Finally, we are again releasing a new episode of The Big Exit Show! In this fourth episode, you will learn how founder & CEO Eline van Beest hustled her way through pitching, fundraising and last but not least – exiting her medtech company NightBalance to the healthcare giant Philips.
Even with “a reason to quit every day” – she will share how she managed to stay on top of every negotiation 🏆, overperform in every investor interaction, and pull everything forward with her own energy.
In this podcast series Peak’s very own co-founder and managing partner Johan van Mil, and podcast-host Remy Gieling talk to successful European tech entrepreneurs about the exit of their company.
You can find the episode at your favorite podcast platform, linked below. And, if you are really interested listening to the big exit of specific founders – reach out to us so we can invite them for a next episode!
You can find the transcribed version of the episode below:
Remy: Starting a company, well, that’s easy. You set up some desks, gather a few friends, order a few boxes of pizza, and you’re in business. Selling your company, that’s a whole different story. Finding the right buyers, agreeing on the terms and conditions, and setting a fair price.
In the big exit show by Peak, we lift the curtain of secrecy of selling ambitious scaleups by talking to successful technology founders who have been in this roller coaster. My name is Remy Gieling.
Johan: And my name is Johan van Mil.
Remy: And in this episode, we talk to Eline Vrijland-van Beest. Eline sold her company, NightBalance in 2018 to healthcare giant Phillips for an undisclosed amount of money, and has been a tech investor herself ever since. In the next 40 minutes, you will get to know her insights on exiting the company, her latest endeavors in the path, how she got there. [00:01:00]
Eline, so good to have you with us today.
Eline: Thank you so much.
Johan: So Eline, what’s the heroic story of NightBalance?
Eline: The heroic story is about a young student who had a mission inspired by her father. I had a teacher who would not want me to work on that program. I convinced him. I had a couple of setbacks and then was able to graduate on that. I then spun out with a project. It was a medical device for the treatment of sleep apnea. I spun out and raised a company. So this was NightBalance. Raised my first investment round one and a half years later, did a lot of clinical research over 80,000 nights in clinical research to prove that the therapy was working for apnea patients. And then the company was acquired by Philips in 2018.
Johan: So that was a heroic story. [00:02:00]
What’s the actual story?
Eline: Yeah. I already started a little bit of the actual story. It’s a lot of setbacks.
So, I always say I had a reason to quit every single day. This started with my teacher who didn’t believe in the project, and he wouldn’t let me graduate on it, but it was also the first investors who really didn’t believe in the story I had. I mean, I was a very young and inexperienced student and I’d never done a medical device, so why would you believe something like that? I had so many feedback from people saying that the product wasn’t right.
Two days ago, I spoke to somebody who did research on my project and was ashamed how ruthlessly he completely destroyed my project because of his research outcomes. I couldn’t remember that but, I had so many people who were negative about it, but not only that.
I mean, after the first investment, our first clinical trial that we did was a misery [00:03:00] by design. But, we didn’t know how to design a clinical trial, so we were including completely the wrong patients, so we would never get good outcomes. I hired the wrong people. I was a poor manager. I did not know how to manage people, so of the great people that finally came, they left again because I was a poor manager to them. I had to learn everything from scratch.
[Music]
Remy: The startup phase.
So Eline, can you explain to the listeners what NightBalance was?
Eline: So it was a small sensor that treats positional sleep apnea. So sleep apnea—stops of breath during your sleep—normally occurs when you lay on your back. Your tongue falls in your throat and it collapses, so it really blocks your throat from breathing. So what we did, we had the small sensor. You wear it above your stomach under your chest. And it [00:04:00] continuously measures your sleeping position. What we try to do is train people to sleep on their sides because on the side, the tongue doesn’t block the airway and the airway stays free.
So for over 50% of all apnea patients, this was a solution instead of wearing positive airway pressure masks or mandibular advancement devices, which are braces keeping your lower jaw upfront. So that was the therapy that I developed at the university. And it was a new-to-the-world therapy. It was not done before. So we really had to clinically prove the effectiveness of the device compared to the golden standard. So these were these breathing machines. To prove that, it was at least as effective, and that patients would use it the entire night and would be compliant with the therapy.
