Tech start-up Paycycle swallowed up by Xero for $1.5m

Australian tech start-up Paycycle, which provides online payroll services, has been snapped up by accountancy software firm Xero for $1.5m, just two years after the company was launched.

Paycycle founders Stuart McLeod and John Freeman will get $500,000 in cash and $1 million in Xero shares, with the brand to be fully integrated within its new parent by early next year.

McLeod, who came up with the idea for Paycycle while studying at Melbourne’s Swinburne University, says that Xero was a factor in his business’ creation.

“It’s fair to say that we designed Paycycle with Xero in mind, as we knew that they didn’t offer payroll themselves and we knew we had a good product,” he says.

“We were talking to them from quite early on as we wanted to be partners. They had a few payroll partners online but the support we provide proved to be a major point of difference.”

“The money is nice, but it’s more about how Xero will accelerate strongly in the Australian market. Maybe it was quite early to sell the business. But having realised the demand for payroll, Xero would’ve done it themselves and where would’ve we been? We would’ve been left holding the baby.”

McLeod, Freeman and Paycycle’s four other staff will all move across to Xero, along with the brands’ 700 paying customers.

“Xero covers the spectrum now, so there are no excuses and no barriers to entry – I expect them to dominate the market,” says McLeod.

“The conversation in the (online accountancy) market has changed. In 2009, it was all about how secure the information was. Now, you don’t even need to worry about a server – you can run a global operation with a laptop and a cup of coffee.”

“We will continue to develop and enhance the product. I imagine that the Paycycle brand won’t exist by the end of next year, but that’s okay. We’ll have a drink to it and think of the future at Xero.”

Chris Ridd, managing director of Xero Australia, says that the purchase will help the company’s plans to grow its small business customer base.

“Having payroll as part of the Xero platform is what customers are telling us they want so we’ve listened and we’re now meeting their needs,” he says.

“Paycycle has a strong offering in the small business market, and its story is inspiring for all Australian technology entrepreneurs.”

“Paycycle for some time and we’re delighted Xero has been working with that their team will be joining us.”