US investors pour $82M into Xero

Two American investors have increased their interest in cloud accounting software provider Xero by a total of $82 million, of which $60 million is newly issued capital and $22 million is to purchase of shares from its three largest shareholders.

The $22 million is split three ways between director Craig Winkler, chief executive Rod Drury, and co-founder Hamish Edwards, who will receive around $15 million, $5 million, and $2 million respectively for the sale of portions of their holdings at the transaction price of $6 a share.

At the same time, Peter Thiel-backed Valar Ventures of San Francisco will raise its holding in Xero to 7.0 percent from 3.9 percent, and Massachusetts-based Matrix Capital Management's stake will rise to 9.8 percent from 1.8 percent.

Winkler's interest in the fast-growing accounting software developer, which has global ambitions, falls to 15.7 percent from 19.5 percent, Drury goes to 18.5 percent from a 21 percent holding, and Edward's shareholding reduces to 4.9 percent from 5.7 percent.

"The board's decision to increase funding follows the announcement on Nov. 14 that Xero will accelerate its investment in the business to take advantage of market conditions," directors said in a statement to the NZX.

The company is loss-making at present, judging it better to invest in accelerated growth to capture market share in the massive, emerging global market for online, cloud-based business systems.

It reported $38.7 million in monthly revenues in November, up from $18 million a year earlier, a $7.7 million loss for the half year to Sept. 30, and an increased loss for the full year. It had $30.6 million cash in hand at Sept. 30.

A total of 10 million new shares have been issued at $6 a share, representing the 20-day volume-weighted average price at the time the transaction was negotiated. Xero shares rose 1.7 percent to $6.55 immediately after the announcement.

The purchase of existing shares was made in order to minimise dilution to existing shareholders, Xero's NZX statement said.

"We believe Xero is the global market leader in cloud-based small business accounting software," said David E Goel, managing member of Matrix Capital. "The future is in the cloud, Xero is there, and we want to be there."

Valar's Andrew McCormack said the investment firm, backed by Paypal co-founder and billionaire Peter Thiel, was confident that "Xero has a very long runway."

By Pattrick Smellie - BusinessDesk