So what does MyIT have to do with location anyway? And why is that of even mild interest to people thinking about how their organization will function into the future?

Well if you look at the video of MyIT in action that an analyst from Ovum created (embedded at the bottom) you’ll see that much of the value in the product lies in the fact that the application is inherently location aware. It’s no use going to a service portal looking for, say, the nearest printer, if the application has no awareness of where the user is. Similarly it’s a drain on productivity having to manually inform the application of your location. Dancy explained to me that there’s a few core pieces of IP that BMC holds around the smarts within MyIT:

• Protection around a location aware service catalog – covering not only location but network and device details etc
• Visualizations of IT assets including their state (say for example a map showing that a printer around the corner is down)
• The ability to check in assets via QR codes or NFC tags

Now I’m not going to make a comment on the use of patents when it comes to software – that’s a discussion for another day. Indeed, and somewhat coincidentally, the country I live in, New Zealand, recently decided that software would be specifically excluded from patentable items. But what is interesting here is whether or not location is going to be a critical part of service desk management – looking at the video below it would seem to be the case. That being so it will be interesting to see how other companies in the service desk space respond and innovate what they do.

The bottom line here is employee enablement – few people would disagree that IT service is too slow and reactive – the addition of location based services on top of established IT service platform is a valuable development. And hey, if it means my printer can become the mayor of my home office, in the same way that I can be mayor of a café on foursquare, well that’s OK too.

And today, once again, my country has stood up when it mattered and, despite massive pressure from some gigantic multinationals and the governments who would seem to be at their behest, has decided that software should be left out of the pending legislation around patents.

One only needs to look to the US and the truly bizarre situation of Nathan Myrhvold’s Intellectual Ventures, one of the best known, and least liked of the patent trolls, to see that software patents reduce innovation, prop up those who shouldn’t be and are detrimental to small companies. By making software non-patentable, my Government is making the industry do what it should – that is focus on moving fast, innovating well and giving customers the best solutions possible.

Ka pai New Zealand.

As would be expected of an HP product – it is sold through service providers who often bundle a number of different services together to provide a tailored solution for customers. And this is where it gets interesting, one would have thought that, given their go-to-market involves service providers, HP would have provided everything those SPs need in order to sell a product – well the OneNet launch would suggest not. OneNet is offering three “as-a-service” modules that offer service providers:

• Data visualization through dashboards. Past usage and growth are tracked and future usage is forecast using algorithms. Alerts can also be viewed at multiple hierarchical levels, thereby providing LiveVault partners and end users with an indication of the overall health of their LiveVault environment
• API’s for billing and reporting which can be used to extract monthly LiveVault usage figures to feed into a partner’s billing process
• An automated “closing engine” for converting trials to paying customers – The Profit Maximisation Engine includes two key components; a Forecast Demand Simulation model and an Optimization Decision Support Engine. The Forecast Demand Simulation model uses regression analysis of historical data and Monte Carlo probabilistic simulation to forecast total data storage demand within the infrastructure replenishment time frame. This forecast is then fed into the optimization engine. The Optimization Decision Support Engine is a mathematical model of the infrastructure required to deliver services. This includes cost and engineering relationships. The Optimization Decision Support Engine determines optimal choices to minimize costs with respect to the timing of new infrastructure investments, subject to the requirement to meet forecast demand and the engineering relationships within the infrastructure

All of which sounds pretty much like rocket science until one talks with OneNet CEO and founder Dr Michael Snowden who, over the past 30 or so years has bought a highly scientific and analytical approach to both business improvement and technology. The convergence of these two themes speaks directly to the profit maximization technologies that OneNet has created for LiveVault. Of course LiveVault is only one solution and one could well expect the same sort of technology being used as an engine for many other technology problems.

I’d like to see what OneNet is doing in this area broadened into a stand along business improvement solution that other service providers (and, indeed, direct software vendors) could use. That would start to get interesting and deliver a solution not entirely dissimilar from that provided by start ups such as Totango.

