UPDATED 12pm:  Further NZX announcements have detailed the founders' share sell-down.

Chief executive Rod Drury sold $3 million worth of shares, chief operating officer Alistair Grigg sold $500,000 worth of shares and one of the founders Hamish Edwards sold $1.5 million worth of shares, Mr Drury said.

He said there was a lot of strong demand after the placement last week which raised $20 million, with many institutions wanting to get on the register and Xero did not need any more cash.

"We feel like we're really well funded, so we spoke to a number of the investors and they said 'Look can we buy some shares off you guys?' And we said well we don't want to sell too much but just a small amount is always nice to make sure the family's looked after and we can get on with our lives'."

Mr Drury said Xero had managed to get some "fantastic" institutions on the register and had reached a point where people could see the potential of what the company was doing.

"We're just thrilled to have such great institutional support and think it's really good for the business."

He said while Xero did not really need any more money, the Shareholder Purchase Plan was there to give shareholders an opportunity and the company expected it to go well.

"We may have to scale it back because we don't need too much more money but you just don't know.  We had really high uptake of our first SPP when Craig Winkler came on board and from the institutional support we've seen in the last week, really wanting to get on the register, certainly all signs are good."

Xero shares [NZX: XRO] were down 0.99% to $3.00 in early morning trading.

11.30am: Online accounting software company Xero said its founders had sold $5 million worth of shares to add strategic and institutional investors.

One of these investors was second MYOB founder Brad Shofer who joined his co-founder Craig Winkler as one of Xero’s top 20 shareholders, the company said.

Xero said in an NZX announcement that it had facilitated on and off-market trades totaling $5 million after being approached by institutions and strategic investors. 

To enable the investors to participate without further dilution, founders Hamish Edwards, chief executive Rod Drury and chief operating officer Alistair Grigg had agreed to sell a percentage of their shareholding, Xero said, at the same price as the strategic placement last week and the pending Shareholder Purchase Plan, $2.75.  There was no intention for further sell down in the forseeable future, it said.

Xero director Graham Shaw said after the placement last week which raised $20 million, Xero was contacted by a number of people keen to participate in further placements, some of whom the company had had a relationship with for some time.

"We didn't really want to take more money in but saw that a buy-sell like this would enable us to bring those institutions in and provide an opportunity for a wee bit of a sell down, I think it's about 1.8%, to the founders."

Mr Shofer, who exited MYOB in 2004 and had a small investment in Xero, said he jumped at the opportunity to increase his stake. The company was one he had been watching closely over the past few years, he said.
“Xero has executed well on its promises and is uniquely placed with early mover advantage in a space that has the potential to be very lucrative for those who get it right.”

Mr Shofer said when he compared the development of the small and medium enterprises accounting space to how it was in his MYOB heyday, there was one important difference relating to international expansion.

"At MYOB, we attempted to make an impact in the large markets of the US and UK, however the model was not easily scalable and we had limited success. With the advent of the cloud, this goal is now much more achievable and I think this is where the real opportunity lies. I see a bright future for Xero.”

Five institutions were also involved in the trades, including the US based Sophrosyne Capital LLC and Matrix Capital Management, as well as three other New Zealand based institutions, Xero said.