Remy: Now, I read somewhere that before you started NightBalance, you were still in university of course, that you had this dream to become [00:05:00] a business consultant.
Why in heaven’s earth did you ever think that was a good idea?
Eline: Well, I loved challenges, I loved steep learning curves, so I really wanted to learn fast and a lot. And I loved changing the environments. And I loved the intellectual challenge that I got in that. So this was an environment that really fit me—the challenge, the pace of work, the learning from people around you.
But then I had this mission to bring this new device to patients. When I’d worked on it, it was an idea of my father’s. I developed the product and then I realized, “Okay. But now I developed the product, these patients are not going to be helped by this because somebody needs to produce it, somebody needs to clinically prove it, somebody needs to– who’s that somebody going to be?”
So initially, I thought [00:06:00] I need to find a company that starts doing this. And obviously, that company can’t be found. So then I figured, “Okay, you know what? I’ll make a business plan for my father so that he can start doing that.” And as I made the business plan, I realized, “Okay, he’s not going to do it. He’s a doctor. Okay. So maybe I should do it.”
So that’s really how I sort of rolled into it and then figured, “Okay, I’m going to give myself one year.”
[Laughter]
Johan: Only one year?
Eline: How naive. I mean, seriously. And from that, that’s how it all started. Yeah.
Johan: And it started with a tennis ball in the back of pajamas, right?
Eline: Correct.
Johan: How many pivots did you do until the product was eventually bought by Philips? How many pivots in terms of product but also in terms of market, et cetera?
Eline: The product did not change that much. The concept of positional therapy was proven with a tennis ball. So that just kept people from sleeping on their backs, but everybody was complaining about back pain in the morning and people were [00:07:00] sleeping on top of the tennis ball.
The interesting part was at the beginning, it would keep people from sleeping on the back but people would train themselves to sleep on top of it. It’s like living next to a train station, at a certain point in time, you don’t hear the trains anymore. That’s what happens to something that is passive during the night, and you actually train yourself not to respond to it. So we knew it had to be something active that we worked with.
We started with RFID tags and beds that would inflate, partially rolling you to the side, pillowcases that would inflate. I mean, there were thousands of ideas that we literally tested. We made mock-ups. We tested with people and pretty soon, we came to the idea of a sensor that was worn on the chest. We did research with [Taino 00:07:46] to understand which areas of the body were most sensitive to feedback during sleep. So the concept was actually there quite soon, but the market, however– so we started off with back patients.
Johan: Mm-hmm.
[00:08:00]
Eline: And talking to doctors, I found that a lot of the doctors did not see the correlation between wrong sleeping positions and back pain, which was my dad’s original area. So then I figured, “Okay. So first I need to sell the problem before I can start selling the answer to it.”
And then during these presentations that I was giving, loads of people came up with other ideas.
“What about sleepwalking?”
“What about snoring?”
“What about sleep apnea?”
“What about people that walk during their–?”
I really said sleepwalking.
So there were so many different– sudden infant death syndrome, another thing. It was a baby sleeping on their stomach. So there were loads of different areas and directions that we could go into. So I started doing research and I basically talked to loads of different people to understand where the need was highest, and with apnea doctors, or lung physicians, ENT specialists. They just said, “Okay, [00:09:00] if you have a different solution here, that’s the golden egg because there are so many patients incompliant to cure and therapies. We really need something here.
And that was really like they were dragging it out of my hands, “Can I test it? Can I test it with my patients? I love this idea. Can we do something with it?” So it was really pulling us. And then I understood, “Okay, that’s the place where we have to be.”
Remy: And the first year, you entered a lot of startup competitions and you won like a hundred grand with all these pitches you did, that you won, so people were very enthusiastic about your concept and your idea. But, preparing for those pitches, and entering, and giving your talks takes a lot of time as well. Would you advise fellow startup entrepreneurs to enter these kinds of competitions?
Eline: Depending on your experience.
So, for me, that was fantastic because I learned to present. So you have to know about me that I was a horrible presenter when I started. I was so afraid of being on stage. I literally had to memorize [00:10:00] every single sentence I said. And I had put in my brain I would take steps on the stage that I was at, and every step would be a different cue for a different part of my story because I just had to memorize it. It was so nerve-wracking. So, the night before I had to do a presentation, I would not sleep just because of my nerves.
