The Big Exit Show: Selling Cumulocity to Software AG – Bernd Gross on selling his IoT-startup


The Big Exit Show: Selling Cumulocity to Software AG - Bernd Gross on selling his IoT-startup cover

Bernd Gross is a true entrepreneur and his story of building and selling Cumulocity is an inspiring one. On this episode of The Big Exit Show, Bernd shares the journey he went through to create and grow Cumulocity as a spin-off of Nokia Siemens Networks. He talks about the challenges he faced when starting a new business, the decisions he made along the way, and how he eventually sold it to Software AG.

Listeners can expect to gain valuable knowledge from this episode that will help them on their own entrepreneurial journeys.

Some other interesting gems 💎 you will learn in the episode:

  • How a smaller company can compete with large-scale competitors like Azure and AWS 💪
  • Why you need to focus as a startup to be credible to end customers 🔍
  • Why you need an M&A advisor when selling a company 💬
  • Why you should never make an opening offer when you are selling your 🤑company, but if you do it, anchor high.
  • How Bernd experienced that you can only connect the dots looking backward 🔙
  • How to know when you have to sell your company ⏱️
Bernd Gross

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 on your favorite podcast platform, linked below. And, if you are really interested in listening to the big exit of specific founders – reach out to us so we can invite them for the next episode!

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You can find the transcribed version of the episode below:

Bernd: If you don’t know how it works, probably, it’s worthwhile to have an M&A advisor. I think you shouldn’t always try to do everything yourself. There’s a lot of knowledge and know-how out there. If you’re missing something, get an advisor at your hand.

Remy: Starting a company is easy. Selling your company, well, that’s a whole different story. In the Big Exit Show by Peak, we lift the curtain of secrecy of selling ambitious scale-ups by talking to successful founders who have been in this roller coaster. My name is Remy Gieling.

Johan: And I’m Johan van Mil.

Remy: And in this episode, we talked to Bernd Gross who sold his company Cumulocity in 2017 to the German enterprise software giant, Software AG, where he still holds the position of CTO today. Software AG was founded in 1969, is publicly listed, has over 5,000 employees and 10,000 enterprise customers in over 70 countries. We talked with Bernd about his adventure and his dream exit. Bernd, [00:01:00] welcome.

Bernd: Thank you very much. It’s an honor to be here.


Johan: Bernd, let me ask the question, what’s the heroic story of Cumulocity?

Bernd: Yeah. The story of Cumulocity is that we started very early in 2010, already, to identify an opportunity related to the internet of things. I mean, everyone is a few years later, everyone was jumping on that but when we started, I think we have been globally the number two IoT platform player worldwide. Really, just one more, we could identify. We did that because we saw a need for lowering the solution, the application development concept in the platform based or empowered by a platform.

There wasn’t any intelligence in application and solution building. It was always done bespoke once, after once, after once. There wasn’t really cost [00:02:00] efficiency related to that. So we identified that as an opportunity and thought to ourselves, “Hey, can we create reusable blocks, software blocks, so that you don’t have to re-engineer the whole stack but maybe you get 80 percent and you just do the innovation for your specific use case and your solution, and you just invest for the 20 percent of the remaining software stack, so to speak. And also remember, 2010, cloud wasn’t like today.

Johan: No.

Bernd: We had the discussion, I remember. I’m still laughing when I’m talking about that discussion at the whiteboard, should it be enterprise software? So software which runs into on-prem on a server, or should it be cloud? It wasn’t clear. We had both camps, you know? We had a big fight. We finally decided to do cloud but it wasn’t clear. We were just lucky on that decision.

Remy: Cool. Good to hear. And that was the heroic story? What is the real story behind Cumulocity?

Bernd: Well, the real [00:03:00] story behind it then is when you have that idea, you think, “Hey, platform? Great. Let’s create these platforms so that people can then reuse your blocks of software modularity, and then innovate.” But what we realized very fast when we then actually founded the company, went to the market and did the first customer meetings, that people didn’t fully understand what we had actually, there wasn’t any value proposition useful for them, because we had only APIs. We created a software platform with APIs but no user interface. So it sounds funny.

Also, again, more than 10 years after, but actually, we sought API first. So we thought people understand that they can call these capabilities through an API, and then have that functionality, and so on, but it’s not like this, right? People want to see what’s going to happen. They want to have– today, they call it digital [00:04:00] twins, and dashboardings, and whatever you use to visualize things, we were completely empty on that. We had a very powerful platform capabilities, high scalable lens on but no user interface. And that’s the real story. The first, I would say, one and a half years, we had very, very tough times because we needed to add the user interface capabilities on top afterwards.


