FinancialForce raises $110 million as it goes for growth

It didn't take Advent long after its acquisition of UNIT4 to commit $50 million in funding for FinancialForce, the group's cloud play. Less than a year later and FinancialForce is announcing a further $110 million funding round, led on this occasion by Technology Crossover Ventures (TCV), a provider of capital to growth-stage private and public technology companies. Salesforce Ventures, one of the original investors is also in the deal. Despite this large investment, Advent maintains overall control of FinancialForce via UNIT4.

This is exciting stuff for several reasons.

While we did not report it at the time, FinancialForce closed out 2014 with revenue running at $50 million pa on growth of 91 percent. That is stunning by any measure and especially when you consider that the company has only been going for five years. It is a significant measure because history teaches us there are certain crossing points that high growth companies need to reach before they are taken more seriously by the next group of potential customers. $50 million in revenue is one, a $100 million in funding is another.

This current funding round puts it on course to aggressively grow what is looking increasingly like a significant opportunity in the mid and fast growing SMB market for cloud based accounting and project management solutions.

In a discussion with Jeremy Roche, CEO FinancialForce, he explained the company is now seeing deals across the spectrum of customers that are already comfortable with Salesforce, the platform upon which FinancialForce is built. He said:

If you take a peek now at the home page, a lot of the new customers are across big pieces of the larger enterprise.

That's not quite the same as managing to win enterprise wide deals but it is a great starting point for customers who are coming to terms with cloud as a technical basis for their next financial applications refresh. For FinancialForce, it provides ample opportunity to land and expand.

While Roche would not be drawn on growth numbers, it is not difficult to come up with stretch running revenue goals in the $85-90 million range for 2015 and comfortably moving past $100 million in the following fiscal year. I say that based upon several factors.

First the most recent growth is truly impressive for a company that competitors continue to write off as an SME only play but which has garnered some solid lighthouse names. Symantec, Seagate and Lexmark spring to mind along with others outside high tech, a number of which I am not permitted to name at this time but which will likely raise eyebrows and which are genuinely impressive.

Second, FinancialForce's acquired (via Appirio) PSA solution has proven to be a solid product that is well received in the project management segment.

Finally, we are seeing a greater acceptance of cloud financials by CFOs in all deal sizes although much of the real action is trickle up rather than trickle down. In conversations with colleagues, it seems that we are at something of a change point - not tipping point yet - where what has been an underserved section of the market is willing to open its check books and opt for something different from the old fare of debit and credit.

This current round of funding helps considerably. Back to Roche:

You can see from the caliber of people we've hired most recently that FinancialForce is being taken seriously. We think that being built on a single cloud platform is an advantage in our space. Competitors cannot say the same. But you've still got to build out enterprise grade products and this funding certainly allows us to prepare for the future.

That's true and I expect to see 2015 as a year when the product is fleshed out substantially. My notes from other recent briefings with the product team tells me this funding round gives FinancialForce the elbow room and flexibility to get much more done in 2015 than might otherwise have been the case. The problem will always be execution since the market for the type of designers, technical architects and engineers this company needs is highly competitive.

One interesting tidbit to ponder going forward centers around financials visualization. Roche believes they've done a good job on this which has helped to catch the CFOs eye. The general financial analytics space has been a discussion point between myself and the company for quite a while. It is a fact of life that developing analytics for cloud based financials is very demanding and difficult work. The fact Roche is more comfortable is telling. Let's see what difference that makes in deals going forward.

The one area needing attention is HR. FinancialForce claims ERP status by virtue of having an HR solution but to be frank it needs a lot of work if it is to be competitive in the mid-market. You can argue that businesses with less than 500 employees probably don't need much by way of functionality. I would argue that as FinancialForce attempts to follow Salesforce up the customer crime, those demands will become more apparent.

 

In the meantime, FinancialForce is well placed for a breakout year. The funding is there, the commitment to engineering resource is there and the company is always looking for good sales talent. It will invest more strategically in its implementation partner ecosystem which accounts for around 70 percent of implementations and that should provide additional runway for securing growth.

Featured mage credit: hand pushing funding button on touch screen © pichetw - fotolia

Disclosure: FinancialForce is a premier partner at time of writing and a personal product advisory client.