With another $180 million raised and $230 million on hand, Xero has proved once again that’s it’s smart to raise money well before you need it.
But what’s interesting is that the type of investors that Xero is attracting are changing. Don’t focus on Peter Thiel’s Valar Ventures, but instead on Matrix Capital Management and “some of the most enduring and well-capitalised asset management firms in the world.“
Matrix Capital Management (MCM) is not Matrix Partners, a venture capital fund with one common owner that TechCrunch managed to get somewhat confused about. Instead it’s a classic Boston fund, without even a website and the only public information I could easily find is this SEC filing along with principal David Goel‘s Wikipedia page. MCM has just 104 investors and just over US$1 billion under management. The minimum investment for their on investors is $5 million, though they also have a smaller fund with a lower investment quantum of $100,000.
David Goel is classically trained and experienced in funds management from the big end of town, and is apparently “known for fundamentals-focussed value investing“. He thinks “in 10 year terms“, and is known for his depth of research. The fund’s brochure says that it follows a classic hedge fund strategy and takes on a little debt as it places long and short positions. Of interest to Xero investors is that:
Each portfolio position taken for such a Fund is based on the Investment Adviser’s assessment of any significant discrepancies existing between a company’s current market value and the company’s intrinsic business value.
All of this means that a well-respected fundamental investor performed a considerable amount of time in research and analysis and believes that Xero is significantly under-valued. That’s one reason that Xero’s share price rose this morning.
MCM is investing for the second time, and the new is that another series of US funds have joined the investor party. The names of these funds are not disclosed in the press release, nor yet visible on the companies register. But funds watch funds, and as more of these large funds invest it will make Xero more popular amongst the US investing scene. That means that we can expect to see increased pressure on the share price as Xero becomes a stock that just needs to be owned.
But let’s not get ahead of ourselves. The NBR article quotes Rod Drury as saying the investors had looked very hard at Intuit, who themselves seem fully aware of the Xero threat. From looking at the press releases and reports, Intuit is running fast to keep their market share, but some very smart investors have determined that Xero has a great chance of winning share from Intuit. My overall take is that both companies will split the US spoils, and that MYOB and Sage will fall well behind Xero offshore.