Nearly a year after Peter Thiel, Matrix Partners and others put an extra $49 million into Xero, the online accounting software company is adding yet more capital to its coffers. Today the New Zealand-based startup announced that it has raised $150 million (NZ$180m), led again by Peter Thiel-backed Valar Ventures and Matrix Partners. Xero says it will use the funds to continue building out its business targeting small and medium businesses, and their accountants, with its cloud-based software globally. This brings the total amount raised by the company to over $230 million.
Prior to today’s funding announcement, the company was valued at over $2.07 billion. But it is not yet profitable, reporting a net loss of US$12 million (NZ$14.443m) for the last fiscal year.
Xero’s unique selling point is its slick and simple user interface, or “beautiful cloud accounting making business enjoyable,” as Xero describes it. Into this the company adds functionality that SMBs are increasingly coming to demand: integration with payment services like PayPal, for example; and the ability to add CRM apps, general online invoices and and manage it all from a smartphone — all sold under an SaaS pricing model.
Xero hopes to use this to overtake dominant players in the SMB market like Intuit’s QuickBooks, and it is driving especially aggressively into countries like the U.S. to do it. (That’s because the U.S., Xero notes, represents “29 million potential customers.”) Tellingly, some $123 million of the $150 million announced today comes from investors in the U.S.
Xero’s longer-term aim, as laid out in its last annual report from May, is to reach 1 million paying customers. As of September 30, it had 211,300, with annualised committed monthly revenues are NZ$70.6 million (US$58.7 million). This new funding, along with Xero’s existing US$45.8m in cash, in will go some way to potentially driving up that number.
The news comes after Xero — publicly traded in New Zealand and Australia — halted trading in its shares on Friday pending a funding announcement.
Xero has been pushing especially hard into new markets outside of its traditional base of New Zealand, Australia and the UK. In the year that ended September 30, 2013, the company says its user base grew by 89%, but the growth outside of NZ, Australia and the UK was 141%, with revenues up 84% in the previous six months. Right now, New Zealand remains its biggest base of users, with 85,500.
As for why public Xero is raising funding from VCs, it’s an interesting predicament that seems unique to markets like New Zealand. Ben Kepes, an investor, tech commentator and “long-time Xero-watcher” tells me that Xero had no choice but to list at launch in 2007 — “a function of limited capital in New Zealand and the fact that they had no credibility with their target market.” That also drove the company to dual-list in Australia as well; and Rod Drury, Xero’s CEO, “has already flagged a likely U.S. cross listing.” Nevertheless, “given the fact their original IPO was relatively modest and they’re not yet profitable, further equity funding is necessary,” he notes.
Other investors in Xero include Craig Winkler and Sam Morgan.
