Xero raises $15 million to take on MYOB

Acquires WorkflowMax and makes it free for resellers.
Online accounting software company Xero has raised $15 million to fund an international expansion aimed squarely at MYOB territory. 

The New Zealand-based firm intends to use the funds to expand growth in Australia, the UK and the USA after announcing last September it had reached the 50,000 customer milestone. 

MYOB pulled out of the UK in 2008 after selling its business to British software company, Mamut, but continues to sell its software in the US and Canada through Intuit. 

Xero has invited existing shareholders to acquire up to $11,680 (NZ$15,00) in new Xero shares at $2.14 (NZ$2.75) per share under a shareholder purchase plan (pdf) that has already been subscribed to by its major investors. 

These include two MYOB co-founder Craig Winkley, Valar Ventures, the investment vehicle of PayPal co-founder and venture capitalist Peter Thiel and two Xero independent directors, Sam Morgan and Sam Knowles. 

Xero also announced the acquisition (pdf) of accounting practice management software company Max Solutions for $1.55 million in cash and $3.1 million in Xero shares.  

The key product it gives Xero is WorkflowMax, a monthly fee-based workflow platform hosted on Rackspace aimed at a range of small businesses, including its core reseller market, accounting practices. 

Accountants are generally given free access to Xero's existing cloud accounting software while charging a monthly-fee between $200 to $800 to end clients and retaining a margin set by Xero. 

Xero's Australian managing director Chris Ridd told iTnews.com.au the company will apply the same model to WorkflowMax. 

Following its acquisition of Australian software-as-a-service payroll provider Paycycle, the company bundled that product as part of its Xero service at no additional cost. 

The offer for WorkflowMax will be slightly different. Accountants that resell the product will get the software for free until the end of July and may not ever have to pay for it if they sign up 20 clients to the platform. The current pricing schedule for WorkflowMax ranges between $25 and $199, depending on the grade of service and number of users.

"We're still looking at pricing models for WorkflowMax because it's for a bigger market than accountants. So, we're saying add 20 users between now and July and the can possibly get it free for life," Ridd told iTNews.com.au. 

The company expects to early $9.3 million in 2012, twice its 2011 earnings.

Ridd said Xero now had 60,000-plus end user customers, up 10,000 since September last year.