging projects”.
He added: “Edinburgh is a fantastic place to build a business, and we’ve definitely found our niche in terms of access to the universities and the growing start-up ecosystem here.”
With about 52,000 active subscribers, up from 32,000 three years ago, FreeAgent’s revenues have grown at a compound annual rate of 34 per cent over the past two years, with annualised committed monthly recurring revenues standing at £7.7m at the end of September.
The firm has a gross profit margin of more than 80 per cent and is planning to use the proceeds from its flotation on Aim to accelerate the development of its products “with a focus on the digital tax agenda”, grow its customer base and to repay existing debt.
“Half of the micro-businesses in the UK are either using spreadsheets or just paper to manage their finances, and we think we can do a lot to help them,” Molyneux said.
“Over the next few years, HM Revenue & Customs’ digitisation agenda will see everybody having to report quarterly with updates on their business, and while this will give people a much better idea about what’s going on with their business, change is always difficult. Our job is to make sure we have the simplest and most compelling product on smartphones and the web that allows them to meet those new obligations.”
He added: “We believe that the proposed placing and admission to Aim will provide the springboard necessary to help us accelerate our growth and to attract more customers through both our direct and accountancy practice channels, introducing the benefits of FreeAgent to thousands of other businesses.”
N+1 Singer is acting as nominated adviser and sole broker to FreeAgent on its float plans. The firm has also appointed Andy Roberts as its non-executive chairman. Roberts led Innovation Group, the insurance software specialist, from 2009 until its £500m sale to investment group Carlyle earlier this year.