Johan: Bernd, you started your career at Nokia. And we all know it was the ruler of the mobile world but we also know what happened to it. How do you look back at that time?

Bernd: I think it is the classical example of being disrupted as a market leader. It’s so classical. I have so many memories. I remember one meeting where controlling was demanding to reduce the compute power [00:05:00] of one of our micro controllers in the smartphone, which was before. We launched the smartphone before iPhone 2007, right? Before that, we had a touchscreen smartphone. The problem of that was, because we had to lower the cost of that phone, when you touch the screen, it took one and a half seconds before something really happened. But it was optimized because these controllers in all the company was cost efficient. I mean, we had the enormous operating setup. We had factories. We had the cost efficiency, scalability, distribution partners.

And so the whole mindset was related to cost efficiency. So people were driving the bill of materials down because two three dollars per phone, if you think about 100 million phones, it’s a lot, which adds to your margin, right? So in that sense, the whole setup, the whole operating model was completely [00:06:00] wrong for a complete new innovation like an iPhone. And I see that so often and these memories always come back. I mean, I see that in many discussions I have today with executives at Software AG. It’s so obvious that large enterprises really have a major issue to disrupt their own–

Johan: Yeah.

Bernd: –innovations, their own operating model. It’s enormous.

Johan: What we always say at Peak, they don’t have to innovate, right? They just have to buy successful startups, right? That’s, I think, the core thing that an enterprise should do. I can imagine that was the start also, because you did a spin-off, of course, of Nokia with Cumulocity. Can you can you take us back? How did that happen? What was the idea behind it, to spin it off from Nokia? And how was it all being realized?

Bernd: Yeah. Well, at the time, I was working in Mountain View in the Bay Area in the US, and was responsible for our, I would call it– today, [00:07:00] I would call it an incubation program. So innovation, business innovation incubation. And we had a few projects but the majority of the initiative was related to cloud computing. As I mentioned earlier, cloud computing just emerged, to be perfectly honest, in 2010. It wasn’t so clear, it’s becoming such a dominant market and transforming the whole IT business.

So we identified at Nokia that we wanted to invest into cloud computing because we felt it’s going to happen but we were quite early. Then we looked into capabilities but actually, in Europe, there were almost zero capabilities, competences in this domain. This was really emerging. So we identified that and we thought, “Okay, if we really want to do something in this domain, and we need to go to the US, we need to go to Silicon Valley and create an office there. And once we do that, let’s also do an incubation [00:08:00] next to it.

So we have actually two roles—building up cloud computing expertise for the company so that we could actually– the next generation of back end server platforms could run on cloud. Yeah. And the other idea was, let’s also incubate based on this, and try out new things and a new idea. Actually, we called it startups at Nokia. So that was the internal name of that—startups at Nokia. And guess what, one of the incubation areas was Cumulocity. So we actually incubated that. And then over time, we saw that this is a real market-changing opportunity on the other hand, and Nokia started to get into financial troubles because of many things that happened.

So we fundamentally needed to refocus on our core, so a luxury like having a larger team sitting in the Bay Area wasn’t any more on vogue, you know, how it goes. [00:09:00] So long story short, I saw an opportunity. I asked my management team if they would join me in a management buyout. I initiated a context to two venture capital companies, one in Finland because I used to be based in Finland as well and had some network in Finland, and one in Germany from my network in Germany.

And so it took two weeks. We had the pitch and with the financing, everything ready, just two weeks. I went to the CEO, spoke to him and he was saying, “Well, I think it sounds like you, guys, are keen to do it, I would like to support you. Why don’t you pitch it at the board meeting.” And I think it was then two weeks later or something like this. So I pitched it. It was decided at that meeting. And I think four weeks later, we signed the papers. But I have never experienced such a smooth– honestly, never ever have experienced such a smooth process.

Remy: Wow! Incredible. Were you nervous for that meeting [00:10:00] because there was so much– the whole deal was based on this one meeting?

Bernd: No, absolutely, that was an– I don’t know, sometimes, you have to have this ambition but there’s a lot of luck and timing, and all of that needs to come together. And that was actually our momentum. We had to get a good momentum. And it was– I pitched it to the team, and you need to be– I think you need to make it crystal clear you’re going to do it. You need to be very sharp in that situation so that there shouldn’t be any doubt that you are not serious about it.

Remy: Yeah.

Bernd: And I think that kind of that feeling, I suppose– I mean, I got some feedback afterwards, exactly, that was the right message. The figures, finance, and all the money, how much we paid for it, and so on, it was actually secondary. The most important was that they understood we were completely serious about taking it off.

Johan: Yeah. And they didn’t [00:11:00] get a stake in it, right?

Bernd: No. No.

