Financial Advisor to the Board
Cameron Partners Limited
Lead Broker
First NZ Capital Securities Limited
Joint Organising Sponsors
Cameron Partners Limited
First NZ Capital Securities Limited
11 May 2007
Investment
statement
xero lIve
lImIted
share offer
+ prospectus
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choosing an investment When deciding whether to invest,
consider carefully the answers to the following questions that can be
found on the pages noted below:
• What are my risks? (pages 76 to 77)
• What sort of investment is this? (pages 72 to 73)
• Who is involved in providing it for me? (page 74)
• How much do I pay? (page 74)
• What are the charges? (page 74)
• What returns will I get? (page 75)
• Can the investment be altered? (pages 77 to 78)
• How do I cash in my investment? (page 78)
• Who do I contact with enquiries about my investment? (page 78)
• Is there anyone to whom I can complain if I have problems with the
investment? (page 79)
• What other information can I obtain about this investment? (page 79)
In addition to the information in this document, important
information can be found in the current registered prospectus for the
investment. You are entitled to a copy of that prospectus on request.1
choosing an investment adviser You have the right to request
from any investment adviser a written disclosure statement stating
his or her experience and qualifications to give advice. That document
will tell you:
• Whether the adviser gives advice only about particular types of
investments;
• Whether the advice is limited to investments offered by 1 or more
particular financial organisations; and
• Whether the adviser will receive a commission or other benefit from
advising you.
You are strongly encouraged to request that statement. An investment
adviser commits an offence if he or she does not provide you with
a written disclosure statement within 5 working days of your request.
You must make the request at the time the advice is given or within
one month of receiving the advice.
In addition:
• If an investment adviser has any conviction for dishonesty or has
been adjudged bankrupt, he or she must tell you this in writing; and
• If an investment adviser receives any money or assets on your
behalf, he or she must tell you in writing the methods employed
for this purpose.
Tell the adviser what the purpose of your investment is. This is important
because different investments are suitable for different purposes.
INveStMeNt deCISIoNS
are very IMPortaNt.
they often have long-term
consequences. read all documents
carefully. ask questIons. seek advIce
before commIttIng yourself.
the InformatIon In thIs sectIon Is
requIred under the securItIes act 1978.
IMPortaNt
INForMatIoN
important notice This Offer Document is for an offer of Shares in
Xero Live Limited (“Xero”).
It is a combined investment statement and prospectus for the
purposes of the Securities Act and the Securities Regulations, and has
been prepared as at, and is dated, 11 May 2007.
The information required to be contained in an investment
statement by the Securities Regulations 1983 is set out in the sections
entitled “Important Information” (see above) and “Answers to
Important Questions” (pages 72 to 79). The purpose of those sections
of this Offer Document is to provide certain key information that is
likely to assist a prudent but non-expert person to decide whether or
not to acquire Shares in Xero under the Share Offer. However, investors
should note that other important information about the Share Offer,
the Shares and Xero is available in the other sections of this Offer
Document and in the information available for inspection at the
registered office of Xero (described further on page 79).
registration of offer document A copy of this Offer Document
duly signed, and having copies of the documents required by section
41 of the Securities Act attached, has been delivered to the Registrar
of Companies for registration in accordance with section 42 of the
Securities Act.
The documents required by section 41 of the Securities Act to be
attached to the copy of this Offer Document delivered to the Registrar
of Companies for registration are:
(a) the Auditor’s report in respect of certain financial information
included in this Offer Document (set out on pages 70 to 71);
(b) the signed consent of the Auditor to the Auditor’s report appearing
in this Offer Document;
(c) the signed consent of Ernst & Young to the inclusion in this Offer
Document of results of independent research undertaken by it for Xero;
(d) an acknowledgment from NZX to the effect that an application has
been made to NZX for permission to list the Shares, and all the
requirements of NZX for the listing of the Shares that can be
complied with at that time have been duly complied with; and
(e) copies of the material contracts referred to in clause 17 on page 84.
new zealand exchange listing Application has been made to
NZX for permission to list the Shares, and all the requirements of NZX
relating thereto that can be complied with on or before the date of this
Offer Document have been duly complied with. However, NZX accepts
no responsibility for any statement in this Offer Document. Initial
quotation of the Shares is expected to occur on 5 June 2007. NZX has
authorised Primary Market Participants to act on the Share Offer.
electronic offer document This Offer Document is available in
electronic form at www.xero.com. The Offer constituted by this Offer
Document in electronic form is available only to residents in
New Zealand. The availability of this Offer Document on the website
is for the purposes of the Offer in New Zealand. The distribution of
the Offer Document in electronic form may be prohibited in certain
jurisdictions, including the United States, Canada and the United
Kingdom, and is not available to residents of such jurisdictions.
Persons who access the electronic version of this Offer Document
should ensure that they are entitled to do so under applicable laws
and, if so, that they download and read the entire Offer Document.
The New Zealand Securities Act prohibits the allotment of Shares
to any applicant who did not receive a copy of this Offer Document
before applying. Accordingly, no person may pass an Application Form
on to another person unless it is attached to a hard copy of this Offer
Document or the complete and unaltered electronic version of this
Offer Document.
overseas investors The Share Offer is only being made to
members of the public in New Zealand. No person may offer, invite, sell
or deliver any Shares or distribute any documents (including this Offer
Document) to any person outside New Zealand. This Offer Document
may not be sent into or distributed in the United States.
Unless otherwise agreed with Xero, any person or entity applying
for Shares under the Share Offer will, by virtue of such Application, be
deemed to represent that he, she or it is not in a jurisdiction that does
not permit the making of the Share Offer or an invitation of the kind
contained in this Offer Document and is not acting for the account or
benefit of a person within such a jurisdiction. Neither Xero, nor any
of its Directors, officers, employees, consultants, agents, partners or
advisers accepts any liability or responsibility to determine whether a
person is able to participate in the Share Offer.
no guarantee No person, Director or entity guarantees the Shares
offered under this Offer Document. Only Xero undertakes any liability
in respect of the Shares, and then only to the extent required by law.
takeovers code The Takeovers Code, amongst other things,
prohibits any person (together with their associates (as defined
in the Takeovers Code)) from becoming the holder or controller
of 20% or more of the voting rights in the Company other than in
compliance with the requirements of the Takeovers Code. Investors
are advised to seek legal advice in relation to any act, omission or
circumstance which may result in that investor breaching any provision
of the Takeovers Code.
risk and suitability of an investment in xero Xero is an
early stage software business and an investment in Xero is inherently
risky. As such, it may not suit all investors.