It is for this reason that when Xero launched in its home territory of New Zealand, the deal it had secured with a number of loal banks for auotmed bank feeds was just so game changing. Bank feeds are supremely useful, and by spending time negotiating the deal, Xero had given itself an awesome launching point. The global reality however is somewhat different, and it’s fair to say that Xero didn’t have the same success convincing banks outside of NZ to come on board, hence their decision a few years ago to use the Yodlee platform to run their bank feeds. this was a logical decision (Yodlee, now owned by Intuit, is a banking integration platform that already has thousands of banking institution integrated into it Clarification – Intuit’s DOES have a bank aggregation service through it’s acquisition of Mint but it’s not Yodlee).

However, we’re talking about money here and, as is always the case with dollars and cents, a higher degree of suspicion arose. This was especially so given the deftly overlooked fact that, by using Yodlee, a customer is potentially in breach of their banking terms and conditions. This is due to the fact that to use Yodlee, internet banking login details need to be given by the customer to the Yodlee platform – a fact which contravenes many internet banking Terms of Agreement.

But time moved on and, despite some concerns in the odd online forum, customers kept signing up, and enjoying the benefits that automated bank feeds can bring. Which gets us to the announcement from FreeAgent that they too are using Yodlee for their bank integration. It seems to me that, regardless of the reality of a situation, there is a point at which perception gets tipped by critical mass. Clearly using Yodlee is, by the letter of the law, a contravention of a customers internet banking terms and condition. But customers seems to be deciding (either because they are ignorant of the implications, or because they are realistic about the very low levels of risk involved) that it is worth it to achieve the benefits that integration can bring.

It’s completely sub-optimal of course. In any other industry we would be incredulous that a third party site needs to be given full sign on credentials imply to perform a data transfer – but it’s symptomatic of an archaic and compliance-heavy system that doesn’t exactly encourage innovation and open mindedness. It’s a sure bet that both Xero and FreeAgent would be over the moon if a more robust integration was possible on a broad scale, but all things being equal, for the time being they’re happy leveraging the industry default, Yodlee.

And what about the customers, should they be worried? Well I’d suggest that most customers who would balk at using Yodlee for bank feeds would also balk at entrusting their accounting data to a vendor who stores their information in the cloud. But for the vast majority, perception is actuality, and the fact that many vendors, and hundred of thousands of customers have grown comfortable with Yodlee has flipped their perception to one of safety. Let’s hope that a justified perspective.

The other day I was talking to a friend who told me that his retired father has suddenly discovered Xero on the bourse, and is considering investing. This is a reflection on the level of maturity of the New Zealand market and the investing public. It’s also, to be frank, a reflection on the fact that institutional investors and advisers have suddenly decided Xero is a sure bet, no doubt encouraged by the stellar share price growth. They’re buying the stock and advising their clients to do similarly. The day Xero entered the ranks as one of the top 50 market cap companies on the NZX they also suddenly gained visibility within the advisory community – the combination of a stock that isn’t heavily traded with this increased demand leads to an artificially high impact from low volume trades – this is great on the upside but painful on the downside. It’s actually very positive for the maturity of the company that they recently cross listed on the Australian exchange – it brings them a greater level of savvy investors that actually understand the dynamics of a potentially high-growth/high-risk investment. Drury has also signaled a possible future listing on the US exchange – this too would give both some stability and some liquidity to the share price – both positive things.

However this greater scrutiny will challenge the company to find analogues for its business. Drury has regularly pointed out the fact that Microsoft acquired enterprise social networking company Yammer for $1.2B as justification for the sort of valuation Xero is hitting. That might work for new Zealand investors who don’t quite understand the nuances, but Yammer was a very different deal for a couple of reasons:

• It had an exceptionally effective viral user growth pattern that Microsoft needed to learn about as they try and morph their business into the internet age
• It was an answer to the growing attention that social networking within enterprise was garnering – Salesforce’s Chatter product and Tibco’s Tibbr were increasingly making Microsoft look late to the party

For these reasons, and given the massive war chest of cash that Microsoft holds, the Yammer deal made sense. it may end up being a failure as a business division of Microsoft, but as a learning, marketing and corporate culture tool it makes sense.

