Wave Accounting raises $5 Million

Startup offers free online accounting tools and services to small businesses

Toronto-based Wave Accounting thinks it can run a profitable business without charging customers a cent for its full-range of online software accounting services. 

Friday's announcement of the $5 million in Series A financing round, led by Charles River Ventures (CRV), with the participation of OMERS Ventures, is definitely a hopeful sign for the Canadian startup. This round comes on top of a $750,000 in funding obtained from the Federal Economic Development Agency for Southern Ontario in September.

Wave offers its services at no cost to its customers, so how does it monetize its services? It generates revenue by offering sophisticated, ultra-targeted advertising and group-buying opportunities.

Once the customer is logged into its Wave account, a screen labelled Business Savings is featured. This featured page offers at discounted prices services from other companies. The customer is asked to choose from a range of paying services,  ranging from business cards, Web hosting, to credit card processing services and more, at a discounted price.  If the customer chooses to take advantage of any of these opportunities, Wave Accounting gets paid a percentage or call it a commission, by the supplier.

Advertising partners who have signed up to date include giants, such as American Express, Dell and Grand & Toy, among several dozen.

With no shortage of online accounting software on the market right now, from QuickBooks Online Accounting Software to Sage Peachtree, all offering free basic package, or free trial to its customers, can a business survive a free business model? Kirk Simpson, President and CEO, believes that they can.

He said to me," Yes, there are many online accounting services in the market, but none of them offers full-range services, free of charge. In 11 short months, we have signed in 75,000 small businesses in 198 countries to our services. I think that we have identified a viable niche."

There is always the risk to have a competitor enter the market, and replicating Wave Accounting business model. With that scenario, it's all about backing and marketing.

So far, investors are willing to bet their money on Wave.

"We believe in the vision of the Wave management team, and are confident that they are well positioned to execute their ambitious plans," says Devdutt Yellurkar, a partner at CRV, via a press release. "We see great potential for immediate and long-term growth with Wave, on the strength of their technology and innovative business model."

Simpson said to me, “We are confident that we have secured our place. In about six weeks, we will be launching a new full payroll component to our services in Canada, shortly followed by the launch of the product in the U.S. When you think that there are 20 million small businesses in North-America, we think that we have identified a niche and we are going to keep our focus there."

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