The Share Offer does not take into account each investor’s
investment objectives, financial situation and particular needs.
It is important that investors read this Offer Document in its entirety
before deciding whether to apply to purchase any Shares. In particular,
investors should consider the risk factors that could affect the
performance of Xero (including those set out under the heading
“What are my risks?” on pages 76 to 77), particularly with regard to
their personal circumstances (including financial and taxation issues).
Investors who are in any doubt as to the action they should take,
should consult their stockbroker, solicitor, accountant or other
financial adviser before deciding to invest.
definitions Capitalised terms used in this Offer Document have a
special meaning and are defined in the Glossary section of this Offer
Document on pages 94 to 95 or in the relevant section in which the
term is used.
Unless otherwise indicated, $ or NZ$ refers to New Zealand Dollars.
All references to time are to time in New Zealand.
1 this is the wording required by schedule 3d to the securities regulations 1983 which contemplates a separate investment statement and prospectus.
for this share offer, the two documents have been combined and accordingly the prospectus available on request is this offer document.
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4 offer statIstIcs and Important dates
6
Investment hIghlIghts
10 chaIrman’s letter
12 founders’ letters
16 detaIls of the share offer
22 market opportunIty & competItIve posItIonIng
28 about xero
38 xero’s dIrectors and management team
46 prospectIve fInancIal InformatIon
50 hIstorIc fInancIal InformatIon
72 answers to Important questIons
80 statutory InformatIon
86 applIcatIon InstructIons
94 glossary of terms
96 dIrectory


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oFFer StatIStICS
aNd IMPortaNt
dateS
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important dates
share offer summary
This timetable is indicative only. Xero reserves the right to:
(a) extend the Closing Date of the Share Offer or close the Share Offer early,
in which case the dates referred to opposite will change accordingly;
(b) withdraw the Share Offer at any time before the Allotment Date; and
(c) accept late Applications, either generally or in individual cases.
Issuer
Xero Live Limited
Shares being offered in the Share Offer
15,000,000
Oversubscriptions
Up to 3,000,000
Total number of shares being offered
Up to 18,000,000
Offer Price
$1.00
Shares on issue if Share Offer is fully subscribed (excluding oversubscriptions)
55,000,000
Offer Document registered
Friday, 11 May 2007
Share Offer opens
Monday, 14 May 2007
Share Offer closes
Wednesday, 30 May 2007
Allotment Date
No later than Tuesday, 5 June 2007
Quotation and trading of shares expected to commence on the NZSX
Tuesday, 5 June 2007
Allotment notices mailed
Tuesday, 5 June 2007
FASTER statements mailed
No later than Thursday, 7 June 2007
Refund cheques mailed (if applicable)
No later than Friday, 8 June 2007

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INveStMeNt
hIghLIghtS
xero provIdes an onlIne accountIng
solutIon for small and medIum sIzed
enterprIses (smes), whIch typIcally
have less than 20 employees.
xero was Incorporated In July 2006 by rod drury, an experIenced new zealand
based technology entrepreneur who has a record of buIldIng successful
software busInesses, and hamIsh edwards, the owner of an sme accountIng
busIness and a publIshed commentator on smes.
theIr vIsIon Is to create a global software company from new zealand based
on the delIvery over the Internet of accountIng software for smes.
www.xero.com
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Xero has recruited a high quality team, as at 30 April
2007 comprising 27 people including the founders,
Rod Drury and Hamish Edwards.
The management team is supported by an
experienced board of Independent Directors
comprising Phil Norman, Graham Shaw, Guy
Haddleton and Sam Morgan.
Xero currently intends to establish subsidiaries in
the UK and Australia and recruit in-market staff to
develop its business in these locations. Xero has been
accepted into the New Zealand Trade and Enterprise
(“NZTE”) Beachheads programme for the UK and has
established a UK advisory board, comprising senior
UK business people, to assist in the strategic
development of the business there.
2
hIgh qualIty
team
1
sIgnIfIcant market
opportunIty
SMEs are the most common form of business
organisation. In all OECD countries, they constitute
over 90% of all businesses by number.
Unlike many other software systems, which are
largely optional, accounting systems are all but a
necessity for SMEs. The predominant accounting
software applications that exist today for SMEs are
installed on desktop computers.
The Directors believe the time has arrived for SMEs
to access software by using Internet technologies.
They also believe there is an opportunity for a fast
moving, well funded business, without a legacy
business model, to address the expected migration by
SMEs to online accounting.
key Investment
consIderatIons
thIs share offer
represents an
opportunIty to
Invest In an early
stage new zealand
technology
busIness, wIth
an InternatIonal
strategy. the key
features of thIs
opportunIty are:
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Xero is an early adopter of the web-based business
model that is technically known as software as a
service (“SaaS”). This model is ideally suited to the
needs of the large and fragmented SME market.
Rather than installing software on independent
desktops or networks at each customer’s location,
Xero’s software is made available online through
a secure login. Importantly, the software does not
require installation and therefore can be frequently
modified and updated with minimal downtime
for customers.
Xero’s customers will pay a monthly subscription
to use its web-based accounting system, rather than
paying for an up-front software licence and then
having to pay ongoing upgrade, maintenance and
service charges.
The Directors believe that the SaaS model will
enable Xero to benefit from having a centralised
operating environment with lower infrastructure
costs and a predictable revenue stream. The SaaS
model should also provide Xero with a significant
opportunity for long term profitability.
accepted new
busIness model
5
Xero’s strategy is to become a leading provider of
SME online accounting solutions in its target markets.
It intends to use the experiences of the consumer
software market (based on Internet technology)
and apply these to the SME market to create an
internationally scalable business.
Key elements of its strategy include:
• Building the brand and business in New Zealand
initially and expanding into the UK and Australia.
The aggregate target market is large – the number
of SMEs in these regions is around 5.8 million, split:
UK, 4.3 million; Australia, 1.2 million; and New
Zealand, 322,000.
