Deal focus: Serving the sole trader

Xero became arguably New Zealand’s first global start-up success story on the strength of a cloud-based accounting software suite for small businesses. Over the course of 16 years, it has accumulated over 3.3m subscribers and generates annual revenue of NZD 1.1bn (USD 694m).

What Xero did for companies with dozens of employees, Hnry wants to do for sole traders. It aims to ease the administrative burden on these individuals by automating the filing of tax returns and payment of taxes, managing invoices and expenses, and facilitating budget management. This is done by setting up a dedicated Hnry bank account accessed via an app.

“What we really liked was their insight that what sole traders really want is their tax done for them and the reassurance that there’s a human behind it all. What they didn’t want was a new bank account,” said Jackie Vullinghs (pictured), a partner at Airtree Ventures. “By automating much of the process, Hnry was able to get extremely good product-market fit while retaining strong growth margins.”

Airtree recently led a NZD 35m Series B round for the company, with part of the proceeds earmarked for international expansion. Other participants included New Zealand’s Icehouse Ventures, US-based Left Lane Capital, and Australia’s Athletic Ventures.

The VC firm claims that sole traders spend an average of seven hours per week and NZD 400 per month on tax management and other financial administration like Medicare payments and superannuation contributions. Hnry’s own research has found that sole traders waste four hours a week on tax admin, while 85% are paying more for supplies and services due to inflation.

Airtree first met the company in 2019 as part of a ground-up assessment of the financial technology landscape. Having seen technology-enabled solutions transform the consumer experience, it wanted to know where there were opportunities to make a similar impact on business users.

Hnry stood out because it was unusual. According to Vullinghs, few start-ups are developing accounting software specifically for sole traders – whose key pain points are “I don’t know how much tax to pay” and “I don’t know how to manage my monthly cash flow.” Users want a product that is simple and cost-effective, whereas the likes of Xero and MYOB have more complex offerings.

The company’s monetisation model also appealed. Subscription fees scale in tandem with a sole trader’s business, with Hnry taking 1% of all payments that flow into the account. Revenue is capped. In New Zealand, for example, anyone earning more than NZD 150,000 in a financial year is charged a flat rate of NZD 1,500.

“It feels like a small amount for a sole trader, but it adds up to decent revenue. And it’s still cheaper for the sole trader than Xero or MYOB,” said Vullinghs. “From a unit economics perspective, it’s great.”

Expansion plans

Hnry was founded in 2017 by husband-and-wife team James and Claire Fuller who had first-hand experience of the challenges facing sole traders. It quickly built up a user base comprising self-employed tradespeople, independent contractors, and freelancers and creators. Early funding came from Equity Venture Partners and members of Ice Angels and AngelHQ.

In 2019, Airtree’s overriding question was whether Hnry could replicate its growth in New Zealand in other markets. The company entered Australia in 2020 and now claims tens of thousands of users across both markets, serviced by a team of about 80. In the past 12 months, its revenue has tripled, and its customer base has nearly quadrupled.

Left Lane joined Equity Venture Partners, Ice Angels, and AngelHQ in a NZD 16m Series A round – at a reported valuation of NZD 100m – in February 2022.

“They have been in Australia for over a year and have shown they can grow well and on a faster trajectory than they had grown in New Zealand. That gave us the confidence that the market is big enough and we can get the return we need for our fund size,” said Vullinghs. “It also creates a playbook for entering other markets.”

Based on Xero’s experience, Hnry may get most traction in other Commonwealth markets where there are some similarities in accounting systems. When Xero listed in 2007 – a year after it was founded – the company wanted capital to enter Australia and the UK. Today, Australia accounts for 44% of revenue, followed by the UK on 26.5%, New Zealand on 13.6%, and North America on 6.6%.

Airtree estimates the addressable market in Australia and New Zealand is worth USD 600m and between USD 1.5bn and USD 2bn globally. While it has noted a secular growth trend in the freelancing economy – driven in part by a post-pandemic change in working preferences – this is not factored into growth projections for Hnry. Reaching these targets is contingent on localisation.

“Most of the challenges around international expansion are operational,” Vullinghs added. “Can you hire a strong team? Can you get the business up and running quickly? Can you develop good ways of working between headquarters and the satellite office on the ground, working across time zones and creating product prioritisation across geographies?”

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Australasia
• Financials
• Technology
• Support services
• Early-stage
• New Zealand
• AirTree Ventures
• Financial Services
• Fintech
• SME