And I’m happy I did that because I had to go through it not knowing how many presentations I was going to give in my life. So I’m happy I went through that. And now, it feels like I’m talking to somebody like you always know what to say. And that’s the same, being on stage but you have to go through that. So I’m very grateful that I did that.
The second thing is, I got loads of really good feedback. So, I had people shooting holes in my plans. And these were all judges, these juries. They’re all experienced entrepreneurs or investors, and the holes that they see, that’s what the market is going to see, and that’s what your investors are going to see. So I took that as feedback and I [00:11:00] found that being really helpful on my plans.
So now, however, that I’ve gone through it, it does cost a lot of time and energy, I’m not nervous about presenting anymore. And I have my people around me that provide me with feedback. So, I still look for active feedback with investors, with advisors, I get loads of people around me but I would not go into that competition field again – just because of the time. And I want to be as efficient as I can.
Johan: Before where the growth, one question, there’s a lot of talking and I think are very good talking on diversity these days, right. What’s your personal experience as a founder of a company also in a medical environment, and a pretty white male-dominated environment? What’s your experience also with that? And what kind of suggestions do you have for listeners?
Eline: Yes, it was extremely white male-dominated, and it has a pro and a con. So on the pro side, I’ve always been the [foreign word 00:11:59].
[00:12:00]
[Laughter]
Remy: We’ll find an English conversion for it, one moment.
Eline: We’ll find an English word for that but– so I’ve been put on stage. For example, the exit of Philips. I’ve been put on stage with the CEO and founder of Galapagos, at that time worth 15 billion or something, I don’t know. And Edwin Moses, the CEO from Ablynxlinks, and another billion-dollar company, and then – me. So that was obviously– we don’t have a lady in this position, so we’ll look for somebody who comes closest.
Remy: A cool new– in the block.
Eline: The new kid on the block, exactly. The positive of that is I get a lot of opportunities. I get a lot of chances. I’m easily in the picture, but that only helps you so little.
Because in the boardroom, in your management team, talking to doctors, the unconscious [00:13:00] bias is just– yeah, it’s indescribable. And even people who tell me that– so people in my own team would say that they’re absolutely– I mean, they think it’s ridiculous, et cetera. But then I’d give them a little joke. Do you know these quizzes that you do? So there is a dad sitting with his son in the car and going for a job offer, and they’re driving really fast because he’s late, and yadda, yadda, yeah. And then all of a sudden, the CEO of the company, the billion-dollar company calls in saying, “Good luck with your job offer.” And how can that be? And everybody’s like, “It’s his grandfather,” “No, no, no.” “So the dad’s also the driver,” but nobody thinks that it could be his mom, you know? So it’s those cues and I could do this–
Johan: Yeah.
Eline: I could ask this question and nobody thinks of it.
Remy: Yeah.
Eline: And that’s so fascinating [00:14:00]. We’re eyes wide open just stepping into it.
Remy: Yup.
Eline: And it’s really hard being a female to explain that because everybody says, “Oh, yeah, you just say that because you’re female.” But it’s really there.
[Music]
Remy: Let’s turn to the growth phase, because we want to have loads of time to talk about the exit as well.
Johan: And from Peak as a SaaS and a software investor, I know that raising money with hardware is really, really hard. That’s why it’s “hardware,” right? And not software.
How did you convince the investors to step in? What was the big dream that you sold? How did you convince them?
Eline: I did not know this when I started, but the market for sleep apnea is very big. It’s a three-four billion dollar market annually. And there are only two solutions out there. There is CPAP positive airway pressure, and there’s mandibular advancement devices [00:15:00] for which the compliance was quite low—so 50% to 60%, meaning that of this billion-dollar market half of the patients are not happy. They’re not using their device.
There is obviously, clearly a space for another solution. And of course, I got loads of feedback and people saying, “You can do this on your phone,” but for a disease, you’re not going to use an app. So if you are seriously ill, you want serious treatment. And investors in the medical space understand that. Doctors understand that. And patients who actually live their disease understand that.
So the good thing was we had strong IP. The market was obviously there. Even though our first clinical trials were poorly set up, we could really show the efficacy. And then that just becomes execution. Then [00:16:00] the question becomes, “Are you able to do your clinical trials, get the right people in place, and roll this out?”