Others rightly suggest that Intuit, the US’s biggest vendor of SMB financial products, is a potential suitor for Xero (some even going on to suggest that it is Intuit behind the buying that is sending the share price upwards – a theory I discounted). People point to the fact that Intuit acquired the personal financial management product Mint a few years ago and has an appetite for acquisitions that shoehorn itself into this new world. The Mint acquisition was, in my view, a very different deal, in a couple of important ways:

• Mint had delivered an interesting mix of behind the scenes business intelligence. It was mining aggregate data to deliver insights to customers and hence had some very useful technology that could be back doored into other Intuit products
• Mint, like Yammer, had worked out the viral uptake model and, at the time of acquisition, boasted over a million users

While Xero is doing very well from a user numbers perspective, for Intuit to acquire the company, it would have to be showing stellar growth in the only market that really matters – the US. Xero has really ramped up its US presence, the company has shifted into its own space and has ramped up the team significantly, but it’s coming from a relatively small customer base. While I recently reflected on the 100000 customer milestone and suggested that this indicated that Xero had reached escape velocity,  this statement becomes far more nuanced when we look at the joint factors of massive market capitalization and global market share dynamics. I believe that Xero, at its current market capitalization, is yet to become a compelling proposition for a US acquisition. Rather, what a company like Intuit is likely to do is one of two scenarios:

• Wait until someone enjoys meaningful customer success in the US and acquire them for a lofty sum, secure in the knowledge that they’ve gained a path to continuing market domination
• Acquire a company for a far more modest sum that has potential to become the breakout product in the space

The cloud accounting space isn’t a zero sum game however and this creates another difficulty for Xero, it is unlikely that we’ll see a repeat of the emergence of a small number of companies that dominate in the three big geographies (Intuit in the US, Sage in the UK and MYOB in Australasia). Xero is helped by the fact that in the US there is no vendor that has really captured market share – Outright (recently acquired by GoDaddy) and Wave (an interesting company with a free model) are the two best known domestic providers, but potentially more compelling is FreeAgent, a UK based vendor that has recently entered the US market and is a savvy operator.

Xero is executing well and their potential is massive. However potential only explains part of a business’ valuation, does Xero’s potential justify a $1.5B valuation? Not in my analysis – surely it may go higher as market frothiness and low liquidity combine to drive the economics, but eventually an equilibrium needs to be found, one that is based on customer numbers, market growth and eventual profit – we’re yet to see Xero deliver on that.

Recently Emirates rolled out Windows 8 devices to all of its in-flight service staff. The move was heralded with much joy in Redmond, one can only imagine how much Microsoft paid Emirates for the privilege. Anyway – the new system, dubbed Knowledge Driven Inflight Service (KIS) is aimed at helping flight crews to provide the very best in in-flight service. According to Microsoft:

the KIS app is a fully immersive crew and customer management solution that captures important passenger data around preferences and history

Essentially it’s an integrated and mobile-accessible CRM – Emirates cabin crew are able to see which previous trips a passenger has taken and thus gain an insight into their preferences – be it food, wine, seating or whatever. It’s a really interesting play – I fly around 40 long international flights a year and hence have a pretty close perspective on the way cabin staff engage with customers. I’ve had a number of situations where an integrated system could have helped the experience no end. Some examples:

