KKR and Goldman partner on growth investment in low-code developer OutSystems

The $360 million investment in software-development platform OutSystems by KKR and Goldman Sachs is split roughly two-thirds to one-third, respectively, according to a source familiar with the matter.

The round represents the largest check yet from KKR’s Next Generation Technology Growth Fund, said Stephen Shanley, a director in the firm’s London office.

Led by Dave Welsh, the $714 million fund invests in technology, media and telecom companies in North America, Europe and Israel. Among its portfolio companies are Lyft, GetYourGuide and ForgeRock.

Based in Lisbon and Boston, OutSystems provides technology for low-code software development, enabling companies to create applications through a more straightforward visual interface.

CEO Paulo Rosado said the company is active in 52 countries and 22 industries. Customers include Toyota, Logitech, Deloitte, Ricoh, Schneider Electric and GM Financial.

“There are a number of assets that are emerging in the space, but there are very few that have scaled,” Shanley explained.

KKR was attracted by Rosado and his team’s success in growing the business, Shanley said: “In our mind, it could easily be a public company when or if the time is right to do so. … We see this as a very strategic asset also.”

Rosado said OutSystems has three distinct use cases: internal applications, such as sales tools or workforce mobile applications; digital customer experiences, including web portals and mobile apps; and replacements for legacy systems, for instance, an insurer’s claims-processing system.

“The reason why companies use OutSystems is they are looking to cut app-development time and cost,” Rosado said. “Rewriting large systems is a complex process that can take up to four years, but with OutSystems that can be reduced to a year. The cost is compressed by the same amount, around 75 percent.” Using fewer developers accounts in part for the savings.

Founded in 2001, OutSystems has been institutionally backed from the outset, raising its first seed round in October of that year. The other existing investors are GuidePost Growth Equity and Armilar Venture Partners of Lisbon.

With this funding, the company is now valued above $1 billion.

Facing high demand, “We thought it was a good idea to reinforce our balance sheet,” Rosado said. “We get a lot of leverage from KKR and Goldman, and want to keep barriers to entry high for our competitors.”

OutSystems has a significant advantage in that the requisite technology is difficult to build, “but it’s an extremely dynamic market, and the types of apps that our customers will be building in the future won’t be the same.”

Rosado said 20 percent of engineering investments are going toward a new machine-learning initiative, applying artificial intelligence to the construction of new software.

The investment will also be used for customer support and sales-and-marketing expansion. Shanley said that while KKR could have funded the round alone, it was worth working with “a high-quality partner” like Goldman, a team his firm knows well.

Action Item: For more on OutSystems, visit https://www.outsystems.com.