• Focusing in each market on the key market
segments which it believes, through its research
and experience to date, are likely to be early
adopters of its offering: technology companies,
professional services firms (including accounting
practices) and not-for-profit organisations.
• Strengthening its market presence by establishing
and expanding national partnerships and alliances.
• Expanding its customer support capabilities which
Xero believes will be a key differentiator for SMEs.
strong busIness
strategy
4
Xero’s accounting system is different to most
installed SME accounting systems currently available
in the marketplace in the following important ways:
• It is easy to use – limited training is required and
the product is customer friendly.
• It is online – there is no software to install.
Xero is accessible any time through any Internet
connection in the world. Xero’s login is secure,
and Xero has an internal security strategy to
protect the Xero products from viruses and
spyware. All data is automatically backed up daily.
• Continuous innovation – Xero can be updated
frequently with product enhancements as well
as quickly responding to compliance changes.
• It is cost effective – a pay as you go and pay as
you grow pricing model.
• It provides real time access for advisers –
enables an SME to easily share information with
its advisers.
• It assists decision making – provides immediate
visibility of important information for SMEs to run
their businesses and make informed decisions.
• It is easy to switch to Xero – there should be
minimal cost for an SME to switch to Xero from
another accounting system.
xero’s product Is
compellIng to smes
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Since its establishment, Xero has:
• Raised capital of $2.8 million from the founders,
Directors and selected employees of Xero. It has
also received $100,000 in Government grants and
has been awarded a further $750,000 of
Government funding to be drawn down over the
next five years to assist with R&D and UK market
entry. The funding received to date has enabled
Xero to get its initial product offering market ready.
• Developed its core online accounting software
product and the foundations for its operational
systems and processes necessary to enable the
business to scale internationally.
• Tested the product with more than 140 users since
November 2006. Since starting to sell the product
(in a limited release) since April 2007 Xero has
attracted over 100 paying customers.
• Recruited a strong management team with the
skills required to enable Xero to grow the business
internationally.
• Established some key partnering relationships
with retail banks, chartered accountancy firms and
other businesses to help accelerate its customer
penetration and market success.
• Been selected to represent New Zealand as a
finalist in the worldwide Technium Challenge
in Wales, UK in late May 2007.
• Developed the Xero brand.
xero has already
achIeved momentum
6
The Directors believe that Xero can create a strong
market position for itself in the online accounting
software market if it captures the opportunity that
exists here and now. Xero has already recruited an
experienced team, has a compelling business model,
a product available for full market release in the
second half of 2007, a developing brand and some
key business relationships to help it succeed.
However, it needs to move quickly, with an
appropriate level of capital, to establish its business
in New Zealand and then credibly enter its targeted
overseas markets.
the opportunIty
for xero Is now
7
the dIrectors have decIded to raIse
the capItal needed for the further
development of xero through a publIc
offer because they belIeve It Is the
most approprIate means of obtaInIng
the fundIng requIred to enable xero
to execute Its busIness plan.
Another important benefit of Xero operating as a
public company, with visible reporting and good
governance structures, is that it should help instil
confidence amongst Xero’s customers about Xero and
its offering. This should help to further accelerate the
implementation of Xero’s business plan.
The Directors believe that if Xero were to remain a
privately owned company based in New Zealand,
without an appropriate level of funding and the
profile and transparency which comes with being a
public company, it would not be able to capitalise on
the immediate international opportunity for Xero.
Xero is an early stage software business with no
specific track record of success for its business or
operations. Accordingly, please read all the
information in this Offer Document, and talk to a
qualified adviser that you trust before deciding
whether or not to subscribe for Shares in Xero under
this Share Offer. The principal risks of investing in
Xero are set out on pages 76 to 77.
One of the main principles of investing money is
to have a diversified portfolio of investments.
Potential investors should carefully consider the size
of their application relative to their other
investments.
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ChaIrMaN’S
Letter
11 may 2007
phIl norman
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From the outset Xero was established with the
objective of growing internationally. It has a highly
skilled team and an experienced board of directors.
the Ceo and co-founder, rod drury, is an
accomplished and well-respected entrepreneur. rod’s
track record shows that he has the ability to detect
fundamental shifts in the Information and
Communications technology (“ICt”) industry and
then create software products that utilise new
technologies. In the past, rod has created businesses
of significant value. his most recent success was the
sale, in 2006, of his former email management
software business, afterMail, to Quest Software
of the USa.
Xero has aspirations for international growth in
targeted markets, but to realise its ambitions Xero
needs the necessary capital resources to capture the
market opportunity that exists for it right now.
Xero considered seeking private venture capital
funding, but the pool of such funding available to
growing technology businesses in New Zealand is
relatively small. accordingly, the directors have
decided to raise capital for the development of Xero,
via a public flotation of the Company. We believe that
the capital raised and the profile created by a public
offer will greatly assist in the acceleration of Xero’s
business plan.
We estimate around one third of the Shares being
offered will be allocated to certain strategic parties
including private investors, industry influencers,
accountants, high net worth individuals and
New Zealand institutions. the Independent directors
of Xero, including myself intend to subscribe,
in aggregate, for 1.35 million Shares at the offer Price.
the balance of the Shares under the Share offer
will be made available to clients of First NZ Capital and
to any other applicants.
this is an exciting opportunity to participate in a
high-quality, entrepreneurial New Zealand software
company that has the potential to become a
significant participant in its chosen geographic
markets. however, Xero is an early stage business,
similar to a venture capital opportunity, and is,
therefore, a high-risk investment. the directors see
Xero as a growth opportunity and do not expect the
Company to be profitable for at least three years.
there are risks that may impede Xero from achieving
its growth aspirations. that said, the directors and
management of Xero are using their best endeavours
to ensure that Xero’s business plan and its milestones
and targets are carefully thought through and are
realistically set.
Full details of the Share offer are set out in this offer
document and it should be read carefully in its
entirety before making an investment decision.
on behalf of the directors, I commend this Share
offer to you and, if you do decide to invest, welcome
you as a shareholder of Xero.
yours sincerely
phil norman
chairman
“thIs Is an excItIng opportunIty to partIcIpate In a hIgh-qualIty, entrepreneurIal
new zealand software company that has the potentIal to become a sIgnIfIcant
player In Its chosen geographIc markets.”
dear Investor on behalf of the dIrectors of xero, I am pleased
to present you wIth thIs opportunIty to Invest In a new zealand
technology venture.