And that was my story with the three times being rejected for the insurance companies. It wasn’t a question of whether it was going to happen. The question was just when because the efficacy was clearly there. The patients were there. Every single doctor in the Netherlands had already prescribed the device, but patients were paying for it themselves. And that made it quite easy to convince investors in that sense then.
Johan: And that’s because people are paying for themselves, right?
Eline: Exactly.
Johan: So then you really solved the pain.
Eline: Yeah.
Remy: Yeah, yeah. What was it like to start raising money because you were a first-time entrepreneur? It must be kind of daunting, all the things that you had to deal with, I guess.
Eline: I just hunted those investors down. I did not know how to approach them, but I just hunted them down. And every {00:17:00} single–
Johan: How did you do that?
Eline: What I did every single time is I created this Excel sheet with this list of investors that I met. And in the process, I would always look for the positive and the good news. If it wasn’t there, I would make it.
So, I’d invite patients to come out and we’d make a video. And they would share their experience. And I would send that video to investors. Two weeks later, I’d start a new trial in a new hospital. And I’d interview the doctor and take a picture. And we would send that. We would hire a new person.
Any news that I had, I really try to frame it and make them feel that we were on it. It was happening. It was a sport to me to respond within minutes to investors. And any slight question that I got, I would completely, over the top, give them a PowerPoint presentation or whatever, a document, that would completely wipe out the question. {00:18:00}
So I was just on top of everything, and I was continuously emailing everybody. If I had a question from one investor, by the way, I would also send the answer to the rest of the investors–
Remy: Yeah.
Johan: That’s a very good trick.
Remy: Yeah.
Eline: –so that they would know, “Oh, there are other people asking questions.”
Johan: And not only in Dutch but also international, right?
Eline: Yes, of course.
Johan: So that’s international appetite, right?
Eline: Yeah. And the same for the data room. The data room would have sections that somebody never asked for because they understand that the data room is visited by other investors too. So those are things that I did. And I was just on top of it. It just needed to happen. So I was just hunting them down.
Remy: As a founder, you said somewhere that you always liked to get a valuation from the investor first to see what they thought the company was worth, and then you started modeling what you thought it was worth.
These days, you are also an investor yourself. What do you {00:19:00} prefer now?
Eline: Yeah. So the reason for that, by the way– so the first round I was raising, I was looking for 400,000. And the first offer that I got, I remember, was 79% of my shares or something for–
[laughter] those 400k. But hey, it was an offer.
So, the first thing I did is go to all the other investors saying, “I have an offer. I have two weeks. If you want to make a counter offer, send it to me.”
So, the offer, obviously, was horrible. But then for the same 400, I got a way lower percentage from a different investor. I was negotiating with them. And they would not lower that percentage. And I just figured, “Okay. If you’re not going to lower the percentage–” and that was a clear cut to them because they were early stage investors and they just wanted a certain share, then we have to hire them out.
[00:20:00]
So, we finally raised over a million in that round for that same percentage. So we negotiated in the other direction.
And that’s how I really found out that it sometimes is just the ticket size of an investor, or it’s about the rules that they truly have on the stake that they take. So it comes so precise and you can’t see that on the outside from an investor, right? So I still like that approach.
Being on the other side, I’m often scared off by valuations that startups have, and the image that they have of themselves, even so that I think, “Okay, I’m not even going to start this discussion because it’s always a nasty discussion to have with founders, that have a certain picture in their mind. And you have to tell them, “Well, a tenth of that maybe?’” So then it’s just– yeah, and then you just–
Remy: But then they open up with the valuation themselves apparently.
Eline: Yes. So that’s why I’m saying being on the investor side now–
Remy: Yeah.
Eline: I still think [00:21:00] that from my side personally, it’s a more convenient way to have the investor do an offer.
Remy: Yeah. Would it be an advice for founders maybe? So to ask proactively for a [crosstalk 00:21:13]–
Eline: Unless you know that you’re realistic, right?
Remy: Yeah.
Eline: And you’re realistic when you’ve spoken to a lot of investors and you have some experience in the field.
Remy: Yeah.
Eline: Until that time, you hear cowboy stories because everybody tells the cowboy stories or the beautiful stories on the outside, and you think, “Hey, well, that sounds like something in my ballpark. Let’s do this.” Right?
