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Home Client Management Software

Practice Ignition Breaks $24m Revenue, Raises $50m at $330m Valuation Helping 5,000 Accounting Firms Scale

by Nathan Latka
December 15, 2021
in Client Management Software
5 min read
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Practice Ignition
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On the heels of raising $50m Series C funding, Practice Ignition Australian CEO and Founder Guy Pearson discussed his journey in-depth with the GetLatka team. Pearson opened up about his investors, building a business in Sydney, Australia, and what he did after the Series C funding closed (the answer may surprise you).

Pearson leveraged his own expertise to launch Practice Ignition in 2013 as the world’s first client engagement and commerce platform for professional service businesses. In less than a decade and with three rounds of funding under his belt, his efforts are paying off. Practice Ignition boasts a customer base of over 5,000 accountants and bookkeepers, with an annual growth rate of 70% YOY in the last 24 months.

  • Recently raised $50m in Series C from JMI Equity
  • 5,000 clients in 5 countries: AUS, NZ, US, UK, CAN
  • Team of 150, with 20 engineers and 20 marketers

5,000 Professional Service Businesses Migrate to SaaS solutions

Founder Pearson recognized an untapped opportunity in the market in which he worked. Many accountants have been slow to adopt automation and SaaS solutions, yet they struggle to manage revenue-generating activities efficiently. Practice Ignition enables these customers to create legal engagement documents easily, offer real-time quotes, and accept recurring and one-time payments. It generates and sends monthly invoices, all while reconciling the payments. These workflows are proving to be a game-changer for professional services businesses.

SaaS Dual Business Keeps Net Revenue Retention at 150%

Practice Ignition makes it frictionless for professionals like CPAs to create, send, process, and get paid from client proposals. This SaaS solution generates monthly revenue from both software and payment processing. Creating a sticky SaaS solution drives Practice Ignition’s net revenue retention rate of 150%.

How Does Practice Ignition Generate $2m in MRR?

The average Practice Ignition customer spends $400 USD per month on the SaaS platform. The $400 in monthly revenue breaks down to $150 on software and $250 on ACH and credit card payment processing. With 5,000 customers, that calculates to $2m MRR and $24m ARR.

Payment Processing Hits $1B Per Year

Currently, Practice Ignition is processing $1B/year in ACH and credit cards for those 5,000 customers. The take rate for customers varies based on volume but averages out to 0.50%, with a gross of 2.7%. Pearson explains that after customers buy their software, the Practice Ignition team works to build their trust to earn their payment processing business.

Pushing Past the First $1B with Variable Payment Processing Rates

To stay competitive and increase that first $1B in payment processing fees, Practice Ignition offers customers variable processing rates based on volume and type of transactions. In B2B scenarios, ACH transactions are processed at a flat fee. Credit cards, the go-to payment solution for many smaller businesses and B2C environments, are processed at rates that vary based on volume. Thus, as existing customers grow their business, revenue grows for Practice Ignition as well.

5,000 Customers with Room for Explosive Growth

With his own expertise as a CPA, it’s no surprise that 95% of Pearson’s Practice Ignition customers are accountants and bookkeepers from his home country of Australia and neighboring New Zealand, and across both ponds in the US, Canada, and the UK. Since every business works with an accountant, Practice Ignition enjoys exposure to a broad swath of other professional service businesses from attorneys to agencies, thanks to the existing customer base.

How a Trio of Partnerships Accelerates Expansion Beyond 5,000 Customers

To accelerate its North American expansion, Practice Ignition is tapping strategic partnerships with industry stalwarts like Thompson Reuters, Gusto, and Intuit. Investing in marketing and sales efforts with these partners will allow Practice Ignition to embed itself further into the massive existing professional services business ecosystem in the US and Canada.

How Practice Ignition Exploded to a $330m Valuation

Practice Ignition broke $1,000,000 in revenue in 2017, nearly five years after its launch in 2013. Pearson describes early angel and seed investors as “friends, family, and fools.” During this time, Pearson and co-founder and product designer Dan Thomas worked to build out their new SaaS product to automate workflows and accelerate client payments.

Abandoning the Freemium Model Pays Off as SaaS Subscription Tops 37% of ARPU

In the early years, Practice Ignition experimented with the popular SaaS “freemium” model, where the software is free to get the payment processing business. The model isn’t new—King Gillette famously used it to sell razor blades by giving away the razor. Pearson found that they didn’t retain customers, so they pivoted to the subscription plus processing model, which is paying dividends now.

Series B Gets Serious with $25m Investment

Tiger Global Management led the way with a $25m Series B funding investment in 2019, the same year that Practice Ignition broke even. This investment round allowed the company to expand its team from 60 and focus on building relationships with their expanding global customer base. Pearson describes Tiger as a “very supportive” investor.

Series C Sells at 13%, Above the 10% Average

At a valuation of $330m, JMI purchased 13% of the company in the most recent investment round. Although 10% is the typical amount of equity given up at Series C, Pearson has no regrets about the investment cost. In fact, 20% of the $50m in funding provided from this Series C was secondary funding; $4m was paid to early employees and the existing team, while the other $6m was paid to an early Series A investor.

JMI Supports $4m to the Team

Pearson explains that JMI wholeheartedly supported the decision to use this portion of the funds to “pay down debts and clear out options.” Pearson himself received enough money from Series funding to eliminate the worry about his daily living expenses, so he could focus on the company’s growth without stressing about personal debt. Allowing early employees to cash out options was his way of “making sure you take care of your people.”

How the Team Grew Past 150

Less than a year ago, Practice Ignition employed a team of 115. Of those, 13 were engineers, 22 worked in sales, and 7 in marketing. Today, the team consists of 150+ employees with 20 engineers and 20 marketers. Pearson expects to fill at least 20 new positions globally in the coming months.

60% R&D Incentives Mitigate any SaaS Valuation Location Impact

Does Pearson believe that being headquartered in Sydney instead of New York has hindered the valuation of Practice Ignition? In short, no. Although he doesn’t consider himself particularly patriotic, Pearson takes pride in helping Australia “sell outsmarts.” He also explains that the government provides great R&D incentives. Like Canada, the Australian government rebates 60% of future dev R&D costs back to the employer.

Who is Guy Pearson, the CEO Running this $330m Company?

Guy Pearson is 37 years old. He spent a decade as a Chartered Accountant at a firm he founded in 2009. He’s an angel investor in a portfolio of companies. The day after his Series C funding round closed, Pearson got married and hasn’t yet honeymooned. He sleeps 6-7 hours per night. His favorite book is The Hard Thing About Hard Things: Building a Business when there are No Easy Answers by Ben Horowitz. He says he can’t imagine life without G-Suite. He wishes his 20-year-old self had learned patience.

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