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Driv Kapital Co-Founder Fredrik Bysveen (left) and 99x Founder and CEO Mano Sekaram
Despite the global COVID- 19 pandemic and the economic crisis in Sri Lanka, our investment and 99x have continued to do well. With a strong management team led by Mano Sekaram 99x has exceeded our expectations considering the challenges. Financially and operationally the company has performed as planned Given the great pool of talent and competence, the IT/ knowledge- based industry is a good sector for Sri Lanka to draw more Foreign Direct Investments. I am confident more companies will consider Sri Lanka for investment provided it ensures a predictable business environment
– Driv Kapital Co-Founder Fredrik Bysveen –
Sri Lankans are today accepted as global consultants in the IT industry and the next growth wave is Sri Lanka proving it has management capabilities and competence thereby Sri Lanka going up in the value chain. Government and relevant regulatory authorities need to recognise the need for Lankan software firms to scale up with global private equity and extend all assistance possible or ensure an enabling environment for such Lankan companies to succeed. There is an excellent opportunity for Sri Lanka to claim a greater stake in global businesses or be more global
– 99x Founder and CEO Mano Sekaram –
By Nisthar Cassim
Nordic private equity fund Driv Kapital is pleased with the progress of its breakthrough investment in Sri Lanka’s technology firm 99x in 2021 and expressed confidence of the initiative reaching greater heights going forward.
Visiting Sri Lanka for the first time since the acquisition of 60% stake in 99x for $ 20 million, Driv Kapital’s Co-Founder Fredrik Bysveen said in less than two years, the valuation of the Lankan software company has grown by two and half times from $ 30 million.
“Despite the global COVID-19 pandemic and the economic crisis in Sri Lanka, our investment and 99x have continued to do well,” he told the Daily FT. “99x has exceeded our expectations considering the challenges. Financially and operationally the company has performed as planned,” Fredrik said in an interview along with 99x Founder and CEO Mano Sekaram.
Fredrik Bysveen said the strong management team at 99x led by Mano Sekaram have ensured business continuity notwithstanding the domestic challenges. “This is very reassuring to our customers in Norway,” Fredrik added.
99x, a technology company co-creating well-engineered, innovative digital products for the Scandinavian market, has over 400 employees. Over a period of 15 years, 99x has expanded through organic growth without a direct presence in Europe, building over 150 digital products for a global clientele.
The new investment in 2021 paved the way for 99x to establish a direct presence in Europe and an acquisition-based growth trajectory, enabling the company to broaden its digital service offerings. This also enables 99x to attract larger European customers who would expect a strong local presence in the EU.
Talks between the Nordic private equity firm and 99x first began in 2020 and concluded by July 2021 without a single physical meeting since that period saw the worst of the COVID pandemic. The investment was made when the fund was previously known as Herkules.
Fredrik said Driv Kapital had good knowledge about the business models of software companies operating in Norway and it was common that Nordic companies lacked technical talent. “We saw in 99x exceptionally great talent in abundance as well as successful experience and expertise in working with several Nordic companies in a professional way. Prior to the investment we spoke to several of 99x customers in Norway who gave a high rating,” he said. “During the thorough due diligence, we didn’t find any gaps or room for improvement within 99x. This was another key factor for going ahead with the investment,” Fredrik said. The advisors to the acquisition were PwC and DLA Piper.
“Based on testimonials by satisfied customers of 99x, the company’s leading technical talent as well as professional management are what makes 99x stand out from the rest. This is both from a solutions development perspective as well as customer interface. We look to further strengthen these capabilities at 99x in order to win more business,” Fredrik said adding, “In 99x we see much potential to leverage its talent outside their core business of Independent Software Vendors.”
Driv Kapital and 99x management also laid out a strategy to acquire companies with local market presence in Nordics with the first being Seeds Consulting AS in Norway, a fast-growing Norwegian technology company. It was a transaction where the owners of Seeds re-invested in a common holding company together with the 99x management and DRIV SPV II. Seeds develops digital and web-based solutions for private and public customers. The company has 14 employees in Norway and over 60 developers in Brazil.
“Going forward the plan is to further grow 99x since Driv Kapital is a growth-oriented investor. Since mid-2020, Driv Kapital has raised Norwegian Krone (NOK) 1.5 billion or $ 150 million across three funds.” With the inorganic strategy for 2023 finalised, Fredrik and Mano said there will be few more acquisitions in the coming months to further leverage 99x capabilities. “We want to be a company with a valuation of $ 150 million in the medium term and one explicit strategy is acquisitions,” they said. “We are also looking at acquiring companies that are complementary to the core business and have market access in Norway that can leverage the 99x talent pool,” they added.
Fredrik believes that technical talent shortage in Scandinavia and Europe will drive growth. Mano added that due to the pandemic, every SME in Europe had to digitise hence demand for digital products and solutions have grown exponentially. Mano said that 99x’s decision to remain Nordic and Europe-centric is because the region is rich with SMEs, hence servicing them is more feasible. “These markets are a perfect fit for the scale of Sri Lankan companies at present. Another factor is the time zone advantage,” he said.
Mano pointed out that with the phenomenon of work from home during COVID and having served global customers uninterruptedly, there is an excellent opportunity for Sri Lanka to claim a greater stake in global businesses or be more global. Reiterating Sri Lankan IT talent’s prowess, Mano recalled that during the worst of the pandemic and its immediate aftermath 99x on-boarded one-third of its new customers digitally.
“Trust, credibility, reliability and ethics are critical in this business which deals with high value intellectual properties of customers. This was a huge plus point for 99x and Sri Lanka especially as the country isn’t a volume player in the global IT services market,” emphasised Mano.
According to him, Sri Lankans are today accepted as global consultants in the IT industry and Sri Lanka’s technical talent has improved to be on par with the rest of the world or even better in some areas. “The new wave is Sri Lanka proving it has management capabilities and competence as well. This ensures Sri Lanka going up in the value chain,” said Mano who is also an IT industry leader.
“Indigenous companies like 99x at some point in time reach a tipping point where we need private equity to take us to the next level. The Government and relevant regulatory authorities need to recognise this and extend all assistance possible or ensure an enabling environment for such Lankan companies to succeed,” Mano added.
Driv Kapital and 99x are cognisant of the fact that highly mobile and sought-after IT talent migration from Sri Lanka is an industry-wide issue, hence best practices are pursued to retain them within the company. “Given the great pool of talent and competence, the IT/knowledge-based industry is a good sector for Sri Lanka to draw more Foreign Direct Investments. I am confident more companies will consider Sri Lanka for investment provided it ensures a predictable business environment,” added Fredrik.