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hamIsh edwards
FoUNderS’
LetterS
11 may 2007
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dear Investor as an owner of several small
businesses myself, it was obvious to me that there
was not an accounting product available in the
market that provided a daily focus on cash flow with
the ease of use that most small businesses need.
In my businesses, I place a high value on the input of
advisers. It frustrated me how difficult it was to share
the numbers with my accountant, hamish edwards,
who acted as the virtual CFo for afterMail.
as a technologist, I have been watching new web
development technologies evolve. the time is now right
for a change that re-defines the economics of delivering
business systems to small and medium sized enterprises.
as an entrepreneur who has founded, built and
sold a number of companies, I have been looking for
an opportunity to build a long-term global business
from New Zealand – a real example of New Zealand’s
knowledge economy. Web based SMe accounting
provides an opportunity to do this.
the decision to proceed with an IPo at such an
early stage is not a decision we have taken lightly.
however, the opportunity for Xero has arrived. going
public is the best path if we are going to credibly enter
overseas markets with the resources it takes to be
successful.
I hope you will join us on our journey.
yours sincerely
rod drury
founder and ceo
dear Investor together, rod and I decided
to set out to re-define the ways accounting can
work for small and medium sized enterprises.
these organisations make up a high percentage
of the number of businesses operating in most
countries, employing, in some instances, up to
two-thirds of the workforce.
typically, these businesses are privately owned
(often by the founder, their family or a small group
of investors) and are often sensitive to shifts in their
balance sheet and cash flow. accordingly, the ability
to monitor financial performance and plan is very
important. Based on my own experience, businesses
of this size generally do not have the tools or resources
to tell them easily and quickly what they need to know
about their financial position and performance.
With Xero, we have developed an accounting
system that is connected to the business in real-time
and is, therefore, able to tell business owners what
they most need to know, when they most need to
know it – simply, effectively and economically.
We believe we have developed an online
accounting system that is versatile enough to be used
by a range of businesses across the world.
We have already received a strong response in
New Zealand, not just directly from potential SMe
customers, but also from accountancy firms and
financial institutions, who we believe will become
important advocates for Xero.
We hope you will choose to invest in Xero and share
our vision to create an international software company.
We invite you to join us on this exciting journey.
yours sincerely
hamish edwards
founder and cfo
“the tIme Is now
rIght for a change
that re-defInes the
economIcs of
delIverIng busIness
systems to small
and medIum sIzed
enterprIses.”
“we have developed
an accountIng
system that Is
connected to the
busIness In real-tIme
and Is, therefore,
able to tell busIness
owners what they
most need to know.”

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advisers become proactive partners
with access to customers’ real-time data,
meaning less time collating data and
more time to interpret and use the information.
collaborate

Investors should also refer to the
detaIled InformatIon outlIned In the
sectIon headed “answers to Important
questIons” on pages 72 to 79.
the share offer Xero is offering for subscription
15.0 million Shares under the Share offer at an
offer Price of $1.00 per Share with the ability to
accept oversubscriptions of up to $3.0 million
(representing a further 3 million Shares at the offer
Price). accordingly, Xero is seeking to raise up to
$18.0 million, inclusive of oversubscriptions.
the Shares are being offered to New Zealand
resident institutional, professional and retail investors.
minimum offer amount the minimum amount
which must be raised by Xero through the issue of
new Shares under the Share offer is $10.0 million,
being 10 million Shares at the offer Price. If valid
acceptances for the minimum subscription amount
are not received by the Closing date, Xero will
withdraw and cancel this Share offer, in which case
all application monies received will be refunded (with
interest, if any) within six business days after the
Closing date.
share offer not underwritten the Share offer
is not being underwritten.
allocations approximately 5.0 million Shares
(representing one third of the number of Shares being
offered under the Share offer) have been reserved for
allocation to certain private investors, industry
influencers, accountants, high net worth individuals
and New Zealand institutions.
In addition, the Independent directors of Xero
intend to subscribe, in aggregate, for 1.35 million
Shares made under the Share offer at the offer Price.
the Independent directors do not guarantee nor
undertake any liability in respect of the Shares.
the balance of the Shares under the Share offer,
being approximately 8.65 million Shares, will be
made available to clients of First NZ Capital and to
any other applicants.
the Joint organising Sponsors reserve the right to
make further allocations at their discretion.

thIS oFFer doCUMeNt IS a CoMBINed INveStMeNt
StateMeNt aNd ProSPeCtUS IN reSPeCt oF aN
oFFer oF ShareS IN Xero LIve LIMIted.
the FoLLoWINg SeCtIoN oUtLINeS the MaIN
terMS oF the Share oFFer.
detaILS oF the
Share oFFer
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selling restrictions on existing shareholders
each of the existing Shareholders in Xero is restricted
from disposing of the legal or beneficial ownership
of the Shares held or controlled by them as at the date
of this offer document for a period of 12 months from
the date that Xero’s Shares are first quoted on the NZSX.
this restriction is contained in a deed of embargo
entered into by each existing Shareholder and Xero.
the deeds provide that the existing Shareholder
may only dispose of their legal or beneficial ownership
of those Shares within the 12 month embargo period
with the approval of Xero (and in respect of Shares
held, respectively, by trusts of rod drury and hamish
edwards, with the approval of Xero and the Lead
Broker) or to an offeror who has made a successful full
or partial takeover offer to all Shareholders under
the takeovers Code.
reasons for the ipo the directors have decided to
raise the capital needed for the further development
of Xero’s business through a public offer because they
believe it is the most appropriate means of obtaining
the funding required to enable Xero to execute its
business plan.
this Share offer will:
• Provide Xero with the funding required to grow its
business in New Zealand and to gain initial market
entry in the UK and australia.
• Provide visible reporting which should show that
Xero is a well capitalised company, with committed
shareholders, and long-term growth ambitions as a
public company. this should help instil confidence
amongst Xero’s customers about its offering and
help to further accelerate the implementation of
Xero’s business plan.
• Provide Xero with the ability to base its business in
New Zealand and create an opportunity that is
attractive to international talent, including high
quality New Zealand It professionals.
