OutSystems, a software company that sells low-code app development tools, quietly raised a new round of funding last October at less than half of its previous $9.5 billion valuation. forbes have learned.
According to a source familiar with the deal, private equity giant KKR & Co. invested €231.8 million ($228.4 million based on the exchange rate at the time) in a funding round forbes Verification of filings in the Luxembourg commercial registers. KKR’s new primary stakes amount to an approximately 5.3% position in the Boston and Lisbon, Portugal-based startup. This implies a post-money valuation of 4.4 billion euros ($4.3 billion), which is 55% below the price tag of the previous February 2021 fundraiser, led by Tiger Global and Abdiel Capital.
Around the time of the fundraising, OutSystems also issued a takeover bid that allowed current employees to sell up to 25% of their shares at a price close to the newly established valuation, according to the source.
In a statement to forbes, Chief Financial Officer Tim McCarrick said the investment demonstrates KKR’s “continued confidence and support for our business” and would strengthen its market position. Tiger Global declined to comment. Abdiel Capital has not responded to requests for comment at the time of publication.
“We believe OutSystems is well-positioned for continued growth thanks to its focus on product innovation,” said KKR’s John Park in a statement. KKR first invested in a 2018 financing that turned OutSystems into a $1 billion company. Park, who leads the firm’s North American private equity technology practice, joins the board as part of the new fundraising.
Founded in 2001 by Paulo Rosado, who remains CEO, OutSystems sells software that helps companies build their own apps more easily. It has signed notable clients such as Schneider Electric and Humana, as well as marquee investors Goldman Sachs and General Atlantic.
The previously unannounced funding for one of the world’s largest startups by valuation is the latest herald of a capital squeeze in the growth-stage private company market. In the tech world, some once-high-flying unicorns have begun to thaw their reluctance by disclosing down-laps. Last month, data science firm Dataiku cut its valuation to $3.7 billion from $4.6 billion, while cybersecurity firm Snyk cut its valuation to $7.4 billion from $8.5 billion.
While these companies have shown modest price cuts, more dramatic cuts continue to carry a stigma that keeps companies silent. Swedish fintech Klarna confirmed new funding at a valuation cut of 85% to $6.7 billion from $45.6 billion last July after the Wall Street Journal first reported on the news. Last month, British payments company Checkout.com cut its internal valuation by 73% from $40 billion to $11 billion, the company said financial times.
OutSystems, the number 44 next forbes‘ 2022 Cloud 100 list appears to be no exception to the steep price adjustments investment firms can now order. Heading into 2022, an influx of VC investors had sparked a bidding war over privately backed technologies that gave startups the power to dictate their preferred valuations.
But in the wake of the downturn, firms like Tiger Global, which have been particularly aggressive in pushing up valuations, have in some cases had to write off their private investments. Unicorn startups have had to grapple with whether their earnings can support those lofty valuations — particularly in Europe’s less mature tech ecosystem, where American investors have begun to pull back from shores. Across the board, tech companies are now fortunate in the public market to be trading at multiples of 12 to 15 times their sales, investors recently announced forbes.
By the end of 2021, OutSystems had a revenue multiple of more than 30 times the $9.5 billion valuation it set earlier in the year per audited company forbes. According to those filings, the company’s operating income grew 40% year-on-year from €169.9 million in 2019 to €238.7 million in 2020, and then 15% to €276.5 million in 2021. Meanwhile, the company posted earnings sales of 6 euros million operating profit in 2020, reported a loss of 74 million euros in 2021. It is unclear how the company has fared in 2022 but the new round of financing at a heavily discounted valuation suggests that it was unable to fully confirm the high bar set by its previous brand.