Remy: Nokia, at that time also. So they left you. They really did a full carve out and they left you all alone with their two investments from the two VCs you just mentioned?

Bernd: Yeah.

Remy: Cool. When you started, you mentioned it already, right? The cloud was growing. You were seeing an opportunity. What was the exact problem those days, what you wanted to solve in the market with your product?

Bernd: Yes, I mentioned at the beginning. The exact problem was that we felt that the solution building in this IoT domain was done always one after one after one. So this kind of was bespoke. And while the cost on the devices side, so the prediction that there will be billions of devices and machines, things, wind turbines, compressors, cars, whatever you have in mind will be connected through an affordable network connectivity. I think these were the predictions but people often forgot that the solution building was very inefficient. [00:12:00] So our concept was, “Hey, let’s head on the solution building as well and create this modular software platform, which helps you to fasten up the solution building into today; actually, people can create a solution even in minutes with a plug-and-play and intuitive user interface.”

Johan: It’s like a low coding, right? Low coding for IoT devices if I understand you well.

Bernd: Today, you could say it’s a sort of a low coding platform for IoT solutions and device management. Yeah, you could define it like this. But low coding was there when we created it. So today, you would call it like this, yeah.


Remy: So at one point, you managed to exit from Nokia. What were the first steps you did? You were sitting in your office one day and you were the owner of a company. And now, you had to pay the bills yourself with some of VC-backed funding, of course. [00:13:00] What was it like? How did you attract your first team members back then, or how did you find the clients you needed to onboard?

Bernd: So at first, there were four of us, so four co-founders. And we relocated to Dusseldorf. And that is because that’s my hometown. I started my professional career here at Nokia at the large engineering center in Dusseldorf at the time but long story short, we started really with four people and went to our network. And we’re seeing, “Okay, who needs this type of technology? Who needs that platform?” And because we came with a telco background, so not with an enterprise typical background, we obviously went first to speak to some of the telcos. And there’s one telco company quite close to Dusseldorf, in Bonn, which is Deutsche Telekom. And so that actually then turned out to be our first customer.

Our first customer was a German telecom or Deutsche Telekom. [00:14:00] And they had actually the vision. They shared our vision with that internet of things and the high number of grow of connected devices, so connected world type of vision sharing. And they also understood that their cellular connectivity will play an important role to enable this. So that was good news for them because they will sell more SIM cards not only to human being, but also to machines and things and sensors. But they also then saw, “Hey, if there is an opportunity to have a soft as a service platform which gives us additional revenue opportunity or revenue upside, that would be cool as well.”

So they actually started to brand it with their own brand. They’re calling it a cloud of things. And they’re still selling it today. They’re selling it in combination with the SIM connectivity business. They’re saying then, “Hey, listen, this is our SIM cards. Why don’t you try out our cloud of things? It’s a full self-service IoT platform where you can create your solutions, dashboards, and device management, firmware management over [00:15:00] the air. And all of that is included.” And they’re quite successful with that.

Remy: And those early days, especially, after having such a big client and moving to Dusseldorf, and also given your background, and those days also, the VC but also the startup landscape was pretty immature those days, where did you get your inspiration from? Who helped you? Who did mentor you, gave you advice?

Bernd: That is a very good one. Because I used to be based, twice, actually, once in my early days in California, and then just before starting with Cumulocity. Actually, I have probably the same inspirations and many others are really these kind of a Steve Jobs type of people. And I remember listening to a lot of his YouTube speeches. I had the–

Remy: Was that the Stanford speech? Yeah.

Bernd: Yeah, exactly. So we all know that. And these have been really my inspiration, especially, this connecting the dots, right? It’s so [00:16:00] powerful. That concept and speech was very useful for me because sometimes, not everything was smooth sailing, obviously. There have been a lot of difficult situations. But I always went back to that speech with the dots and was saying, “Listen, this has some meaning. It will help us at the end of the day.” And actually, more often than not, that exactly happened like that, you know? It was good to lose a customer who have these escalations but good to have maybe not meeting that KPI or milestone because it strengthened actually us afterwards. So yeah, I think Steve jobs type of aspiration was probably my biggest source of inspiration and aspiration.

Remy: And on a more practical level, especially, with getting customers in, how to handle your two– your Finnish and German investors dealing with Nokia, probably with the carve out, getting customer onboard, serving Deutsche [00:17:00] Telekom, how did you get your practical insights?

Bernd: Well, that’s a good one. I think it’s just learning by doing. I remember negotiating my first contract on Cumulocity side with Deutsche Telekom. They have this purchasing unit of an own company for buying stuff, right? So there are three, four people sitting there in a room. And it was just me. The other three guys are more on the technical side. It was me just kind of a hybrid person. I have actually an MBA but also an engineering degree. So I’m kind of a hybrid type of person. So it was just me, and then these four guys there.