• allow Xero to utilise public company governance
structures to create a high-quality reporting and
control environment, and provide a good base from
which Xero can pursue the international growth of
its business.
• Further raise Xero’s profile.
the directors believe that if Xero were to remain a
privately owned company based in New Zealand,
without an appropriate level of funding and the profile
and transparency which comes with being a public
company, it would not be able to capitalise on the
immediate international opportunity for Xero that
exists right now.
use of proceeds from the ipo the proceeds from
this Share offer will be used by Xero over the next
three years to:
• grow customer numbers in New Zealand with the
aim of firmly establishing Xero as New Zealand’s
leading online accounting system provider to SMes.
• recruit additional staff to grow the business,
including personnel in the UK and australia.
• Invest in the operational infrastructure required to
scale the business.
• Provide working capital to sustain the operations
of the business while Xero builds monthly recurring
revenue streams.
although it is intended that the proceeds from the
IPo will be used for the above purposes, the directors
are aware that Xero, like any early stage company,
needs to be flexible with its strategies, plans, targeted
milestones, operations and affairs so that it can,
quickly and at short notice, respond to change, such
as changes in the accounting or software industries,
its competitive environment and insights it gains
about its operations, costs and investment
requirements as the business grows. accordingly,
Xero’s strategies, plans, targeted milestones,
operations and affairs, as described in this offer
document, are very much subject to change as Xero
seeks to evolve from a start-up company into an
established business.
the directors believe that the amount raised
under this Share offer will enable Xero to pursue
its current business strategy. however, events such
as a change in strategy, financial performance not
meeting expectations or a desire to accelerate its
expansion plans may require Xero to raise further
capital in the future.
summary of the share offer structure
Opening and Closing Dates the opening date of the
Share offer is 14 May 2007 and the Closing date is
30 May 2007. Xero may vary these dates at its discretion.
Pricing the offer Price for the Shares is $1.00 per Share.
How to Apply applications for Shares must be made
on the application Form contained in or accompanying
this offer document.

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application Forms must be completed in full and
submitted in accordance with the instructions set out
below and on the page preceding the application Form.
an application will constitute an irrevocable offer by
the applicant to subscribe for the number of Shares
specified in the application Form, or such lesser
number of Shares as may be allocated to it, on the
terms and conditions set out in this offer document
and the application Form. By submitting an application
Form, applicants agree to be bound by those terms
and conditions and the Constitution of Xero.
Minimum Applications applications under the Share
offer must be made for a minimum of 1,000 Shares
and, thereafter, in multiples of 500 Shares.
Application Monies all applications must be
accompanied by payment in full for the total number
of Shares applied for at the offer Price.
Cheques must be drawn on a registered
New Zealand bank, must be crossed “Not transferable”
and should be made payable to “Xero Share offer”.
application monies will be banked upon receipt
into a designated bank account and held on trust
pending the allocation of Shares. the banking of such
monies does not constitute confirmation of the
allocation of any Shares to the successful applicants.
applicants should ensure that sufficient funds are
held in the relevant account to cover the cheque which
accompanies their completed application Form.
allocations of Shares will be made on the assumption
that an applicant’s cheque will clear. If an applicant
fails to make payment for the Shares under the
Share offer, or an applicant’s cheque fails to clear,
then the allocation of Shares to that applicant may
be cancelled.
Where and When to Lodge Applications
applications must be received by Link Market Services
Limited, Po Box 91976 auckland 1142 (Level 12, 120
albert Street, auckland) by 5.00pm on 30 May 2007.
applications through the Lead Broker and other
Primary Market Participants must be lodged with the
Lead Broker or other Primary Market Participant, in
sufficient time to reach Link Market Services by no
later than 5.00pm on 30 May 2007.
Xero may elect to close the Share offer early, or
extend the Share offer, or accept late applications
either generally or in particular cases. the Share offer
may be closed at any earlier date and time, without
further notice. applicants are, therefore, encouraged
to submit their applications as early as possible.
Allocation Policy the allocation of Shares to
applicants will be at the discretion of Xero. Xero may,
at its discretion, reject any application (in whole or
part) without giving any reason.
Notification of Allocations applicants should
ascertain whether Shares have been allocated to them
under this Share offer before trading in the Shares.
applicants will be able to do so from 9.00am on 5 June
2007 by calling the Share registrar, Link Market
Services, on (09) 375 5998. applicants will also be able
to confirm their allocation (if any), through the
Primary Market Participant from which they sought or
received their allocation of Shares.
applicants will be sent notices of allocation on
5 June 2007. any refunds for unsuccessful applications
for Shares will be posted no later than
8 June 2007.
an applicant does not have any interest in, or right
to entitlement to, any Share under this Share offer
unless and until, and then only to the extent that,
Shares are allotted to that applicant by Xero.
If you sell Shares before receiving an initial
allotment notice, you do so at your own risk, even
if you obtained details of your holding through the
Share registrar or confirmed your allocation through
a Primary Market Participant or otherwise. Neither
Xero nor any of its directors, officers, employees,
thIS IS aN IMPortaNt doCUMeNt. IF yoU are IN aNy doUBt aS to hoW to
deaL WIth thIS oFFer doCUMeNt, PLeaSe IMMedIateLy CoNtaCt a PrIMary
MarKet PartICIPaNt, aN aCCoUNtaNt, or a FINaNCIaL advISer.
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consultants, agents, partners or advisers accepts
any liability or responsibility should any person
attempt to sell or otherwise deal with Shares before
the allotment notice showing the number of Shares
issued to the applicant is received by the applicant
for those Shares.
Refunds Money received in respect of applications that
are declined in whole or in part will be refunded in
whole or in part (as the case may be) without interest.
refunds for unsuccessful applications will be posted
within five days after the allotment date of the Shares.
Selling Shares on the NZSX Xero will not issue Share
certificates to successful applicants. Xero will instead
participate in the FaSter system. FaSter is a
comprehensive system for recording and completing
the transfer of securities listed on the NZSX. FaSter
provides for paperless settlement and full electronic
transfer of securities.
brokerage No brokerage or commission is payable
by applicants for Shares issued to them under the
Share offer.