• I was flying from New York via LAX home to New Zealand with my wife on my 40th birthday. Wanting to surprise her I requested an upgrade to business class. When we boarded there was no record of our upgrade request (nor the fact that it was a special occasion). Imagine a system whereby flight staff had live access to a passenger’s upgrade requests, important biographical information and communications history. Sure they’d not be able to guarantee every request could be met, but they’d at least be aware of what was going on
• Air New Zealand does an amazing job of making all their customers (and especially their most frequent ones) special. I’m generally specially greeted by the flight service manager which is a lovely touch. Almost without fail however, the FSM has to ask me how to pronounce my last name. While this isn’t a big deal, imagine if the FSM was toting a mobile device which gave them some info about me (like how to pronounce my last name or that while my passport says Benjamin, I far prefer Ben). it’s the little things right?
• On this very flight, I went to the FSM to explain my predicament re my wallet. The flight staff were incredibly helpful – absolutely top notch. But imagine if the FSM had access to a device which was connected to the internet while in-flight. My current state of agitation would at least be able to be given some kind of answer to, rather than waiting for the understandable busy cockpit crew to put a radio message in
• I’m something of a control freak and ring the premium contact center on a semi-regular basis to check on small details regarding my travel. Every time I do so, I have to enter my frequent traveller code to obtain priority service (and yes, I’m eternally grateful for the priority service). Imagine a situation where my mobile number (the phone I call from 90% of the time) was known by the contact center and hence I could bypass all the identification steps
• In the past three years I’ve flown on the day of (or the day before depending on timezones) my birthday. That’s not a biggie and I don’t expect or want any attention, but a smart mobile device in the hands of flight staff would give them access to that sort of important information (even better, I’ve flow home from the US a few years running the day before my son’s birthday- imagine a cheery “Hope your kid has a great day” while in flight!)
• Air New Zealand runs regular promotional campaigns giving customers the chance to win incredible and unique experiences. I always enter these competitions (you have to be in to win right?) Every time I do however I have to enter the same details (name, phone number, membership number) into yet another system of record. Imagine if I had one global login to Air New Zealand that cross all of my needs (booking, support, marketing campaigns etc). Or, by extension, imagine allowing me to use my Facebook credentials to sign into these services

I’m aware that all of this sounds very much like the first world problems of a well-heeled traveller with a serious dose of entitlement syndrome. That criticism is justified and accepted. I’m not, however, advocating these sorts of services for my own benefit, but rather to help organizations (in this particular case an airline that I’m a loyal evangelist for and, by virtue of my status as a New Zealand taxpayer, a shareholder in) compete and provide the best service possible.

This stuff isn’t actually hard. All it would take would be a central system of record – one that covered all airline operations – flight ops, passenger manifests, booking systems, marketing initiatives and customer support. The sort of platform to achieve all this exists today – it’s called customer relationship management. Now I realize that airlines use complex and critical systems to run their businesses – likely systems running on massive mainframes someplace. Ripping and replacing these systems is as close to impossible as you’re going to get in technology. But it seems to me that these industries in difficult economic and competitive environments (and here I’m thinking airlines, banks and telcos) need to do this sort of thing in order to remain competitive, provide added value to customers, retain a customer base and drive efficiencies across their organizations.

It doesn’t need to be an all or nothing approach either – apparently in rolling out KIS, Emirates will start with 100 devices by January 2013 and plans to have 1,000 devices in use by the end of 2013. The eventual goal is that every Emirates purser will be using a Windows 8 machine by the end of 2013. Sure it’s only part of the puzzle, and leaves some customer interactions disconnected. but it’s a start, and a view of a future to come. I’m hoping it comes sooner rather than later.

Update – so, after some intense work by people on two sides of the Pacific, I was reunited with my wallet. I’m eternally grateful to Air New Zealand for going above and beyond the call of duty to help me out here. None of the situations I mention above would have helped in this instance – I screwed up and it took a huge amount of heavy lifting by the airline to sort that out. Proof, I guess, that whilemuch can be automated, there will still be the outlier situations which require manual intervention.

