Xero raises $180m; Drury says now ready for battle against giant Intuit in US

UPDATE / Oct 14: Xero has raised $180 million of new capital from a range of US and New Zealand investors including existing shareholders Matrix Capital Management and the Peter Thiel-backed Valar Ventures.

Xero burned threw $9.4 million in its June quarter, and $14 million in its September quarter, taking cash on hand down to $55 million. Now, at a stroke it's ramped that up to $230 million - and its sky-high market cap means it could raise that cash by issuing new shares equivalent to only 8% of its stock on issue.

The transactions are priced at $18.15 per share for 9.92 million shares representing 8% of the shares on issue after the raise, the company said in a statement to the NZX this morning.

Its shares [NZX:XRO] leaped 10.31% to a new high of $19.80 as the market opened, valuing the online accounting software company at $2.33 billion.

While Xero's Companies Office status has yet to be updated, Mr Drury tells NBR ONLINE he is still the largest single shareholder. It was all primary stock. There were no secondary sell-downs.

Why now?

"We did have plenty of money, but after doing three Xerocons [partner conferences] around the world we saw there was an opportunity at our current valuation to put more gas in the tank ... we're fully gassed-up to enter the US market."

US investors account for $147 million of the capital raised. In addition to Matrix and Valar, the US investors represent some of the most enduring and well-capitalised asset management firms in the world, all of whom will assist the company with its strategy and execution in the US market, Xero says.

With American media like Fortune and TechCrunch starting to take notice, is Xero still thinking about a Nasdaq listing?

"Clearly it’s always an option, but the feedback we’ve had is that there's no hurry. We’ve got plenty of capital. We just put a big new office in San Francisco, a contact centre in Denver and a new office in New York. If we get good traction then that's an option in future."

The Xero boss has previously told NBR his company has received advice that it could make sense to list on the Nasdaq once its revenue (currently an annualised $NZ70.6 million) hits $US100 million - a mark it should hit next year on its current growth trajectory.

Mr Drury says the extra cash from existing American-based investors, including Facebook and Paypal billionaire Mr Thiel, is an endorsement of Xero's current strategy - and particularly it's ability to take on the giant Quicken and QuickBooks maker Intuit, which holds a near monopoly on personal and small business accounting software in the US.

"The investors put us through the wringer over the past month" the CEO tells NBR. "They've done a lot of work on where Intuit is at." They wouldn't have re-upped their investment unless they thought Xero could disrupt the US incumbent, he says.

Analysts see Xero's push against Intuit as its main chance to justify its heady valuation (see Intuit's latest cloud numbers here).

Earlier, Woodward partners told NBR a key issue was whether Intuit pushed back harder, or tried to buy Xero.

Today, Forbes cloud computing commentator Ben Kepes told NBR, "There's no replacement for the hard and expensive sales and marketing stuff in the US. The question is whether Intuit gets the picture before Xero manages to scale."

ckeall@nbr.co.nz

Xero in trading halt ahead of capital raising

Oct 10: Shares in cloud-based accounting software developer Xero have been halted pending the outcome of a capital raising.

The Wellington-based company sought the halt for up to 48 hours "pending release of a material announcement by Xero Limited in relation to the outcome of the capital raise," it said in a statement to the ASX. Xero expects to make a more detailed announcement on Monday, it said in a separate statement.

The shares slipped 0.3 percent to $17.95 on the NZX before the halt, having more than doubled this year.

The company last raised money in November last year when Peter Thiel's Valar Ventures and Massachusetts-based Matrix Capital Management injected $60 million of new capital, while buying $22 million of shares from director Craig Winkler, chief executive Rod Drury, and co-founder Hamish Edwards at the same time.

Xero has been burning through funds as it posts short-term losses as part of a strategy to build a one million-strong customer base, holding cash on hand of $55 million as at Sept. 30. By the end of last month it reached 211,000 customers with annualised revenue of $70.6 million.