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Sri Lanka isn’t famend for its startup ecosystem, however one firm has been one thing of an outlier within the South Asian island nation these previous twenty years. An open supply enterprise software program supplier with clients equivalent to Samsung, Axa, and AT&T, WSO2 not too long ago agreed to be acquired by non-public fairness big EQT, at a valuation TechCrunch reported on the time to be north of $600 million — we will now affirm that the valuation was in reality precisely $600 million.
The transaction, which stays topic to regulatory approvals, signifies that EQT will turn out to be WSO2’s sole proprietor, procuring all excellent shares together with these of WSO2’s buyers and present and ex-WSO2 staff — 30% of the proceeds will probably be going to these staff.
This liquidity occasion may additionally create vital wealth amongst these inclined to begin their very own ventures.
“This reveals that fairness is essential — one of many issues that we now have insisted on from day one is that each worker has been a shareholder,” WSO2 co-founder and CEO Sanjiva Weerawarana informed TechCrunch in an interview. “That’s crucial, and it’s an idea that has not been understood right here earlier than, as a result of there haven’t been firms that exited and gave any quantity of significant monetary return. Seeing is believing, proper? Speak is reasonable.”
Thriving by means of struggle and unrest
Based out of the Sri Lankan capital, Colombo, in 2005, WSO2 is a middleware stack constituting instruments equivalent to API administration, much like Apigee which Google acquired for $625 million; and id and entry administration (IAM), alongside the strains of $15 billion publicly traded Okta. The primary driving power behind this has been its founding CEO Weerawarana, a pc scientist and key determine within the open supply neighborhood over the previous 25 years, each as a member of the Apache Software program Basis and extra not too long ago because the creator of Ballerina, a cloud-native normal goal programming language for integrating distributed programs.
Previous to WSO2, Weerawarana labored inside IBM’s analysis and growth staff within the U.S., the place he helped develop internet service specs equivalent to WSDL and BPEL. And it was there that the seed for WSO2 was sown.
“I truly tried inside IBM to construct a brand new type of middleware stack, however IBM wasn’t ,” Weerawarana stated. “So the one possibility was both begin an organization, or quit on the concept.”
So in August 2005, Weerawarana spawned WSO2 alongside two co-founders: Davanum Srinivas, who left after two years; and Weerawarana’s former IBM colleague Paul Fremantle, who would go on to function CTO till stepping down in 2015 (he later rejoined after which left once more, however stays an advisor at this time).
Notably, WSO2’s heart of gravity has remained in Sri Lanka, regardless of a longstanding civil struggle and exterior strain to relocate to the U.S. the place Weerawarana had lived beforehand for 16 years.
“I got here again [to Sri Lanka] in 2001, and two weeks earlier than I landed in Colombo, the airport was attacked by a terrorist group — there have been nonetheless items of planes on the bottom,” he stated. “In 2005, the struggle was nonetheless happening. Sri Lanka as a rustic has not been capable of preserve a constant calm surroundings for us, however that’s okay.”
In the present day, 80% of WSO2’s 780 staff are in Sri Lanka, with the rest unfold throughout a smattering of hubs within the U.S., Europe, and Asia.
“I wished to point out we may construct a product-oriented tech firm from Sri Lanka,” Weerawarana continued. “There had by no means been an organization like this, and at the moment there wasn’t even an organization out of India like this. Indian firms have been very services-oriented, as have been Sri Lankan firms. However one of many large costs [for staying in Sri Lanka] was that at just about each funding spherical, nearly all of buyers would ask once I was shifting again [to the U.S.]. And my reply was at all times the identical: ‘I’m not shifting again.’”
Traders weren’t the one ones who pressured WSO2 to maneuver: Clients and opponents have additionally used its location in opposition to it at numerous junctures.
“A few of our opponents fought in opposition to us, saying, ‘are you aware the place they’re positioned?,’ and that turns into a problem,” Weerawarana stated. “Then we’ve had clients saying ‘you’re positioned approach over there, why are you charging us these costs?’”
On the flip aspect, WSO2’s geographic setting gave it the choose of technical expertise, proudly owning largely to the truth that it was a product-based enterprise in a sea of companies.
“We’ve by no means had an issue with engineering and technical expertise — we’ve been capable of rent the most effective individuals in Sri Lanka for the final 19 years,” Weerawarana stated. “In case you are a inventive engineer, would you slightly work for a companies firm, or be in a job the place you may be inventive and work on top-of-the-line expertise?”
Intel inside
After WSO2 raised a small spherical of angel funding in 2005, Intel’s VC arm emerged as its earliest backer, investing in 2006 and thru a number of follow-on rounds in subsequent years.
Intel Capital’s preliminary $2 million money injection was important to WSO2’s early development, and was the results of fortuitous timing. Pradeep Tagare was a senior funding supervisor at Intel Capital at the moment, and met Weerawarana by means of their associations with the Apache Software program Basis. Tagare was trying to spend money on an open supply startup to enrich a duo of different open supply investments it had made — one into Java-centric utility server firm JBoss (which Crimson Hat later acquired for $350 million), and one other into database firm MySQL (which Solar later snapped up for $1 billion).
“We have been a bunch of open supply investments as a strategic initiative for Intel, basically to construct an alternate stack on Intel {hardware},” Tagare defined to TechCrunch. “We had invested in JBoss, and we invested in MySQL. So we have been now in search of an open supply middleware firm, and WSO2 match the invoice precisely.”
