Why Automattic’s WooThemes acquisition is so important to South Africa’s startup space

Mergers, Acquisitions and Financial Results

The acquisition of WordPress theme developer WooThemes, along with its signature ecommerce product WooCommerce, by WordPress.com holding company Automattic is massively important to the South African startup space. At US$30-million, it’s a massive exit (although not the biggest in South African startup history). That’s great for its founders and investors, but the acquisition is just another example of how the local scene is developing and also offers some valuable lessons for up-and-coming startups.

Before we get into any of that though, it’s worth getting into some of the nitty-gritty around the acquisition. According to Re/Code, sources the deal is worth US$30-million in cash and stock. At least some of the money will likely have come from the US$160-million Automattic raised last year. All 55 WooThemes staff will meanwhile be kept on, boosting Automattic’s employee complement by around 18%.

Founded in 2008 by Marc Forrester, Magnus Jepson, and Adriaan Pienaar (who exited the business in 2013), the company initially made its name and found some success building WordPress themes. Real success though came with the launch of WooCommerce, an ecommerce plugin that in effect, turns any website running the WordPress engine into an eCommerce platform. Since launch, the plugin has seen massive revenue growth, including a period between May 2012 and May 2013 which saw it grow 458%. In fact, it’s been so successful that WooThemes was able to invest in GraphFlow, a startup which had built a predictive analytics plugin for WooCommerce users.

That success has allowed WooThemes to grow to the 55-person company, with employees stationed in 20 locations around the globe, that it is today.

Over the past few years, WooThemes has been one of the most visible tech companies in the South African space, grabbing plenty of headlines along the way.

Its acquisition however comes at a time when there’s an increasing amount of interest in South African startups. At the start of this year, hardware startup iKubu was bought out by Garmin. HealthQ’s global technology LifeQ — which aims to give people the ability to “optimise and improve the condition of the human body and live intelligently” — debuted at the Consumer Electronics Show in Las Vegas this year and includes the likes of former Corporate Vice President in charge of the Internet Explorer team at Microsoft Dean Hachamovitch, CEO of Dakine and former Vice President of Nike Running and Chris Donnelly who is the Vice President of Global Product and Strategy at Oakley.

Another smaller, but also sexy, investment recently saw Pienaar’s new startup Receiptful receive a US$500 000 angel round from the likes of WordPress founder Matt Mullenweg, co-founder of Buffer Joel Gascoigne, founder of Gyft Vinny Lingham, co-founder of Grasshopper David Hauser, Slack founder Andrew Wilkinson, Groupon SA founders Daniel Guasco and Wayne Gosling, co-founder of Jumia Nigeria Manuel Koser, WantItAll founder Justin Drennan, HealthQ co-founder Riaan Conradie.

A US$30-million acquisition by a foreign company is likely to at least renew local interest in South African space, especially given how well-known and respected WooThemes is.

As Peter Matthei, formerly of World of Avatar and Mxit, points out however that won’t necessarily be the case for international tech and startup scene.

In part, that’s a side effect of the kind of company WooThemes is:

“The majority of articles on the acquisition didn’t even mention South Africa,” Matthei told us in an email. “Perhaps that’s a side-effect of WooThemes being a distributed company that’s not married to any particular geography (much like Auttomatic itself), with employees spread across the globe”.

Another thing worth bearing in mind, and Matthei thinks that this might actually be valuable to the local scene, is that the deal isn’t actually that big in comparison with some of the deals we see coming out Silicon Valley.

“This isn’t a unicorn exit by international standards,” Matthei said. We need to keep some perspective about our local community’s scale compared to the overall industry scale”.

In fact, Matthei reckons that “this exit means much more, psychologically, to entrepreneurs in South Africa than it means on any level to international observers. And, you know, that’s quite alright”.

As well as the business lessons to be learned from the WooThemes exit, there are psychological lessons to be learned. The first, and most obvious is that success isn’t easy and doesn’t come overnight.

Just take a look at this paragraph from Forrester’s blog post on the acquisition:

    Hard work doesn’t come without sacrifice. Late night cross-Atlantic phone calls and hangouts, constant entrepreneurial mind games, and the 24/7 responsibilities of a business owner make for a challenging work-life balance.

Anyone who’s watched Forrester on social media over the years knows that you can add almost innumerable flights to that list.

It’s also worth bearing in mind how important it is to see that kind of hardwork paying off. We’ve seen plenty of high profile South African tech companies generating masses of hype, before disappearing into the ether.

“Psychologically, we needed a deal like this now,” Matthei said. “We need to be able to learn from success as much as we need to learn from failure. And to do that, we need more wins — even small-ish ones — more often! This might go a long way to restoring some balance to the Force”.

Beyond the psychological, feel-good stuff it’s also worth remembering that WooThemes, along with WooCommerce, has been run very well as a business.

As Matthei points out, it goes beyond just hard work resulting in rewards. It also speaks to the kind of business WooThemes is.

“Obviously a lot can be said for the value of hard work and perseverance, but many failed startups have plenty of both”, he told us. “If our next generation of startups can aspire to be more like WooThemes and less like Google, I am absolutely convinced that we’ll have more great exits. That should kickstart a virtuous cycle: more mentorship and local role models will help shape a locally-grounded startup culture that doesn’t try to clone Silicon Valley (and its reliance on outsized bets and outsized returns), leading to more successes”.

Another lesson worth remembering is that the really great startups earn their publicity instead of generating it themselves. WooThemes is one of the former. If it hadn’t been, then its unlikely that it would have earned a multi-million dollar exit to a company that effectively powers large portions of the web.

And according to Matthei, there are plenty of these startups in South Africa. They are the ones “that are flying a bit under the radar, focusing on execution rather than publicity, solving problems rather than building ornate sand-castles. Like building specialised hardware like antennas and sensors. These are the tech startups we don’t hear much about, and yet they’re the ones who might exit for a few tens of millions of Dollars in the next few years”.

“What they all seem to have in common is that they’re avoiding chasing the consumer unicorn,” Matthei added. “So I’m quite optimistic we’ll see more WooThemes-sized acquisitions and successes in the next few years”.

One notable caveat to Matthei’s point about startups not chasing the consumer unicorn is the ecommerce space. In fact, he reckons that the next “startup to $1billion” exit in Africa is going to be an African-founded e-commerce company.

If the signs are anything to by, he may well be right too. Things may not have looked great when Naspers was shutting down ecommerce sites in 2014, but since then Takealot’s made a string of acquisitions (thanks largely to a US$100-million boost to its war-chest from its US-based investors).

And while the global media might not be alert to it now, WooCommerce’s importance in the WooThemes acquisition is yet another indication that some of the best ecommerce brains in the world reside in South Africa.
Source: Memburn 21 May 2015