K2 may not be the best known software company in the Seattle area. In fact, most people hearing the name probably first think of the Seattle-based ski manufacturer.
But in the shadow of companies such as Microsoft, Apptio and Concur, Bellevue-based K2 is growing fast. And the 430-person company — which helps a wide-range of businesses build applications on the fly — plans to assail new heights with a big cash investment of more than $100 million from private equity powerhouse Francisco Partners.
The investment — one of the largest in a privately-held software company in the Seattle area in the past year — marks just the second round of capital in the company since it was founded in South Africa 14 years ago by Adriaan van Wyk and Olaf Wagner.
K2 was bootstrapped for the first five years, with the company raising $16 million in 2006 from FT Ventures and Azure Capital. They remain investors in K2.
Francisco Partners will receive two board seats as a result of the investment, with the firm holding roughly half of the shares.
The exact amount of the financing is not being disclosed, though van Wyk said it is “substantially more” than $100 million. He said the bulk of the cash will go toward growing K2’s market share, expanding into new geographies and possibly targeting strategic acquisitions to accelerate the business. A smaller portion of the funds will be used to clean up the capital table, simplifying the business structure and cashing out some shareholders who’ve been with the company for some time.
Van Wyk said the new money will definitely be used to “grow the future.”
K2 has been operating on a break-even basis for a number of years, with executives using existing cash flows for expansion. It now has 1,400 customers in 80 countries, including big names such as Kimberly-Clark, Shell, Sanofi and Microsoft.
“We have a good culture of spending money when we make money in the business, and that has helped us go through the tough times of 2008 and 2009 without having to destroy shareholder value by raising cash under pressure,” said van Wyk. “But it is a good time for us to invest behind the rapid growth that we have in the business and making sure that we are geared to capitalize on that.”
K2 is developing a platform that allows non-technical people to easily build business applications — things like expense management or HR tracking. Historically, it has focused on helping people build apps on their own or connect to traditional business management tools such as Concur, Salesforce, WorkDay or SuccessFactors.
Some of the traditional software systems are rather “rigid,” not allowing for customization or flexibility, van Wyk said. And that’s where K2 steps in.
“What (K2) basically allows companies to do is focus on using their people to innovate and take on new challenges, and not let IT or a lack of systems slow them down,” he said. In many instances, van Wyk said customers are using K2 to extend existing products, adding new features and functionality to services such as Concur or Salesforce.com. It does this without the need of adding millions of lines of new code.
While in some ways K2 competes against the Concurs and Salesforce.coms of the world, van Wyk said that the biggest competition comes from those organizations who decide to use development tools to build applications on their own. In those instances, van Wyk said the sale is relatively easily when companies are faced with the costs of building something on their own.
Kleenex maker Kimberley-Clark, for example, has built 600 different applications using K2’s software tools, deploying those apps across a variety of devices. “It was just impossible for them to do that before,” said van Wyk.
It is just by happenstance that K2 is based in the Seattle area.
Formed in South Africa, van Wyk started exploring the idea of relocating to the U.S. in 2004 in part because most key customers were at least a 10-hour flight away from Johannesburg.
He originally planned to move the company to Denver. But on a trip to Seattle, van Wyk met a girl at a T-Mobile store, and fell in love. He’s also fallen head-over-heels for Seattle, with the company doubling its R&D headcount in the region in the past 12 months and plans to expand into a new building in the coming months. It now employs about 80 people in the Seattle area, including the entire cloud business unit known as Appit.
“It’s our hometown, and we like being there and we continue to grow aggressively there,” said van Wyk, speaking to GeekWire from South Africa. “It is where we want to be. It is home for all of us.”