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I’ve spent a heap of time over the past few years with “legacy” businesses. From banking to travel to telcos to software I’ve had a glimpse inside these big companies and looked at what innovation might mean to them. I’ve spent more than my fair share of time hitting my head against a brick wall, frustrated at how the solutions were just so obvious, and that these massive companies, with all their smarts, couldn’t see the absolute tsunami which was bearing down on them.

But I’ve also seen examples of large companies doing smart stuff. Look at how Sprint has reinvented itself over the past few years. Apple’s return from the brink is a lesson in corporate rebuilding. While in the technology industry we’re keen to write off the traditional dinosaurs, companies like IBM are still going strong, generations since their inception.

Survival and innovation is never guaranteed, but I’d be reluctant to claim that TRadeMe was Fairfax’s one shot at reinventing itself – that’s a case of shortsightedness that might prove premature.

Thinking about this over the weekend and I’m not so sure that everyone’s incredulity is justified. If you take the (admittedly attractive) view that Fairfax is a complete dinosaur, unable to innovate on its own and sitting atop a mountain of crumbling assets with rapidly diminishing value, then you’re likely to see this deal as the final nail in the coffin – an example of a company getting rid of the one asset that could save it.

Another school of thought would suggest that Fairfax an double the amount it bought TradeMe for but, more importantly, it’s had five or so years to look deeply at the culture and the paradigm within which TradeMe works and has been busily looking to apply that model in new ways to other initiatives. So if Fairfax could take the money and build some new businesses that, unlike TradeMe, are not nearing the top of their potential growth trajectory, perhaps this is a smart move.

TradeMe is an awesome business, but it’s hard to see how they’re going to markedly increase value in the mid to long term, take a few of those millions made from the total sell down and apply them to new businesses with potential for mass growth.

Of course there is still the issue of innovators dilemma and the fact that Fairfax would seem to be controlled by people with a fairly traditional view of the world (ie Rinehart, whose idea of “value add” is to dig strip the ground bear – either literally as in mining, or figuratively with her interesting investments).

Either way, Fairfax isn’t completely thick and, just in case anyone forgot, Sam Morgan, founder of TradeMe and someone who “gets” the new world, is a director of the company, I’d be surprised if he was a part of this decision without and plan going forwards….

One thing that always troubled me a little however was watching, as an outsider, the amazing success of technology companies. I was happy for the companies involved but kind of bummed that I hadn’t enjoyed the ride – not from a financial rewards perspective, but simply for the thrill of the race.

A couple of years ago I found the solution and began to actively invest in angel rounds for companies – since then I’ve been involved in startups in four countries, and different industries – but in their own way Connect2Field, Cloudability, Appsecute and HybridLogic have given me a chance to experience the roller-coaster that is startup life.

Given all of this I was interested to see a recent post by Andy Rachleff that told a sorry tale of the economic impacts of angel investing his central thesis was summed up by this sentence:

most people who expect to make money as angel investors are fooling themselves

Rachleff pointed to some research from the Kauffman Foundation that, he suggested, indicated the returns for angel investors were paltry at best. This research, or more correctly his analysis of it was questioned in subsequent comments to the post but that is secondary to Rachleff’s main thrust which was to suggest some advice for those who invest. In his words:

1. Assume you are going to lose all your money. Treat success as a complete surprise. Successful venture capital firms generate approximately 80 percent of their returns from less than 20 percent of their investments. The chances are high your angel investments will be losing bets.
2. Don’t do it unless you are worth at least $1 million or earn at least $200,000 per year. The SEC requires these minimums for angel investors because it is the minimum regulators believe is necessary for an individual to withstand the loss of the investment.
3. Take a portfolio approach. Whenever you invest in a risky asset class like startups, movies or new artists, you need to have a portfolio, because the law of small numbers will likely lead to a complete loss on your investments. Remember talent acquisitions, which represent the vast majority of successful angel investments, usually result in a loss for the investors. Try to build a portfolio of at least 15 companies.
4. Limit the size of your angel portfolio to 10 percent of your investible assets. Even sophisticated institutions that have the financial wherewithal to take significant risk and have access to the premier venture funds tend to allocate no more than 5 percent to 10 percent of their portfolios to venture capital. You don’t have the staying power or the financial expertise of these endowments, so try to limit the size of your overall bet.

