Arxxus — where did it all go wrong?

Arxxus — where did it all go wrong?

Over 10 years, Arxxus was the poster child for Australian Salesforce system integrators, becoming the only local partner to gain direct funding from the CRM giant. However, as its dramatic fall has proven, a vendor name and cash injection can only go so far.

Credit: 56099550 © David May

This time last year, Arxxus Technology Partners’ newly-minted CEO Kim Stewart-Smith sat proudly alongside Salesforce Ventures bigwigs to celebrate the company’s latest injection of funding.

“That investment has allowed us to propel our growth quite rapidly,” she told Salesforce YouTube subscribers. “That growth will continue and our growth story will continue to enrich as we face the Indian market, Asia Pacific...and we have aspirations to be global.”

Bold words for a company that had, until that moment, allegedly traded insolvent for the previous six months, according to claims by the company's liquidators.

And one year later, the situation couldn’t be much worse for the company that was once APAC's largest independent Salesforce integrator. 

Last week officially saw the beginning of the end for Arxxus, as creditors voted to liquidate the company on 27 February -- a decision unlikely to return a cent, but frankly the only real available option in play.

A report from the administrators Hall Chadwick claims that the company had effectively been running insolvent since September 2018, closing down operations on 22 January this year with a deficit of $5.2 million. 

Unsecured creditors, including Salesforce Ventures, have filed claims for more than $5.4 million for just a pitiful remaining amount of up to $552,000 once the administration has completed. 

Further costs may emerge down the line if Arxxus’ directors David Freyer and Brian Williams come under the scrutiny of the Australian Securities and Investments Commission (ASIC).

Insolvent trading can see directors hit with civil penalties up to $200,000 and criminal penalities up to $220,000 -- plus up to five years’ imprisonment.

While it’s early days to speculate on any investigation outcome, the fallout raises some critical questions about how this  Australian-grown company plummeted from Salesforce darling to falling apart in little over a year. 

The rise 

First incorporated in 2007 and officially launched as Arxxus in October 2009, the company emerged amid a plethora of born-in-the-cloud IT consultants, helping to kickstart Australia’s much-lauded early migration into the cloud sphere. 

Initially, Arxxus specialised in creating apps on the, Amazon Web Services and iOS platforms.

However, its arrival coincided with the CRM specialist’s first posting of U.S$1 billion in annual revenues, and at a time when opportunity was rife for Australian partners to disrupt the hold of legacy software giant Oracle. 

Over the next three years, co-founders Freyer, Natesh Vedgiri and Hari Chandrashekar began building a niche in small-to-medium sized businesses and going on to open a subsidiary in Pune, India, in 2010. 

Three years after going to market, the founders took their ambitions to the United States to raise funding. The trip proved a success with Salesforce, alongside Syven Capital and an angel investor jumping on board and marked the first time the former had invested any direct funding in an Asia Pacific company.

At the time, Freyer, then business development and sales director, said Salesforce saw “something unique” in Arxxus, and indicated its ambitions to do “something substantial” beyond Australian borders. 

Over the next six years, things appeared to be going well. The company became an exclusive Salesforce partner, grew its team in Sydney and Pune to 140 people -- 71 per cent of whom were housed in India -- and winning a slew of vendor awards. 

Claiming to have worked with more than 500 customers during its decade of operations, Arxxus went on to score more funding from Salesforce’s investment arm, Salesforce Ventures as part of the company’s $50 million TrailBlazer Fund for SIs. 

At the time, the CRM vendor said the funds would enable Arxxus to expand its capacity into the mid-market and public sectors. But in just over a year, Arxxus’ fortunes had changed dramatically.

The fall

Around March 2018, Freyer took over from Vedgiri as managing director and CEO, the same year as Arxxus puts itself forward for sale.

According to the administrator’s report, this saw the company execute non-disclosure agreements (NDAs) with “interested parties to discuss and review” confidential information. The report, using information from Freyer and Williams, states “no sale of the company’s business” eventuated. 

Once the sales discussion ceased, the report alleges that Arxxus suffered a loss in sales from customers switching to a competitor who was involved in the sale, which had, the report claims, utilised information in breach of the NDA.

However, some individuals with knowledge of the situation have disputed this version of events, suggesting Arxxus did in fact have a “substantial” offer on the table that was turned down, and who have claimed no NDAs were broken in the process.

Regardless of the situation, by September that year, Arxxus began trading insolvent, according to the creditor’s report. This was despite posting a profit of $805,000 for that financial year.

In the wake of this, the company appeared to change tack, appointing former Ernst & Young corporate services leader Kim Stewart-Smith as CEO while Freyer moved into the role as chairman.

Within months, after seven years of operating relatively under the media radar, the company began something of a public relations campaign, announcing the launch of an office in Brisbane (later revealed to have been one person), teasing an office in Singapore and Stewart-Smith appearing in Saleforce’s marketing video for its Trailblazer fund.

Read more on the next page...

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Tags salesforceliquidationarxxusDavid FreyerKim Stewart-Smith

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