Xero will pay a fixed brokerage fee of $240,000 to
First NZ Capital Securities Limited. No brokerage will
be paid by Xero other than the brokerage fee payable
to First NZ Capital Securities Limited.
In addition, First NZ Capital Securities Limited will
receive a management fee of $100,000 in respect of
the Share offer by way of the issue of Shares by Xero
under the Share offer. First NZ Capital Securities
Limited does not guarantee or undertake any liability
in respect of the Shares.
new zealand exchange listing application has
been made to NZX for permission to list the Shares,
and all the requirements of NZX relating thereto that
can be complied with on or before the date of this
offer document have been duly complied with.
however, NZX accepts no responsibility for any
statement in this offer document. Initial quotation of
the Shares is expected to occur on 5 June 2007. NZX
has authorised Primary Market Participants to act on
the Share offer.
overseas investors the Share offer is only being
made to members of the public in New Zealand. No
person may offer, invite, sell or deliver any Shares or
distribute any documents (including this offer
document) to any person outside New Zealand.
Unless otherwise agreed with Xero, any person or
entity applying for Shares in the Share offer will, by
virtue of such application, be deemed to represent
that he, she or it is not in a jurisdiction that does not
permit the making of the Share offer or an invitation
of the kind contained in this offer document and is
not acting for the account or benefit of a person
within such a jurisdiction. Neither Xero nor any of its
directors, officers, employees, consultants, agents,
partners or advisers accepts any liability or
responsibility to determine whether a person is able to
participate in the Share offer.
important document If you are in any doubt as
to how to deal with this Offer Document, please
immediately contact a Primary Market Participant,
an accountant, or a financial adviser.

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xero is accessible any time through
any internet connection in the world.
xero’s login is secure and all data is
automatically backed up.
connected
2
sectIon 2
Xero’S MarKet
oPPortUNIty
& CoMPetItIve
PoSItIoNINg
“It IS treMeNdoUS to
See a NeW ZeaLaNd
CoMPaNy SUCh aS Xero
BUILdINg a BUSINeSS oN
NeW ZeaLaNd CreatIvIty
aNd INgeNUIty, aNd
WIth a BIg aSPIratIoN –
to BeCoMe a
‘MULtI-NatIoNaL’ ”
chrIs lIddell
cfo – mIcrosoft
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developments in technology innovation
there are few industries where the dynamics change
as quickly and as often as in the ICt industry. In the
space of around 20 years, the ICt industry has moved
from expensive mainframe computing, to mini
computers, to PC’s, to the Internet. Software has
migrated from central computing, to client server to
now starting to become web-based.
each major shift provides opportunities for those
who identify the trends and deliver products to the
market early. Xero should have an early mover
advantage in the provision of Internet-based
accounting systems if it moves now.
the software as a service model (“SaaS”) that
Xero has adopted provides an innovative means of
supplying software to a large fragmented market.
It is a model that is validated by international
companies such as Salesforce.com with its customer
relationship management (“CrM”) software, 37signals
with its project coordination tool called Basecamp,
and by Concur with its travel and expense
management software.
at the same time, the distributive power of the
Internet has enabled global brands to develop in the
consumer technology space that have attracted
strong customer support. MySpace (social
networking), youtube (video sharing), Skype (social
networking, including voIP) and Flickr (photo sharing),
all demonstrate how a large customer base can be
developed at a low cost over the Internet through
accelerated online and word of mouth marketing. the
network effects of “group forming networks” and
“user generated content” have seen rapid growth of
simple applications over the Internet.
the directors believe that the software needs of SMes
are now moving closer to consumer software, and
away from the traditional enterprise software and the
existing SMe technology products generally available
today. Consumer software requirements are simple –
they are mass market by nature, have low
customisation, are easy to implement, easy to use,
easy to learn, easy to try and easy to buy. Xero believes
that SMes don’t want to be concerned with technical
issues such as backups, upgrades and configuration.
Based on the observation of these trends, the
directors believe Xero’s SaaS business model is
appropriate for, and will be attractive to, SMes.
this belief is supported by the findings of gartner
Inc. (a leading international technology research
company). gartner Inc. estimates that the SaaS market
represented approximately 5% of business software in
2005, but by 2011, around 25% of new business
software will be delivered through the SaaS model.
gartner Inc. further estimates that while the
worldwide SaaS market had reached US$6.3 billion in
value in 2006, it is forecast to grow to US$19.3 billion
by the end of 2011.2
Prior experiences in both consumer technology
and the enterprise software sectors by various
members of Xero’s management team have enabled
Xero to tailor its product for SMes.
xero’s significant online accounting market
opportunity Xero represents an opportunity to
invest in a company that intends to target selected
international SMe markets. SMes are the most
common form of business organisation. In oeCd
countries, they constitute over 90% of all businesses
by number.3
Unlike many other software systems, which are largely
optional, accounting systems are almost a necessity
for SMes. accounting systems should assist in making
key business decisions and reducing the burden of
administrative compliance.
Xero’s initial strategic focus will be on three
countries – New Zealand, the UK and australia. It is
estimated that the number of SMes in these regions is
around 5.8 million, split as follows: UK, 4.3 million4;
australia, 1.2 million5; and New Zealand, 322,000.6 In
each case, Xero’s initial focus will be on key market
segments which it believes, through its research and
experience to date, are likely to be early adopters of its
offering: technology companies, professional services
firms (including accounting practices) and not-for-
profit organisations.
In New Zealand the adoption of the Internet is
gaining traction. In March 2007, around 1.9 million
New Zealanders aged 15 or older used the Internet,
viewing around 3.6 billion pages of content. the
average Internet user went online every other day and
spent a total of 20.4 hours online during the month.7
Xero commissioned ernst & young to undertake
research into the finance and accounting systems
market in New Zealand. Based on Xero’s knowledge,
its own research and analysis, and the results of ernst
& young’s research, Xero believes that the value of the
market for finance and accounting systems by
businesses in New Zealand with less than 100
employees is worth at least $260 million per annum.
Xero also estimates that between 10% and 30% of
such businesses do not currently have access to
accounting systems. this equates to a market
potentially worth up to $90 million.