I came away from reading the post a little troubled – not least of all because I don’t comply with any of those metrics. I agree that quite potentially the angel investments that myself and others make will not provide a return – clearly that’s not the primary reason we do it. But it seems to me that assigning a reasonably rigid, calculated and unemotional structure to ones angel investing as Rachleff suggests somehow misses the point. The reason I’ve invested in companies isn’t because they fulfilled some formulaic process, rather it was because I believed in them. At some level there was a connection.

Let’s look at the thinking behind my investments to date:

• Connect2Field makes field service software. I used to be an electrician and know first hand how broken the processes for tradespeople are. Add to that the fact that CEO Steve Orenstein is an amazingly hard worker, has an innate understanding of what the company needs to do and, perhaps most importantly, is a truly decent person and you have a great fit.
• I first met the founders of Cloudability at the GigaOm Structure conference in 2011. They were part of the launch pad and I was super positive about what they were trying to do and the clarity of their vision. Having got to know the team better, I’ve been staggered at how well they’ve executed in 18 short months. Add to that the fact that they’re very generous to help out other entrepreneurs and, again, there seems like a good fit.
• Mark and Tyler are the founders of Appsecute and when first introduced to them I couldn’t believe that anyone in my city had even heard of Cloud Foundry let alone actually gone and built an amazing product on top of it – I love helping out New Zealand companies and Mark and Tyler have proven to be both focused and very open to advice – a rare combination.
• Jason Seats, MD of TechStars Cloud introduced me to Luke Marsden from HybridLogic. It’s still very early days for that investment but Luke strikes me as a smart guy and someone who is keen to listen, and to lead.
• I helped found LiveMigrate partly because I wanted to provide an easy way for SMBs to move away from painful desktop software products, but also because I really wanted to work closely with two amazing guys – Daniel Fowlie and Abhinav Keswani – the co-founders of Trineo. LiveMigrate may not set the world on fire but I’ve been closely involved with some smart people – that’s worth more than a zeros on my bank account
• Going back further my first ever investment was in Cactus – a manufacturer of outdoor equipment and apparel. 20 years later I still own roughly a third of the company – it’s not making me rich in financial terms, but I’m immensely proud of the fact that we make rock solid product and keep a bunch of skilled people gainfully employed

The common theme here is that I invest in ideas I believe in, and people who I have respect for. There’s no formula for that, it’s more from the heart than from the head. Potentially that might lessen the financial benefits my investments might bring. But if it means that I can work with smart, fun, passionate and above all, ethical entrepreneurs, then I’m OK with that.

For those who haven’t seen the details of the deal, Matrix Capital Management is investing NZ$58 million and Valar Ventures NZ$24 million into the company. Their total investment of NZ$82 million includes a purchase of NZ$22 million of shares from Xero’s three largest shareholders. All the transactions are priced at the 20-day volume-weighted average price at the time the deal was negotiated – NZ$6.00 per share. An interesting aspect of this is the fact that two of the founders, and MYOB founder (and large Xero shareholder) Craig Winkler are cashing out. Over on BoxFreeIT, Sholto has pointed out that:

Matrix Capital Management is investing NZ$58 million and Valar Ventures NZ$24 million. Their total investment of NZ$82 million includes a purchase of NZ$22 million of shares from Xero’s three largest shareholders. All the transactions are priced at the 20-day volume-weighted average price at the time the deal was negotiated – NZ$6.00 per share.