Remy: Yeah.
Eline: And if you can’t support–
Remy: We can always round down in negotiations.
Eline: We can always– yeah.
Remy: Yeah.
Eline: And we want to show that we’re bold, and beautiful, and we have a vision, et cetera, but it also scares, in my case, and this is maybe in med tech space specifically. That might be–
Johan: No, this is also the SaaS stick and the marketplace, so–
Eline: So– yeah.
Johan: Yeah, I fully agree with you on that part, yeah.
Eline: Yeah. And maybe it’s style. I tend to be [00:22:00] more on the humble side than [crosstalk 00:22:03]–
Johan: Yeah, but I think also in terms of valuation, you can raise a very large amount or a very big chunk of money, right? But I think if you– are you, as a company, ready for that? Because otherwise, you’ll have a big valuation now, but then you run into the problem later that the next investor will not join, right.
Eline: Yeah.
Johan: So I think it’s very good to raise some decent money indeed but have a very good plan and a very good solidation or a foundation for that ready to go.
[Music]
Remy: The exit phase.
Johan: You had a plan also to IPO your company, right?
It was one of the options that you had when you were selling your company indeed to Philips, but you were thinking also and raising a round, et cetera. So you had different options on the table for yourself what you could do. How did you make that choice where to go for?
Eline: We did have discussions about an IPO. And at that time, I don’t think the window was really there for us but we [00:23:00] were talking about it. And we were looking at it as an alternative.
One of my competitors, I would say with a not a superior product, it’s still dysfunctional, and they don’t have a lot of– no, seriously, the clinical trials are not that good but they went IPO and there are over 500 million on their launch in the market. And then I really felt, “Okay, well, maybe we’ve made the wrong decision there but–” [laughter]
So it was an option. We did talk to banks but the offer from Philips already was on the table. And the negotiations were going on, and everybody was getting quite excited. So, at that point, we figured and we made a decision to pull through and go for the exit.
Remy: What was your personal reason to sell the company eventually?
Eline: So I knew [00:24:00] I had to sell it when I started it. When I took the first money, I knew I had to sell it. And my mission had always been to bring the product to the patient. And it made so much sense that Philips who has thousands of people on the street visiting all these doctors, they were already doing over a billion of sales in sleep apnea market. It makes so much sense to use all of that instead of building all of that myself. And my mission was to bring it to the patient. So that was the fastest route to it.
So that made it very easy for me to let go of that. Yeah.
Remy: And how did the process go? Did you hire external expertise? Did you do it fully yourself, the help of the of the VCs involved?
Eline: Yeah, my VCs definitely helped me out a lot. And I think though, they– in the beginning, they left a lot to me as a CEO. I also got the message saying, “Okay, if we’re on your side, then they won’t– [00:25:00] you won’t be trusted or seen as a good CEO if you need help from your investors”.
But, now, on the other side, I think that’s dumb – because investors do this every single week, every single month, they’re experienced in this. As a CEO, you do this once, maybe twice in your life. So–
Johan: Mm-hmm. Reason for this podcast? [laughter]
Eline: Yeah, it really does not make sense to do that on your own. So I’m very happy that my investors, and especially, the chairman of my board– he was dubbed the chief exit officer because he’d done so many exits in his life before. So he really helped me with the negotiations – and the CFO. So we did– the three of us were there and then–
Johan: You didn’t hire any other external [crosstalk 00:25:43]?
Eline: No. So typically, you could look for a lot of different companies that could acquire you. In our case, I’d spoken to Philips two years earlier. They were already interested.
So, you have to know this, at these conferences, [00:26:00] where all the industry comes together, we always looked for a literally a space that was opposite of Philips or opposite of ResMed. So those are the two big players in the field. So they’d see me grow. Every single year, I’ve seen more doctors coming by and–
Johan: Bigger stands?
Eline: Yeah, bigger stand but the leadership teams are there at these conferences because the entire industry comes together. So they knew us for years.
Remy: Mm-hmm.
Eline: So, when I mentioned I was doing a fundraise, they said, “Shouldn’t we be talking?” So, we did talk and they moved very slowly.
