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| WSO2 Acquired by EQT for $600 Million: The Journey of Sri Lanka's Open Source Software Pioneer Image credit: Lanka Business Online |
Sri Lanka, not typically known for its startup ecosystem, has seen a standout success in WSO2, an open-source enterprise software provider. Recently, WSO2 agreed to be acquired by private equity giant EQT for exactly $600 million, a valuation first reported by TechCrunch. This acquisition will make EQT the sole owner of WSO2, acquiring all outstanding shares, including those of investors and current and former employees.
Employee Equity and Wealth Creation
One notable outcome of this transaction is the significant wealth it could generate for WSO2 employees. With 30% of the proceeds going to employees, this event highlights the importance of equity in a company's structure. Founder and key driving force, Weerawarana, emphasized, “This shows that equity is important. From day one, every employee has been a shareholder.”
Early Growth and Intel's Role
WSO2's journey began in 2005 in Colombo, Sri Lanka, with its middleware stack offering tools like API management and identity and access management. Early growth was fueled by a $2 million investment from Intel Capital in 2006. This initial backing was critical and part of Intel's strategy to support open source initiatives in Asia, complementing its investments in companies like JBoss and MySQL.
Staying Rooted in Sri Lanka
Despite a longstanding civil war and external pressures to relocate to the U.S., WSO2's center of gravity has remained in Sri Lanka. Weerawarana, having returned to Sri Lanka in 2001, resisted numerous calls to move the company abroad. He stated, “I wanted to show we could build a product-oriented tech company from Sri Lanka.”
Challenges and Competitive Advantages
WSO2 faced challenges due to its geographic location, with competitors and customers questioning its prices and location. However, its position in Sri Lanka allowed it to attract top technical talent. “We’ve never had a problem with engineering and technical talent. We’ve been able to hire the best people in Sri Lanka for the last 19 years,” Weerawarana said.
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| Image credit: WSO2 |
Strategic Positioning and Future Prospects
With the rise of cloud computing and microservices, WSO2 has been well-positioned to capitalize on enterprises transitioning from legacy systems. The company is also integrating AI into its products, recently launching an API manager with AI-powered chatbot capabilities. WSO2's integration with the AI stack positions it well for future growth.
Financial Milestones and Profitability
WSO2 has raised $133 million over the years, with only $70 million as primary capital. The company has been cash-flow positive since 2017 and profitable since around 2018. Under EQT's ownership, WSO2 aims to leverage vast capital pools to pursue long-term strategies, targeting $100 million in annual recurring revenue by Q3 this year.
Philanthropy and Social Impact
Beyond his role at WSO2, Weerawarana is involved in various philanthropic efforts. He established the Avinya Foundation in 2022 to support economically disadvantaged children through vocational education programs. Additionally, he started driving for Uber in 2017 to challenge social norms around certain types of jobs in Sri Lanka.
Looking Forward to IPO
While EQT's acquisition may seem like a detour from the original IPO ambitions, Weerawarana believes it aligns with long-term goals. “EQT doesn’t have any other businesses in this domain. Their goal is to build the company for five years, which aligns with what I wanted, and gives us five years to get to an IPO,” he stated.
Conclusion
WSO2's acquisition by EQT marks a significant milestone in the company's journey, showcasing the potential of Sri Lanka's startup ecosystem and the importance of maintaining a vision and commitment to local roots.
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