Cashing out is always a difficult subject. In the past few months we have seen both sides of the debate. Early Groupon investors were eviscerated when the company’s IPO was seen as largely an opportunity for them to cash out at significant gain. The performance of the deal deals company post-IPO seems to have justified this criticism, it seems the founders were aware of the temporary nature of the business and enjoyed the opportunity to take the money and run. On the other hand, Evernote recently raised USD85, in part to provide some liquidity to early investors, this move was largely supported, in part because of the very up-front nature CEO Phil Libin explained it.

In explaining the justification for cashing out, Xero CEO Rod Drury said that:

The investors made the offer to buy shares from the three largest Xero shareholders in order to minimise dilution to existing shareholders. As a result of the new share issue and transactions, Matrix Capital Management’s shareholding will increase from 1.8% to 9.8% and Valar Ventures will increase from 3.9% to 7.0%. Director Craig Winkler’s shareholding will reduce from 19.5% to 15.7%, Chief Executive Rod Drury’s shareholding will reduce from 21.0% to 18.5% and co-founder Hamish Edward’s shareholding will reduce from 5.7% to 4.9%.

As with all of these things, the real discussion that occurred around the deal is hidden from public view – but the fact that the share price has increased since the funding, despite the fact that existing shareholders have in fact been diluted somewhat by the round, indicates ongoing support for the company – it seemingly can do no wrong, at least in the minds of it shareholders who, outside from the handful of large funds, are both small scale, and long term. The impact on the market cap of Xero can be seen below, this round has pushed the company past the NZD900M mark, this despite it, as yet, being unprofitable.

The investors have obviously determined that Xero, despite coming from a relatively modest based of some 100000 customers worldwide, has the ability to scale into the millions – it’s going to have to if it wants to make its later investors a return. While Instagram, a company with no revenue, recently sold for close to $1B, it is in a very different space and enjoyed the benefit of being in a highly competitive market where a number of massive properties could all have been considered potential buyers – while Facebook snapped it up, it could easily have been Twitter or Google who did so. A different situation exists for Xero, despite Drury’s assertions that they’re building the company as a long term hold, the sort of investors they’re getting now are going to want to see a big return – there’s two ways this may occur:

• Finding someone with deep enough pockets, and a strong-enough stomach to buy Xero. The list of potential buyers gets shorter as the valuation goes up – clearly Intuit is a potential buyer, but there’s not a particularly good cultural fit there and it would be a marriage borne out of necessity rather than love
• A re-listing on the US markets which have a new-found passion for B2B stocks. The recent success of the Workday IPO indicates this could be a potential model for the company

MyPOV

Xero should be proud of the fact that such canny investors have got faith in their ability to execute. But with this investment comes a new and heightened level of scrutiny that might prove uncomfortable to the company that, until now, has enjoyed almost unwavering support from shareholders. It is always interesting to see how a company which is the darling of a market place, handles the increasing overview and potential criticism that comes from higher-caliber investors. Clearly Valar and Matrix see lots of potential here – but these funds have a short to medium term horizon on that benefit – they’re going to need to see Xero scale quickly to see those gains. And that’s where the money comes in – Drury has already flagged the possibility of investing in a US based call center (which on its own is somewhat interesting since he has previously been very critical of high touch, and hence high cost, customer support structures). I’m still a little unsure of how Xero is going to really accelerate growth outside its home markets of NZ and Australia – it’s doing OK in the US, but this level of funding means they have to do superlatively – that’s not a given.

Of late Xero has started to attract some investment analyst commentary and this has largely been cautious of Xero’s valuation and prospects. Notwithstanding the immediate share price benefit that this latest funding round has had on the company, these fundamentals haven’t changed and Xero is exceptionally highly prices given it’s low liquidity and financial performance – it’s all about potential gains which increases the risk of investing significantly.