2 source: news release by gartner inc., 3 october 2006. 3 source: oecd sme and entrepreneurship outlook – 2005 edition. 4 source: uk department of trade & industry, news release, 31 august 2006. the definition of smes in the uk refers to organisations
with less than 50 employees. xero’s definition of smes for the new zealand and australian markets refers to organisations with less than 20 employees. 5 source: sme business forum 2007, australia. 6 source: nz ministry of economic development report
– smes in new zealand: structure and dynamics, may 2006. 7 source: press release by comscore, 26 april 2007.
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there are estimated to be three times as many SMes in
australia and over 13 times as many in the UK, as in
New Zealand. the directors therefore believe that
there is a significant market opportunity in these
targeted markets. this belief is supported by the size of
some of the larger competitors that address the
accounting software market.
competitive landscape the market for accounting
systems for the SMe market is large, but fragmented.
Whilst there are established providers of
traditional accounting software packages in Xero’s
target markets, the directors are not aware that any
of the larger competitors to Xero have completely
adopted a SaaS model. the directors believe that the
products offered by Xero’s most likely potential
competitors are predominantly focused on traditional
methods of software delivery encompassing an up-
front licence fee, software upgrades and ongoing
maintenance and services charges. SaaS is a
fundamental shift from how software is traditionally
delivered; it requires new technology architectures
and the nature of customer relationships are different.
the directors believe that larger competitors are
not as well placed to completely change their business
models to the SaaS model which Xero offers. If so, this
situation provides a good opportunity for Xero as a
fast moving, unencumbered new entrant, operating
from a low cost of sale environment to firmly establish
itself in the marketplace.
the leading providers of accounting software
packages tend to be large international companies,
including MyoB (in australia), Sage (in the UK) and
Intuit (in the USa). these companies are listed on
stock exchanges in their respective countries. Some of
their financial metrics are as follows:
Some further information on MyoB, Sage and
Intuit follows9:
MYOB – founded in 1991, MyoB is listed on the
australian Stock exchange. It has operations in nine
countries, including australia, New Zealand, asia and
the UK. MyoB’s historic focus has been on offering
accounting packages to businesses with less than 20
staff, but it has recently been expanding into the
medium segment, targeting businesses employing
between 20 and 200 staff.
MyoB’s client base includes more than 500,000
businesses. MyoB’s acquisition, in 2004, of Solution 6,
boosted its offering to include practice management
software that is used by over 10,000 accounting firms.
MyoB has established MyoB ondemand, which is
the exclusive australasian distributor of the NetSuite, Inc.
(“NetSuite”) range of online business applications.
NetSuite is a USa based company providing hosted
business management systems and has more than
9,000 customers worldwide. NetSuite’s applications
include accounting, enterprise resource planning (“erP”),
CrM and eCommerce solutions. the investors in MyoB
ondemand include MyoB and some third parties.
MyoB has adopted a strategy that includes growth by
acquisition and since 2000 has completed 10 acquisitions.
Sage – founded in 1981, Sage is listed on the London
Stock exchange, forming part of the FtSe 100.
originally focused on the UK market, Sage has
replicated its model in a number of markets around
the world, including New Zealand and australia.
Sage’s product portfolio was initially focused on
accounting software but as the business has grown, it
has increased the scope of its offering to encompass
other business solutions such as payroll, human
resources, customer relationship management
(“CrM”), merchant services and medical practice
management software and services. Sage’s main
focus is on the small and mid-market business
software market, with companies that employ less
than 100 staff, although it also has offerings for larger
businesses. It has grown its customer base from
around one million customers in 1998 to over five
million customers in 2006.
metrics of leading accounting software providers

Market capitalisation

Annual revenue recorded
Company
as at 1 May 2007
Balance date
from last full year accounts8
MyoB
a$473 million
31 december 2006
a$182.3m
Sage
£3.4 billion
30 September 2006
£935.6 million
Intuit
US$9.7 billion
31 July 2006
US$2.3 billion
the software as a servIce model that
xero has adopted provIdes an InnovatIve
means of supplyIng solutIons to a large
fragmented market.
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the directors understand that Sage has released an
online product, which is a hosted version of a Sage
desktop product. this is accessed using Citrix software
installed on the customer’s computer and therefore
this offering does not completely adopt a SaaS model.
Sage has adopted an acquisition strategy to
expand its business outside the UK and has acquired
16 businesses in the last five years.
Intuit – founded in 1983, Intuit is listed on NaSdaQ.
It has offices in the USa, Canada, the UK, India and
other locations. Intuit’s offering includes the provision
of business and financial management solutions for
SMes, financial institutions (including banks and credit
unions), consumers and accounting professionals.
Its products and services include QuickBooks, Quicken
and turbotax software. there is an online version
of the QuickBooks product. the directors understand
that the software is installed on the customer’s
computer and requires Microsoft Windows, Internet
explorer and an activeX component download.
Intuit has over 17 million customers worldwide.
In New Zealand and australia, Intuit’s products are
distributed by an australian company, reckon Limited.
these products include Quicken, which is targeted at
personal use customers and QuickBooks, which is
Intuit’s product for SMes.
Intuit Inc. has made 14 significant acquisitions
since 2000.
there are many other companies already providing
a range of accounting software products in
New Zealand, the UK and australia. however, many
of these companies have legacy products with small
installed customer bases.
examples of private companies in New Zealand
offering products to the marketplace include BankLink
Limited, MoneyWorks NZ Limited and Plusfactor
Solutions Limited.
the directors are also aware that there are many
other companies who could potentially compete with
Xero in the SMe market. For example, SaP, oracle and
Microsoft also offer accounting software packages to
the international marketplace. however, the directors
understand that the core focus of these companies is
predominantly on businesses with more than 50
employees, although Microsoft already has an
offering tailored to the SMe market in the USa.
additionally, Xero may face competition from
competitors of which the directors are not currently
aware, or from new competitors in the future.
the potential response of any of Xero’s competitors
to Xero’s online offering is unknown and may impact
on Xero’s business and growth prospects.
xero’s competitive positioning the SaaS model
adopted by Xero is a fundamental change from the
existing providers of accounting software
applications. this creates a good opportunity for Xero,
as a fast moving, new entrant unencumbered with
legacy applications and business models.
the directors believe that Xero can create a strong
market position for itself in the online accounting
software sector if it captures the opportunity that
currently exists. Xero has already recruited an
experienced team, has a compelling business model,
a product available for full market release in the
second half of 2007, a developing brand and some
key business relationships to help it succeed.
however, it needs to move quickly with an
appropriate level of capital to establish its business
in New Zealand and then credibly enter its targeted
overseas markets.