So I said, “Okay, you have to do something. Otherwise, I’m going to do a 10-million round. I don’t think they’d believed me. And they were still taking their time. So, I decided, “Okay, we’ll have to do the round with Gilde and Inkef. It became a 12.5 million round and we closed it. And then Philips was okay. Next time round, when I mentioned we’re going to do a bigger round, we’re going to be [00:27:00] focusing on closing next year. If you’re interested in talking, the time is now.”
And that’s the moment when they speeded up their process. They came with an offer quite soon. We obviously knew their biggest competitor as well, so we literally had the same presentations in the same week for them and their biggest competitor.
Johan: Oh, wow. It’s good.
Eline: So really lining that up. I was pregnant, by the way. So, I flew up and down until I was not allowed to fly anymore, and then did everything but it’s now normal, but the rest was digital so that I could work from home basically and do the last negotiations.
So we didn’t need anybody else because there are two huge players in this field. So those were very clear exit.
Johan: Also hard for your investors, right? If there are only two potential buyers of the company to step in at such a late time, and then sell so early after their investments to a company. How did you convince them? [00:28:00]
I can imagine looking also at the IPO that your competitor made, that they are willing to say no.
Eline: That was not that clear at the time.
Johan: Okay.
Eline: So there was one company that went IPO and they did really well. And this was hypoglossal nerve stimulation, Inspire, they’re called. And so that was completely different technology and a very expensive treatment, but they did a huge IPO and did really well but that was post our acquisition.
So, I don’t think the space and the interest in this space was as clear as it is today at that time. Yeah. And I think the offer that we got was interesting. I think everybody felt the momentum. I’d been working on it for 10 years, nine years.
Johan: Yeah. It’s also a moment, right? Personally, also that you’re–
Eline: Exactly I just had my second child. I’d given a third of my life for that. So for me, it felt right as well.
Johan: Yeah.
Eline: They did ask if I was open for an [00:29:00] IPO, and that would mean a lot on my shoulders. As I said, it made much more sense to use and leverage the work that Philips had already done, than to build everything ourselves.
Johan: Yeah. I think it’s really important if you as a CEO, as a founder, believe this is the right moment that you should indeed–
Eline: Yes.
Johan: –be able to convince your investors and other stakeholders to do that. Yeah.
Eline: And the steps that we had to take were really commercial.
Johan: Yeah.
Eline: So we developed the product. We brought it to market. We got FDA approval. We did pivotal clinical trials. We got reimbursement coding. And now, it’s really the commercial rollout. And that is exactly what– if you do an acquisition or somebody else would acquire you, that’s the first thing that they would let go.
Johan: Mm-hmm.
Eline: So to me, it didn’t make sense in that way.
Remy: The process that comes next was quite invasive with the whole due diligence team. I heard they flew over from Pittsburgh, go through every single file,
[00:30:00]
Eline: And the team was not allowed to know it. So we had rented– so there was a big space, this building, just a couple of buildings next to us. And the entire team– because if Philips is on the stock exchange, nobody was allowed to know about the acquisition. So, just my management team knew about it. And so the entire team was just in the office working every day and we would leave for meetings. Right?
Remy: Mm-hmm. Did they figure out at one point there might be something going on?
Eline: No. No. No. I was out because I was with pregnancy leave, and the management team was out for those meetings. But it was interesting because we had these tables, and there would be 10 people on the other side. And then one or two from our side answering all the questions that they were firing at us.
It was very intense but I think we were well prepared and the data room was quite fresh because it filled it two years earlier. And we added [00:31:00] the latest documentation to that. And then they’re obviously digging through every single detail of it.
I remember being really proud of my team because I had a really strong management team. And they were really able, in much more depth – they obviously were able to answer any question that was asked to them. So I think they were quite impressed. At least I was really proud of them when I saw them do their thing. Yeah.
Johan: Who did the negotiations at that time because one) it’s indeed also the valuation, but also its other terms that can be learned out, people want you to stay, et cetera; who did the final–?
Eline: So we did everything with the three of us. So my CFO, myself, and the chairman of the board.
Johan: Always, all talks, you all three joined?
Eline: The three of us were physically there for every negotiation. And then if there were things that we would not deal at the same time, we would go back to the entire investment board, entire board basically, to talk [00:32:00] about what our position was on specific elements that they’d suggested.
