While I still believe that Xero’s IPO was expensive, I also believe in the business opportunity and how Xero is going about pursuing it.
While the latest round of share issues at $0.90 is dillutive to the original $1.00 IPO, it is an excellent price nonetheless:
- The IPO was expensive – and that was proven as the price languished well below the initial price of $1 for most of Xero’s listing period. As an early stage deal the offer should have been for a larger share of the company per share as the information available (actual results and plans) was sketchy.
- Times have changed, and changed for the worse in for the economy and particularly for the money raising game. Getting any money at all is hard these days, and finding over $23 million is an excellent acheivement.
- The source of the funds is telling – one of the founders of MYOB, a lumbering giant that owns the top end of the market that Xero is intent on stealing. They must be feeling pretty desperate right now. MYOB have proven, and will no doubt continue to prove, that they are culturally incapable of replying to the threat from Xero.
Xero has managed to execute well on their business plan, with features coming out at a steady rate and after a slow start, pleasing customer growth. They have also cracked their approach to selling – convert the accountants and they will bring along their clients. That’s not exactly viral for now, but it’s a path to sustainability.
Well done to the entire team at Xero.
The money eases pressure for Xero, and means they can focus on the three tasks at hand:
- Keep the feature improvements coming, becoming clearly superior in feature volume and usability than the competition. Also have some fun and offer features that the MYOB’s have no answer to.
- Sell sell sell – expand within Australiasia and in particular the UK, and make a beachhead into the USA.
- Become sustainable – in theory this should be the last capital round required for sustainablity, although the option remains for a much larger further round to really launch hard into the big Kahuna – the USA.
A great story.