Xero Limited (XRO) has raised £30.7 million/NZ$60 million of new capital from Valar Ventures (backed by Peter Thiel) and Matrix Capital Management. Matrix Capital Management is investing NZ$58 million and Valar Ventures NZ$24 million. Their total investment of NZ$82 million includes a purchase of NZ$22 million of shares from Xero’s three largest shareholders.
All the transactions are priced at the 20-day volume-weighted average price at the time the deal was negotiated – NZ$6.00 per share.
The Board’s decision to increase funding follows the announcement on 14 November 2012 that Xero will accelerate its investment in the business to take advantage of market conditions. Xero recently reported Annualised Monthly Committed Revenue of NZ$38.7 million as at 30 September 2012, up from NZ$18 million a year earlier. The company expects to double its operating revenue for the full year to 31 March 2013. Xero reported NZ$30.6 million of cash on hand and a first half loss to 30 September 2012 of NZ$7.0 million. Xero anticipated an increased loss for the second half to 31 March 2013.
"Over the past two years of our involvement with Xero, we have seen the team consistently meet and exceed their ambitious goals,” says Andrew McCormack of Valar Ventures. “The combination of an experienced and focused team, superlative product, good timing and an absolutely huge market give us confidence that Xero has a very long runway.”
David E. Goel, Managing Member of Matrix Capital Management, says “we have witnessed the disruptive power of cloud computing across the technology universe, and believe Xero is the global market leader in cloud-based small business accounting software. Xero differentiates itself, not only as a model for accountancy, but also as a harbinger for where all software companies will have to go if they want to remain relevant. The future is in the cloud, Xero is already there, and we want to be there.”
The investors made the offer to buy shares from the three largest Xero shareholders in order to minimise dilution to existing shareholders. 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%. Director Craig Winkler’s shareholding will reduce from 19.5% to 15.7%, Chief Executive Rod Drury’s shareholding will reduce from 21.0% to 18.5% and c0-founder Hamish Edward’s shareholding will reduce from 5.7% to 4.9%.
Xero Chief Executive Rod Drury says, “We are delighted that sophisticated global investors have been watching our progress and wish to support our continued investment in growth. We look forward to winning market share from the big incumbents by introducing small businesses around the world to beautiful accounting software.”