Johan: And you had a mandate of the board probably to say, “You can go between this and this,” et cetera, regarding different notes–?
Eline: No, no, because we would agree, everything, with the entire board. And I mean–
Johan: Okay.
Eline: –it’s not like you negotiate, and then you get a mandate. Of course–
Remy: What were some non-negotiables for you, personally?
Eline: Hmm. Did I have non-negotiables? They had quite a big earnout that they thought of in the beginning but I’d heard so many bad stories about that, so I wanted that part to be as small as possible.
Johan: That’s very wise.
Eline: And now, I would even say don’t– no earnout at all because it just–
Remy: Screw the earnout.
Eline: Well, it’s–
Johan: It’s a new title for the next podcast then.
[Laughter]
Remy: Screw the earnout.
Eline: Well, it’s hard because often, it’s– so we did have earnouts that were managed by us. And those are the good ones because you can do it yourself, right?
Johan: Yeah.
Remy: Mm.
[00:33:00]
Eline: But then there’s also earnouts that have to be performed by the exit party, then you have nothing to say about it. Then the energy becomes negative. So that second part, earnout thing, I would not do again, but the first part, if you believe in yourself, I mean-
Johan: Yeah, but your role changes also, as a founder. You become less involved. There’s a lot of structure. So you’re working together with a new parent company, so the buying company, in this case. So you don’t have a lot of influence on the final outcome, right?
Eline: Correct. Yeah. Yeah.
Remy: Take us to the moment that you told your team that you were selling the company.
Eline: Yeah, so that was–
Johan: Because they didn’t know, right? Because you were–
Eline: They didn’t know.
Johan: –on pregnancy leave, you’re– the rest of you didn’t set up the meetings.
Eline: So we’d set up a meeting with the entire team like we did every single month but that morning, we signed in Amsterdam. We did the signing and we had the closing.
And then we drove directly to Delft [00:34:00] where the entire team was waiting for us. We obviously came with the Philips people. And we had a presentation that we prepared saying congratulations, balloons, the entire thing, and then– yeah. So the entire team was there, and there was a– straight after that, followed a program, an integration program that was done very nicely by Philips. They had a team on top of that that had done this before. They knew how to– yeah, they had an integration plan and really led us through that. Yeah. People felt that something was going on but they really had no idea that this was–
Johan: How did they respond? Because I personally had– one time, when I was telling the staff that I sold the company, and they were all completely depressed. [laughter]
And then in another moment, they all jumped on the table, right? And I think the message was more or less the same.
Eline: I think they did not really know what to expect from it.
Remy: Mm-hmm.
Eline: So they did not know whether to be [00:35:00] happy or to be sad about it. So obviously–
Remy: There wasn’t a big stock option pool available?
Eline: We did have a stock option pool. We definitely did have that but people also felt their jobs, right?
Remy: Mm.
Eline: Especially because the part of Philips that did the acquisition was based in Pittsburgh. So how would that–? But everybody got–
Remy: We’re all moving!
Eline: Yeah. So we were allowed to if you wanted to but most people obviously wanted to stay in the Netherlands. Then you’d have to look for a new job within Philips in either Amsterdam or in Eindhoven. And that obviously creates a lot of insecurity. So–
Remy: Yeah.
Eline: I think it was mixed feelings because of that.
Johan: Yeah. What was the best advice that you got during that process of selling your company because you did it for the first time, right?
You had some experience help from your chairman of the board, but what was the best advice you got from another guy, or girl, or a relative, or people you know in your surroundings?
Eline: So I think– [00:36:00] not people in my surroundings. I was not sharing a lot with anybody at all, to be honest.
But I was quite afraid. I mean, all these legal obligations and stuff that is put on your shoulders, but I remember that the chairman of my board mentioned “Okay, I’ve signed these things like six or seven times. It looks really harsh, but this is how it actually works out and I would not worry about this. Whereas if I would read the legals, I’d be really afraid of what was there.”
Johan: Yeah. Indeed.
Eline: And that really comforted me. I can remember that that really softened me up and I figured, okay, they don’t have bad intentions here. That’s not the case. And I think that really helped me but other advice? —mm.
