Freee, a Tokyo-based cloud accounting and payroll service that launched in March 2013, today announced a $30 million Series C round that takes its total raised funding to date to $43 million. Existing investors in the round include DCM and Recruit Holdings, with Japan Co-Invest Limited Partnership coming on board for the first time.
While financial software company Intuit is perhaps the most familiar name in its space with flagship products like QuickBooks, Freee claims it is already the market leader on its home turf — and Intuit notably lacks a presence in Japan. (The company made headlines last week when it announced that it will sell off Quicken, its once core 30-year-old personal finance software.)
Freee’s CEO and cofounder, Daisuke Sasaki, told VentureBeat in an interview that this latest round leaves Freee valued at around $250 million. He also said that while the company would be unlikely to raise further funding in the next 12 months, it is gunning for a $1 billion IPO on the Tokyo Stock Exchange in the next two to three years.
The money will mainly be used for sales and marketing, but the company also has ambitious hiring plans to double its employee base to 200 over the next year. Daisuke declined to share revenue numbers, but pointed out that fast-growing SaaS businesses with subscription models typically don’t look profitable “in terms of accounting” in the early stages.
“A lot of global SaaS companies find it really hard to enter Japan, actually,” Daisuke said. “The one who is doing the best might be Salesforce or Google Apps for Work. This could also explain low SaaS penetration here in Japan.” He estimates the country’s cloud accounting market to be worth around $2 billion.
Prior to Freee’s entry into the market in 2013, SaaS penetration in the country among SMBs was only 17 percent, according to Daisuke. That has now risen to around 23 percent. Global SaaS software revenues, meanwhile, are forecasted to reach $106 billion in 2016, according to a Goldman Sachs study from January.
Of Japan’s cloud accounting market, Freee claims to have tied up 38 percent. Trailing competitors include Yayoi (24 percent), Piped-Bits (15 percent), and MoneyForward (7 percent). This last offering is perhaps most comparable to a localised version of Mint.
“When it comes to local competitors, Yayoi is the biggest one,” Daisuke said. “Yayoi is an SMB-focused accounting software company with over 30 years history. They distribute accounting software as a Windows application. They also launched a cloud-based product last year. It is interesting that Yayoi was acquired by Intuit in the 1990’s but sold to PE funds shortly after that. Now Yayoi is owned by Orix, the B2B financing company.”
Going back to December 2012, Freee raised a seed round of $500,000 from DCM, and went on to raise a $2.5 million Series A from DCM and Infinity Ventures in 2013, following its initial product launch. Its $12 million Series B came in two parts in 2014, the first in April and the second in October. That round saw the return of DCM and Infinity, as well as new investors Singapore-based Temasek Holdings’ Pavilion Capital and Recruit Strategic Partners.
In January next year, the Japanese government is planning to introduce a new social security and tax number system for employees, which will require payroll software across the country to be updated. Daisuke expects the new regulations to be a “really big opportunity” for the company, which already claims 380,000 SMBs on its platform. Price plans range from free through to ¥1,980 ($16) per month.
Japan has been in the limelight this month after Netflix announced that it has chosen the country as its first Asian launch market (planned for September 2), and homegrown mobile messaging giant LINE rolled out a new app that lets friends share their location in real time.