In the markets that Xero proposes to target,
the directors believe that Xero will be the first public
company completely focused on a web based, SaaS
offering for SMe accounting.
8 source: annual reports from each of myob, sage and intuit, based on their respective accounting policies. these may not be comparable
to the accounting policies of xero. 9 information on myob, sage and intuit has primarily been sourced from their respective websites.
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xero has been designed from the ground up
with customers and their advisers in mind.
it’s intuitive and it’s built to perform.
sImplIcIty
2
accounting for success Xero provides an online
accounting system that provides SMes with a clear
picture of the money that flows in and out of their
businesses, helping them maintain an accurate
picture of their financial situation at all times via the
Internet. Using Xero, SMes can import their bank
transaction information, which saves significant time
and moves SMes into real time accounting. as with
online banking, Xero can be accessed through the
Internet anywhere at any time.
Xero’s product has been designed to output screen
sized pages and work acceptably on broadband, dial
up and mobile data speeds.
the Xero system currently includes features such as
bank transaction importing, a cashbook, a general
ledger, invoicing, accounts receivable, accounts payable,
gSt, financial reporting and management of expense
claims. the system is currently targeted at businesses
and organisations with less than 20 employees but, in
due course, is intended to be able to support enterprises
with up to 50 and more employees.
there is an active roadmap of new features and
product enhancements to be developed and released.
Since November 2006, Xero initiated a pre-release
phase with 140 live users to ensure that, as each
feature of the software was completed, it met the
requirements of SMes. Upon successful completion of
this pre-release phase, Xero has admitted more than
100 paying customers since 1 april 2007 as part of a
limited release while it builds further operational
capability. Further paying customers will be accepted
during the next few months. It is expected that
sufficient operational capability, including sales,
marketing and customer support, will be in place in
august 2007 to enable an unconstrained formal
launch of the product in New Zealand.
With minimal marketing to date, Xero has developed
a pipeline of potential customers and confirmed the
operational capability of, and the demand for, the
Xero product.
xero’s product the pictures overleaf provide an
illustration of Xero’s product.
key benefits of xero’s product offering
Xero’s accounting system is different to most installed
SMe accounting systems currently available in the
marketplace in the following important ways:
• It is easy to use – limited training is required and
the product is customer friendly. It is also built to
save the SMe time so it can spend more time
managing and running its business and less time
on accounting matters.
• It is available online – there is no software to
install. as with online banking, Xero is accessible
any time through any Internet connection in the
world. Xero’s login is secure, it is insulated from
viruses and spyware and all data is automatically
backed up.
• It is cost effective – a pay as you go and pay as you
grow pricing model. It is comparatively inexpensive,
requires no server, no backups, minimal training, low
cost support, no data transfer delays or
synchronisation issues, and provides automatic
software upgrades for customers.
• It maximises access to advisers – enables an SMe
to easily share information with its advisers. an
SMe’s bookkeeper, accountant, and other advisers
can access information any time, anywhere to help
provide real time advice.
sectIon 3
aBoUt
Xero
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• It assists decision making – provides immediate
visibility of important information (such as real
time cash flow information) for SMes to run their
businesses and make informed decisions.
• Continuous innovation – Xero can continually
innovate its software product and be driven by
customer requirements and competitor
movements. Innovations can be built into the
system without having to rollout an upgrade or
installation to users and without disrupting the
customer’s use of the system.
• It is easy to switch to Xero – there should be
minimal cost for an SMe to switch to Xero from
another accounting system.
overall, Xero should improve an SMe’s business by
assisting with the quality and timeliness of
information and by providing best practice guidelines.
For accountants, Xero allows greater efficiency so
the adviser can handle more customers and build the
‘trusted adviser’ relationship, creating the opportunity
to add value for its clients.
“the xero product wIll change the way
chartered accountants work wIth theIr
clIents – whether It’s technIcal assIstance
or busIness advIce. usIng xero, chartered
accountants wIll have access to tImely and
relevant InformatIon upon whIch they can
buIld a relatIonshIp based around value to
theIr clIents rather than beIng glorIfIed
number crunchers.”
robert cross
dIrector – ‘bIg four’ accountIng fIrm
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xero’s organisation structure as at 30 april
2007, Xero employed 27 staff (including its
Founders and executive directors, rod drury and
hamish edwards).
as a company whose business is based on
intellectual property, human capital is Xero’s most
important asset. having owned and managed a
number of successful businesses, the Founders of
Xero have broader objectives than creating a team
to build a successful business. these include:
• a desire to create a sustainable and international
business operating from New Zealand.
• Investing up front in the management team to
create the foundations for pursuing international
success.
• Providing New Zealand’s best It professionals with
an opportunity to work in an international business
based in New Zealand, as well as attracting new
international talent – Xero can become an example
of what New Zealand could offer as a centre of
It excellence.
With a track record for success, the founders have
managed to attract excellent talent, both from
New Zealand and overseas.
Xero has established a UK advisory Board of senior
UK executives to assist with Xero’s market entry
strategy into the UK market. they are not directors
of Xero.
xero’s business model Xero’s adoption of the SaaS
model provides a cost effective way to deliver an
accounting system that is focused on the SMe market,
is robust, is internationally scaleable and offers ongoing
customer support. the SaaS model is becoming
recognised internationally as a method of supplying
otherwise expensive technology solutions to SMes.
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SaaS suits the frequent legislative changes common
in business environments. Such changes are a
major issue currently on the agenda for businesses
in australia.
US-based salesforce.com, Inc. is perhaps the best-
known international example of the SaaS model.
It allows users to access its sales force automation
software product in return for a fixed monthly fee.
salesforce.com, Inc. was founded in 1999 and is listed
on the New york Stock exchange. Its business model
has helped it grow quickly; for the year ending
31 January 2007 it recorded revenues of $US497
million (an increase of over 60% from the previous
corresponding period)10 and as at 1 May it had a
market capitalisation of $US4.7 billion. While Xero’s
offering is focused on online accounting software,
rather than sales force automation software, the
business models are similar.
one of the advantages of the SaaS model i