Kelvin Hartnall

Xero – Announcement of Capital Raising.

Xero has announced to the markets a potential capital raising. They plan to raise the additional capital as a placement as well as a share purchase plan for current share-holders. The indicative price is 90c per share for the placement and share purchase plan.

It is not a surprise that Xero is announcing a capital raising – as of 30th September 2008 they had $6,280,000 of cash. Over the previous 6 months they had revenue of $333,000 and an operating loss of $3,512,000, so even with higher subscription numbers it was clear that they’d need additional capital within the next 12 months. However, I have been surprised at their indicative placement price. Xero has traded well below 90c per share for most of the past two years, so a placement and share purchase plan at 90c per share shows confidence by Xero. If they are able to achieve that, it will show great confidence by investors in Xero.

I am a great fan of Xero, but I am not convinced that the growth in subscriptions which has occurred at the end of the NZ and UK financial years will be a steady trajectory. There is still quite a bit of work to do. But I think Xero has made the correct move in raising more capital now. The recent subscription numbers shows that they have created a popular application, and it is now time to begin growing aggressively internationally.

A couple of months ago, I went to Waiheke with some friends, and after many late evenings debating the future of various technologies we decided to write our future predictions down. Greg has listed them here. Greg, we can tick prediction 9 off. Now I’m just waiting for Michael Jackson’s comeback album!

Disclosure: I am a Xero shareholder and one of many delighted Xero customers!