Xero raises $60m from US investors, Drury sells down stake

Xero has raised $60 million from US companies Valar Ventures (backed by billionaire Paypal founder Peter Thiel) and Matrix Capital Management, which have both increased their stakes.

Matrix Capital Management is investing $58 million and Valar Ventures $24 million.

Their total investment of $82 million includes a purchase of $22 million of shares from Xero’s three largest shareholders, plus 10 million new shares issued at $6.

Founder and CEO Rod Dury pocketed just over $5 million as he sold down his stake (in February last year, Mr Drury sold shares worth around $3 million).

MYOB founder turned Xero director Craig Winkler sold $15 million worth of shares to the Americans, co-founder Hamish Edwards $2 million.

Mr Drury told NBR ONLINE the tranasaction took Xero's cash in the bank to between $85 million $90 million. It was an endorsement from sophisticated investors who wanted to increase their exposure.

Xero has around 300 staff. The new funds would be used for across-the-board expansion including the hiring of around 200 new employees over the next 18 months.

The company will now hunt for a global president for sales. It will also hire sales, development and support staff in Wellington and Auckland.

According to S&P Capital IQ, the company's largest holders before the transaction announced today were co-founder and Mr Drury with 22.5 million shares;  with 21 million; Mr Edwards with 6.13 million and Xero director Sam Morgan with 6.12 million.

As a result of the new share issue and transactions, Matrix Capital Management's shareholding will increase from 1.8% to 9.8% and Valar Ventures will increase from 3.9% to 7.0%.

Mr Winkler’s shareholding will reduce from 19.5% to 15.7%, Mr  Drury’s shareholding will reduce from 21.0% to 18.5% and Mr Edwards' from 5.7% to 4.9%.

All the transactions are priced at the 20-day volume-weighted average price at the time the deal was negotiated - $6 per share.

Xero recently reported $30.6 million of cash on hand and a first half loss to September 30, 2012 of $7.0 million. The company ancipated an increased loss for the second half to March 31, 2013.

Asked if Xero had reinstated a target date to breakeven, Mr Drury said it had not (the company's earlier goal to break even by the end of calendar 2011 was abandoned in July last year in favour of a push for growth.)

If anything Matrix and Valar wanted it push harder for growth. They saw SaaS (software-as-a-service or software that runs over the internet) as its very early stages of growth. US investors had wanted to put more money into Xero, but $85 million covered the company's immediate needs, Mr Drury said.

In midday trading, Xero [NZX:XRO] was up 0.16% to $6.45.