Remy: What have you got for yourself? Most entrepreneurs give themselves a small present or a big present? So just a huge yacht you bought now. [laughs]
Eline: No. So [00:37:00] I was still driving my Toyota Yaris I’d had for 20 years. So I bought a Tesla. That was really a present to me.
But then I think the thing that I really figured I wanted to do is create moments. So I went on a four-month travel with my family to the US and Hawaii. I really enjoyed that but I really make it a mission to do special things with good friends. So I took one friend to Necker Island to go kite surfing. I’m still challenging my dad to go helicopter skiing with me but [laughter] he doesn’t think it’s cool to do that with his daughter.
[crosstalk 00:37:48]
Eline: No, it’s not cool to do that with your daughter, right? So I have to think of something else there. So yeah, those type of things.
—–
Johan: Cool. [00:38:00] Last thing, the last question, do you have a tip you can share with founders who are now in the process of exiting their company? What’s the–?
Eline: Yeah. So I actually did the exit the same way as I did my fundraising. So I really hunted them down. I was in the lead of the process. It was my energy that pulled everything forward. It’s not the lack of interest on the other side but it’s just the running business on the other side that keeps people distracted, and unless it’s your energy, it’s not going to move forward.
So, I was on top of everything. I tried to overperform on every single question that I got. And I tried to create competition to really make it attractive for people to be–
Johan: Yeah, to be on the ball, it’s like a sales process, right? It’s a sale–?
Eline: It really is. It really is. And it’s really your energy. Yeah. Until the last day, I’ve been quite surprised about that, that [00:39:00] really pushing and continuing to keep the drive there.
[Music]
Remy: Last but definitely not least, the valuation.
Colleague from Peak: In May 2018, NightBalance was acquired by Philips for an undisclosed amount. For context, NightBalance develops a clinically validated positional therapy device that uses vibrations to alter sleeping positions and help prevent sleep apnea.
Let’s look at other similar acquisitions of medical device companies to get a feel for what they might have been acquired for. Let’s start with German competitor SOMATEX Medical Technologies.
SOMATEX, for context, manufactures devices for tumor diagnostics. They were acquired by Hologic for 64 million US dollars in 2021. At the time, SOMATEX had around 40 employees and was expected to generate around 13 million in revenue in 2020. This employee count is in the same range as NightBalance. NightBalance had around [00:40:00] 30 employees when they were acquired. If we discount the exit valuation of SOMATEX linearly with the number of employees of NightBalance, the exit valuation of NightBalance would be around 48 million US dollars or around 39 million euros.
Another comparable company that was acquired recently is EndoChoice. EndoChoice was acquired in 2016 for 210 million US dollars, that is, by Boston Scientific. For context, EndoChoice manufactures devices that treat gastrointestinal disease. At the time that EndoChoice was acquired, they had an annual revenue of about 90 million US dollars and 95 employees. Doing that same valuation versus employee discounting as above, we would arrive at an exit valuation for NightBalance of around 66 million US dollars or around 54 million euros.
The final example we will look at is a US company called Intact Vascular. Intact Vascular was acquired by Philips in 2020. For [00:41:00] context, they specialize in implantable devices that treat peripheral artery disease. Intact Vascular was acquired for 275 million US dollars. And they had already raised a whopping 150 million US dollars as well. At the time, they had around 70 employees when Philips bought them. Using the employee count discounting as above, Intact Vascular would lead me to calculate NightBalance’s exit price to be around 94 million euros.
However, this estimation seems to be high considering NightBalance rates a considerably lower amount. NightBalance raised a series B of around 12.5 million euros or just under 14 million dollars led by Inkef capital and Gilde Healthcare Partners. Assuming a 50% dilution in this round, the investment would likely have an exit valuation of 25 million euros. Combining the above calculations, I would estimate an exit valuation of around 40 to 50 million euros for NightBalance. This would mean a good return, [00:42:00] around 2x for the investors within two years, assuming once again, a dilution of 50% during the investment round of 2016.
Eline: I love to hear the story. It was really a good story and I can’t comment on it, I’m sorry. But I really like your story.
Remy: Eline, thank you so much for your time and insights today.
And thank you so much for listening to the big exit show brought to you by Peak. If you want to learn from the best tech investors and how they exited their companies, please subscribe through your favorite podcast channel. And I hope to see you soon at the next episode!