Canopy, a provider of cloud-based practice management technology for tax and accounting firms, secured $11 million in a new round of funding Tuesday.
The latest financing round includes a new investor, Ankona Capital, along with additional money from some of its earlier investors, NewView Capital, Pelion Venture Partners and Tenaya Capital, among others. The Lehi, Utah-based company plans to use the additional capital to continue building its cloud-based practice management suite of products. Prior to the latest round, Canopy had received a total of $101.5 million through eight rounds of funding, according to Crunchbase.
Using cloud-based practice management software may be more appealing now to firms that have been forced to work remotely over the past year due to the pandemic. Tax and accounting firms have grown more accustomed to operating remotely from home offices, and offering a cloud-based system has become a must for accounting and tax software vendors in recent years.
The extra funding will mainly be spent on product development. “We’ve invested a lot of money into our platform and we’re continuing to invest money,” Canopy CEO Davis Bell told Accounting Today. “That is just going to be geared to developing the product that we’re building.”
Canopy plans to enhance various aspects of its practice management system. “It’s less about adding and more around just enhancing each of our product subcategories: document management, CRM and client portal, workflow, time and billing, and payments and invoicing,” said Bell. “We’ve got big plans for all of those. And as we move upmarket, as we’re now squarely in the 10 to 50 [full-time employee] segment, the needs become more complex. These are larger firms. Their use cases are more complex, and they just need more stuff, so it's really building each of those product subcategories in a way that meets the needs of those firms.”
One of Canopy’s original investors, Pelion, is pleased with the company’s progress over the past year and a half, and is among those joining the latest funding round. “We first invested in Canopy because we knew that the accounting software industry was stagnant and ripe for disruption,” said Chad Packard, a general partner at Pelion Venture Partners, in a statement. “Accountants and their clients are demanding modern solutions that allow them to work and interact virtually, and the large industry players haven’t been able to deliver what customers want. Over the past 18 months, Canopy has executed incredibly well on the vision of bringing modern cloud software to accounting practices, and we’re thrilled to continue to back the team at Canopy in their quest to modernize the accounting software stack.”
The new investment firm, Ankona Capital, favors vertical software companies that are challenging the entrenched competitors. “They love software companies that are servicing a specific vertical like accounting,” said Bell. “There are a couple of things they look for in a vertical software company. One is, has someone come along and been able to compete against the incumbents and their legacy products, because that hasn’t happened yet in the accounting space in a meaningful way. They were very interested in us because they saw us as the next wave of providers who can come along and compete against the incumbents with a modern, cloud-native, mobile-first offering.”
Canopy has been facing some headwinds since its founding in 2014 and needed to retrench two years ago on its plans for branching out into offering its own tax preparation software for professionals. The firm had gone on a hiring spree and expanded into a new office building in Lehi, but it needed to shelve its ambitious plans and laid off over 100 employees. Soon after founder Kurt Averell departed the company in November 2019, Bell took over as CEO to turn around the company (
Bell doesn’t plan to use the new financing to revive the tax prep software product. “That’s always under consideration, but that wouldn’t be something that we plan to do with this round of funding,” he said. “We’re very focused on the practice management opportunity, and this round of funding will really go toward helping us to enhance that product. The tax preparation software is something that we believe there’s still a lot of opportunity there. We built something pretty great, but it’s a big lift. It takes a lot of people and a lot of capital, and it wouldn’t really be on this round of funding that we would get after that.”
Canopy has begun hiring more employees on the product development side again, and the additional funding will help hire more employees for that work. “We’ve actually already started hiring, relative to the amount where we were when I came out after the cuts,” said Bell. “We’re trying to be fairly conservative with our capital, but we are going to make some hires and we have made some hires already and we'll make some additional hires with this capital.”
The company has also relocated to smaller offices, and like many companies these days with much of their workforce working remotely, it may not need a big office anymore. “We actually just moved out of that large office space,” said Bell. “That was a long-term lease with lots of space and more than we needed. So we moved into a new office space just up the road a little bit from our old one to reflect that new reality, because everyone on our product development side, they’re all being given the option if they want it to work completely remotely, so we just don’t need as much space as we had. This new office space is a reflection of that.”
He plans to continue developing Canopy’s practice management software, including integrating its system with other companies’ accounting and tax software products. “That’s a very important part of our roadmap,” said Bell. “We have some exciting developments. I can’t talk about them quite yet, but we’re getting some good traction with some established players that we think will be very helpful on that front.”
He hopes to continue to disrupt the market with Canopy’s software. “If you look, most verticals have had a SaaS player come along and disrupt the large legacy incumbent players that are traditionally older software, usually not cloud software,” said Bell. “That’s the play that we're intent on running in accounting. We think there’s a huge opportunity for us to come along and bring modern, cloud-first, mobile-native software to compete against those legacy incumbents because there’s a lot of discontent with those legacy players, their products, service and support. That’s what Ankona got excited about and what we’re excited about, because we think accountants deserve modern cloud software and great support.”
