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Here’s a piece of news that comes with more than a dash of irony. While Groupon (s GRPN) endures financial turmoil after admitting “weakness” in its accounting procedures, Lightbank — the fund launched by the daily deal site’s co-founders Eric Lefkofsky and Brad Keywell — is making its first international investment… in a British accounting software company.
Edinburgh-based FreeAgent, which has been building cloud finance software for freelancers and small businesses for the last five years, is taking a round of investment from the Chicago firm with an eye on the U.S. market. And as part of the deal, it’s buying the Lightbank-backed financial forecasting startup 60mo.
Although FreeAgent CEO Ed Molyneux won’t say how much the deal is worth, he told me it’s “not a large investment” — more like the Series A investment the company took in 2010, which was valued at £2 million ($3.2 million), than a separate, larger round. And for the most part, it will be used to develop a specific fork of the product that can deliver useful services like financial planning, accounting and taxes for American users.
“That stuff is hard to build, but we’ve done it for the U.K.,” says Molyneux, a former RAF fighter pilot who started work on FreeAgent when he discovered the complexity of managing his own finances as a freelance consultant.
Growth has been very strong over the past year or so, he says: FreeAgent had 4,000 customers at the beginning of 2011 and last week broke the 20,000 barrier. But although the company had an international version already, using Lightbank’s money gives them an opportunity to try and make a strong move into a lucrative market.
“When we thought about the U.S. it seemed daunting, but when the opportunity came up to make this deal and acquire 60mo, we thought it was too good to turn down.”
He said the company plans to offer U.S. subscribers a service from July for around $25 a month (the British version costs between £15 and £25 a month — $25 and $40 — depending on the type of business).
From Chicago to Scotland
The deal marks the first time Lightbank, which is largely focused on supporting businesses in the Chicago area, has looked outside America — and it allows them to offload 60mo. Molyneux said the investment discussion came before the acquisition was on the table, so this seems partially like Lightbank is offloading a struggling investment by folding it into another one.
But although 60mo is just two people, and the product they built will be closed down as a result of the deal, FreeAgent hopes to incorporate some of its cashflow projection work into future versions of its own product. Using the data collected from users — both individually and in the aggregate — can be used to help customers understand their own money and the context they operate in, he says.
For example, a plumber using FreeAgent could be able to see that other similar businesses in his area are charging 20 percent more than he is — allowing him to alter his prices accordingly.
“There’s a lot of value we can give customers if they’re willing to let us benchmark their accounts,” he says, pointing to the financial data work being done by other startups like Tradeshift and Kabbage.
“There’s some really interesting things we can do over the next couple of years. Intuit (s INTU) has got a great product, but it’s all after-the-fact — it can tell you at the end of the year how much tax you owe, what your cashflow is like. Our service can give you a ballpark figure as you go along, and as we get more and more data and customers, we can make it more and more accurate.”
Still, what about that odd juxtaposition — taking investment from a team linked to a company that has had accounting trouble? Molyneux bats away the question.
“We’re not connected with Groupon at all,” he said. “And Lightbank’s connection is neither here nor there.”