Tagare’s thesis was that international locations located in Asia wouldn’t solely stand to profit from the open supply motion, however would even be more likely to contribute lots. Open supply software program growth is of course distributed, opening up the coding and collaboration course of to those that didn’t work on the large tech firms of these occasions.
“Now they might contribute — earlier than, it was all actually managed by the Microsofts and the Oracles of the world,” Tagare stated. “Its location wasn’t essentially a requirement, however being was primarily based in Asia simply made WSO2 much more fascinating.”
A lot has modified within the 20 years since WSO2 arrived on the scene. With the arrival of cloud computing and microservices — software program constructed from smaller, loosely related elements that may be developed and maintained independently and which conveniently depend on APIs — WSO2 has been well-positioned as enterprises transition from legacy monolithic purposes.
Now with the AI revolution in full-swing, WSO2 can also be set to capitalize provided that APIs and and IAM are key elements of the AI stack — from integrations by means of authentication and past. Furthermore, WSO2 is integrating AI into its personal merchandise, not too long ago debuting a brand new API supervisor that permits builders to combine an AI-powered chatbot into their APIs to permit non-coders to check APIs utilizing pure language.
In line with Crunchbase knowledge, WSO2 had raised $133 million since its inception, nevertheless Weerawarana clarified solely $70 million was main capital. Different rounds, just like the $93 million Collection E spherical two years in the past led by Goldman Sachs, consisted of fairness and debt.
However nevertheless the funding is sliced and diced, there’s no ignoring the truth that WSO2 was a startup dinosaur by the point EQT got here calling — most profitable VC-backed firms attain an exit inside 10 years.
So what offers?
“We’ve had a number of individuals wanting to purchase our firm by means of the years, however I resisted as a result of I at all times wished to construct an organization that may attain an IPO — an unbiased enterprise, principally,” Weerawarana stated.
That each one modified in Might, when WSO2 accepted a suggestion from EQT Personal Capital Asia (previously Baring Personal Fairness Asia), a personal fairness agency EQT acquired in 2022 for greater than $7 billion. The distinction this time was easy — certainly one of WSO2’s controlling shareholders “wished to get liquidity,” in response to Weerawarana.
“As a result of that they had greater than 50%, it turns into a management transaction,” he stated.
That shareholder was San Francisco-based Toba Capital, a VC agency arrange by Vinny Smith in 2012 after he bought Quest Software program to Dell for greater than $2 billion. Quest had beforehand invested in WSO2, fairness that transferred to Dell by means of that acquisition — however Toba purchased that inventory again from Dell, and went on to make additional investments in WSO2 together with shopping for Intel Capital’s portion. Toba Capital associate Tyler Jewell additionally changed Weerawarana as CEO for a two-year interval, with Weerawarana returning to the hotseat in 2020.
Weerawarana says the corporate has been cash-flow constructive since 2017, and worthwhile “since round 2018,” nevertheless it hasn’t had the posh of huge swimming pools of capital that may enable it to take a look at “a number of yr methods.” That is one thing it is going to be capable of do underneath EQT — one of many world’s greatest non-public fairness companies.
Certainly, WSO2 says it’s going to hit $100 million in annual recurring income (ARR) by Q3 this yr, one of many key causes EQT got here calling.
“WSO2 actually has all of the components we search for in a software program enterprise,” EQT associate and international co-head of companies Hari Gopalakrishnan informed TechCrunch. “Deep and long-lasting enterprise consumer relationships, profitable product-led-growth, technically strong merchandise, and prudent monetary administration. Decide a power, WSO2 in all probability has it.”
From the surface, promoting to non-public fairness may not look like the dream consequence for a founder with ambitions to go public and who values his firm’s independence. However Weerawarana insists that this consequence will higher allow it to do exactly that.
“I began the corporate to make one thing that lasts — one of many causes we didn’t promote it beforehand is that we knew that may be the top of it,” he stated. “EQT doesn’t have another companies on this area, they’re making an attempt to construct round WSO2, not merge it with one thing else. Their objective is to construct the corporate for 5 years, which aligns with what I wished, and provides us 5 years to get to an IPO.”
Driving power
Whereas working WSO2 is a time-consuming endeavor by itself, Weerawarana retains busy with different initiatives equivalent to a philanthropic effort referred to as the Avinya Basis, which he established in 2022 to assist economically deprived youngsters by way of vocational education schemes.
Nevertheless, in 2017 Weerawarana additionally began driving for Uber, a transfer he says was designed to make it extra socially acceptable in Sri Lanka to work in such jobs — if a profitable businessman like him can do it, then anybody can.
“I’d be coming dwelling from work and I’d simply choose someone up alongside the best way,” he stated. “The primary level I used to be making an attempt to get throughout was that someone who does a driving job is not any completely different to someone who does another job — they’re simply providing a service and also you pay for it. We’ve this mindset right here that individuals who do sure sorts of jobs aren’t the identical as different kinds of individuals. And breaking that is essential — doing Uber-driving is a part of it. The Avinya Basis can also be targeted on that downside, making an attempt to assist all our expert staff, equivalent to tradespeople.”
The pandemic, amongst different international occasions, put a short lived halt on Weerawarana’s Uber driving exploits — as a result of individuals have been doing it for survival, he didn’t wish to take cash from individuals who wanted it.
“I’ll do it once more — issues are getting significantly better,” he stated. “Tourism is nearly again to regular, so the demand will probably be there, and it would make sense for me to drive — however I don’t wish to take any enterprise from someone else.”
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