Perhaps the most accurate, if somewhat coarse, analysis came from a friend of mine with a history of investment banking. When discussing the market cap and opportunity that lies ahead for Xero, he joked about the dubious nature of the business model but added:

All due respects though. Rod found a way into the US money machine and really, if they can keep customer acquisition up, they are bound to be taken out by some bozo, just by sheer dint of their size

It’s not an elegant approach – but in the thrust and parry of technology investing, this $80M stands as a real validation that Xero might just be able to achieve the lofty goals its founders and early investors have set it.

We have the dubious distinction that our commercial property (read it’s sorry tale here) is situated within the precinct penciled down for the new stadium. We resigned ourselves to the fact that our land would be lost to us, but were buoyed by the stated intention to quickly and fairly manage the land acquisition process and were happy that the body tasked with managing the process, CCDU, was making comments about potential land swaps for effected parties. We dutifully gave CCDU all the required information about our property within the week of the announcement of the blueprint. And then we waited. And waited.

It’s taken three months and this week we received notification that the Crown has obtained a valuation on our land and that valuation would mark the starting point for a negotiation about land purchase. We raised the potential of a land swap and where told that there was virtually zero chance of this occurring and the mention of this when the blueprint announced was something of a “pipedream”.

First some context – our land has a Government valuation of $480 per square meter. This dates back to 2007 and obviously in the years since, land prices have appreciated markedly. Add to this the fact that immediately following the announcement of the blueprint, and the fact that it included a huge reduction in buildable land, that basic economics created a reduced supply/increased demand loop and that land prices have risen correspondingly. Therefore one would expect that valuations would take this into account, and that the price offered would, to a greater or lesser extent, allow landowners to replace their lost land with something comparable.

Alas not, the Crown’s assessment, based on a allegedly thorough valuation, was set at $433 per meter. Less than the value back in 2007. Far less than the price for comparable properties selling in the current market and, most importantly, less than we’re going to have to spend to get a replacement piece of land anywhere similar.

But here’s where it gets interesting. The Crown contracted valuers Colliers and Telfer Young to perform all the valuations. As would be expected, we requested from CCDU’s agent a copy of the valuation. Strangely we were told that:

Unfortunately we are not allowed to hand out the Crown valuations. The reasoning behind this is that we have made an offer at market value (based on the Crowns valuation) and it is up to the property owners to provide evidence contrary to that of the crown if they disagree

This is highly unusual – in usual negotiations, be they rental or buy and sell ones, both parties have access to valuations and hence negotiations can happen in an open and transparent manner. In this case that is not the process and the Crown, despite its stated intention to act fairly, honorably and flexibly with landowners, would seem to be taking the role of commercially-driven land banker, while at the same time sheltering under the protection of an unprecedented piece of legislation which puts all the power in their hands.

I discussed this fact with some independent valuers working in the Christchurch market and was told that the rumor among them was that the independent valuations the Crown has obtained are actually higher than the offers being presented, and that the Crown is going in with low offers to give itself some negotiating room. No one would go on-record saying this, people are shaking in fear at the power that CCDU and CERA are wielding in this city. What we have here then is a situation where the crown is demonstrably acting in a prejudicial manner that is designed to minimize the amount they have to pay for land. In other words, the Crown is using subterfuge to duplicitously rob land owners of fair value for their land, and in doing so, is furthering its intention to make an economic windfall from the future sale of acquired land.

There’s another aspect to all of this and that is the suggestion that the Crown is intending to acquire land, ostensibly with the aim of most effectively ensuring the consistent and coherent rebuild of the city but that in fact it is finding ways to roll up land at an artificially deflated price and to later sell that land at inflated prices. Under the terms of the Public Works Act, affected landowners must be offered first right of refusal to re-acquire the land should the stated project go ahead. There is no clarity as to whether this will occur in this event – CCDU has been largely silent on this first-right of refusal in the event that the stated projects don’t occur and this increases the perception amongst landowners that this is an opportunistic way for the Crown to profit at the expense of those in Christchurch who have already suffered so much over the past couple of years.

Alas, yet again, it would seem that something is rotten in the state of Christchurch.