It’s simply shy of 20 years since US political satirist Stephen Colbert coined the time period ‘truthiness’.
He described it as “something that seems like truth – the truth we want to exist”.
In company circles, there’s a fiscal truthiness the place everybody’s rich and profitable proper up till the second they lodge tax filings with the federal government.
“Profitiness” permits firm execs to inform traders they’re doing effectively and rolling in money, whereas informing the tax workplace they’ve deeply within the purple.
There’s nothing unlawful or dodgy about this parallel monetary universe. Because the late Sydney billionaire Kerry Packer informed politicians within the Nineties: “I am not evading tax in any way, shape or form. Now, of course I am minimising my tax. And if anybody in this country doesn’t minimise their tax, they want their heads read, because as a government, I can tell you you’re not spending it that well that we should be donating extra!”
You’ll additionally see it as ASX-listed firms soften the blow of huge losses below Typically Accepted Accounting Ideas (GAAP) figures, alongside reporting what they name “underlying profit”.
Then there’s the metric lengthy favoured by tech firms: working free money move – the funds left after working bills and capital expenditure.
It’s a non-GAAP commonplace, so firms are free to tweak it to swimsuit their narrative, so long as they disclose the mathematics. It’s not a foul metric and plenty of regard it as a extra helpful model of EBITDA. It’s additionally a simple option to see that enterprise is ready to pay its payments as they fall due and stays solvent. The corporate may see how a lot cash they need to reinvest in operations, acquisitions, dividends, or cut back debt.
In order that’s the way you get “profitiness” – an organization rolling in money will posting losses in audited accounts. In contrast to most public firms, traders don’t count on dividends from personal tech firms – and the nice information is that ought to the enterprise ever find yourself within the black, it has a long time of losses to offset any revenue earlier than company tax turns into a problem.
It’s how Australia’s most profitable tech firm, Atlassian, has, on paper, been unprofitable for its whole 22-year life, whereas its cofounders turned billionaires and the enterprise spent billions extra on acquisitions.
For instance, Atlassian’s FY25 quantity noticed income high US$5 billion, up 20% and losses additionally grew US$130.4m. In the meantime, the enterprise had US$1.4 billion in free money move for FY25.
Canva’s money
Which brings us to Australia’s most respected privately-owned tech firm, Canva.
Since 2017, the Sydney software program success story has informed everybody it’s been worthwhile.
Simply final month, as its valuation jumped to US$42 billion (A$65bn) in a secondary share sale, Canva mentioned it “has been profitable for the last eight years”.
Canva cofounders Cliff Obrecht, Melanie Perkins and Cameron Adams. Picture: provided
However a distinct image emerged in latest days after the tech unicorn received round to telling the company regulator, ASIC, the way it’s been monitoring, when submitting its 2021 and 2022 monetary accounts.
We already know that in FY23, ATO knowledge revealed that Canva paid no company revenue tax on $1.4 billion in income whereas declaring $69.9 million in taxable revenue.
The corporate, whose long-term CFO departed abruptly in early 2024, and was solely changed final November by US-based Kelly Steckleberg, additionally had a change of auditor.
With an IPO within the US on the playing cards for subsequent 12 months, Canva’s little question eager to get its paperwork so as. They want audited account for a prospectus and there’s the small technicality that not lodging company accounts on time as a public firm can see your shares suspended from citation. Regulators cuts personal firms a bit extra slack.
However you do need to lodge audited outcomes with ASIC when your organization meets not less than two out of the three following situations – $50 million in income, $25 million property or 100 staff. It’s an Australia-only challenge that native scaleups hate as a lot as journalists find it irresistible for headlines of huge losses.
Three years in the past, Luke Anear, founding father of SafetyCulture, cracked the shits when a newspaper reported the tech unicorn’s FY22 a loss after tax of $62 million, which included $9 million spent on two acquisitions. The more true image was a $2.7 million month-to-month money burn for a money lack of $35.5 million.
Anear threatened to take the enterprise offshore to keep away from the scrutiny, arguing it additionally gave abroad opponents an unfair benefit over Australian rivals.
“They can size up how much funding they’ll need to take us on; they can see where we’re investing and where we’re not,” he mentioned on the time.
“In the US, companies can remain private until they publicly list. It’s no wonder that Canva and others are domiciled there, and now we’re looking to relocate there too.”
A 12 months in the past SafetyCulture raised $75 million at a $2.6bn valuation.
The price of shares
What Canva’s belated filings reveal is powerful income develop, rising 57% to $962 million in FY2022, however sharing the love with Canvanauts through by shares put the accounts within the purple.
Canva posted a $222 million loss, pushed largely by $482 million in worker advantages bills. One other mind-set about it’s that if it didn’t hand out shares the corporate made a $260 million revenue.
Share-based funds aren’t a “real” expense since they solely dilute current shareholders and alter issues on the stage above the corporate and never the corporate itself. There’s no money in or out as a consequence
On the similar time, Canva’s money reserves grew by $132 million to $420 million. The child’s alright.
In a press release to Startup Every day, a Canva spokesperson mentioned the most recent revealed monetary statements reveal the efficiency of Canva Pty Ltd and its managed entities, and never the total image of the consolidated group outcomes.
“Canva has been profitable on an operating free cash flow basis for several years. While our statutory financials can show accounting losses due to non-cash expenses like stock-based compensation, this is common among high-growth technology companies that use these programs to attract and retain top talent. Canva now has over 240 million monthly active users and recently surpassed US$3.4 billion in annualised revenue,” they mentioned.
“Canva takes its monetary reporting obligations very significantly and has constantly maintained strong monetary reporting processes and oversight. As well as, we frequently share detailed monetary efficiency metrics with the general public, going past the usual necessities for personal firms.”
Canva’s been money move constructive for a few years, reinvesting because it chooses in a number of acquisitions, together with MagicBrief, which the ASIC submitting reveals value it $22.5 million, in addition to Leonardo.ai .
It’s value remembering that Canva final raised this time 4 years in the past, banking $273 million. The billions of {dollars} value of shares altering palms since then have been secondary gross sales. Whereas Canva managed the phrases of these gross sales, and so they delivered elevated valuations, they introduced no cash into the enterprise, as a substitute giving traders liquidity.
The design large has been busy lining up its geese to go public, restructuring to register the mum or dad firm, Canva Inc, in business-friendly Delaware, a traditional company transfer additionally executed by the likes of Atlassian, which moved its mum or dad firm from the UK to the US in 2022.
The unique native enterprise is now Canva Australia Holdings below the US mum or dad. That shift triggered tax points for workers and former staff with Canva shares. The ATO took the view that the restructure was a vesting interval, with the “Canvanauts”, as the corporate calls them promoting the outdated shares issued in Australia, then shopping for new ones within the US mum or dad firm.
The “sale” triggered a tax invoice for the Canvanauts and they also offered a few of their stake to pay that tax invoice
As most staff are painfully conscious, we don’t have free money move mendacity round to deploy when wanted.