But then on the other hand, I wasn’t a student before. I was working with multinational corporate environment for many, many years. And I did actually negotiate contracts in the B2B software world or B2B world before. So that helped a lot, honestly. So it’s different, I believe. I see that today as well when looking at startups, and so on, with these young [00:18:00] entrepreneurs, very enthusiastic. And we have been enthusiastic as well but we did a buyout. We were not a typical startup situation. So it was, in that sense, easier.


Remy: The growth phase.

Remy: So Bernd, what was your biggest challenge in scaling the company?

Bernd: Yeah, I think the biggest challenge in scaling was building the company. So people-wise. I think that was the biggest challenge. So we have then hired a sales head; another account, another one. So we kind of grew our sales organization quite nicely with a guy who was managing it. And then we had the engineering CTO anyhow, the architect team, the project management, but we were actually pulled into international markets outside of Europe. In Europe, it was sort of an easy way doing it. From Dusseldorf, you are [00:19:00] in every place. In an hour drive or a flight or something like this, you can support European customers, and so on.

But then, we got actually customer requests from Australia, from Japan, from– you know, wherever you can imagine, which was very good, but we couldn’t serve them. So we tried to serve them as long as possible, centrally, from Dusseldorf. And we had actually someone in, let’s say, Central Europe and North Europe. But when you have three time zones, suddenly, do I have a big problem? And we didn’t thought about that.

So we signed on, we onboarded customers in Asia and the US, and suddenly, our team was looking very tired because they had actually calls very early in the morning. And then they actually followed the sun, sort of. Essentially, that kills you. That kills you. And that has been the biggest problem. We created too much friction at that time. We lost also some talents in that [00:20:00] situation. And so we needed them to ramp it up. So we opened up actually an office in the US, and we opened up an office in Asia. Then in this situation, we also had a discussion with Software AG, at this very difficult situation for us.

Remy: So far, the company was self-funded and you had a few investors on board because indeed, attracting talent, open an office, et cetera, especially, in the early phases, it’s very hard to realize from your cash flow? How did you do that in that scaling phase during those days?

Bernd: We’re in a situation I was quite confident that we could do another funding round, the bigger round, for the internationalization because we had a lot of proof points where our model was working. I was very confident, so we invested into, for example, incorporating in Delaware or opening up in Singapore without the founding round. So we did that already but we needed, actually, a new [00:21:00] round of funding. I was actually thinking that was the way to go. We do a new funding round. Then something happened, as you know, which was the Software AG. And so it didn’t then end up to be a funding round in that sense.

Johan: So at that time, you were also raising funding, and also working, I think, with Software AG at that time, right?

Bernd: That’s right. We had the partner model as well. At that point in time, we were actually, I think, I would even say globally leading with telcos for internet of things platforms. We had NTT in Japan, our customer; Telstra in Australia; KPN in the Netherlands; A1 in Austria; Deutsche Telekom, Du in Dubai; Saudi Telecom. Ooredoo in Qatar, in– whatever, Telia, and they all jumped on the same concept like Deutsche Telekom and wanted to get more out of the connectivity with a software-as-a-service platform model, right? So we had, really, a pull there, but that [00:22:00] pull created this friction because we didn’t grow the company into Asia and the US. So we didn’t really separate the workload in a good way.

In addition to the telcos, we had also a partner model for larger software vendors like Software AG, used to be part of us. And they were actually very successful for our platform. Once they saw they could sign seven figure deals with our platform, they liked it, they liked us a lot. They started to become very close friends to us, obviously. And then they identified, “Hey, this is an interesting startup, growing a lot law of attraction. We can sell it. We have proven it through the partner model. Why shouldn’t we take them on board?” So that was kind of their question, you know?


Remy: Now, many startups are obviously looking at the enterprise market and they see this big ocean of potential clients who do really great amounts of revenue each month, but they find it’s [00:23:00] very hard to set up these collaborations as a small player. In your experience, what is a good way for a startup to be taken seriously by these big corporations?

Bernd: I think that’s a very good question. For example, what we did with Deutsche Telekom was that we had the fortunate situation that we had a good high level entry there because of relationships there. And then we went there and said, “Listen. Our vision is like this. If you share our vision, why don’t we work together and we co-innovate based on your needs and make you successful?” So we kind of started more strategic partnership model but it was clear it was our IP. But what we ended up with suddenly was a platform, which was a bit moving into the telco direction, and had some specifics for the telco segment. It’s just one enterprise segment, right? You have many segments.

But [00:24:00] that’s what you see as well with many startups, especially, at the beginning. To be credible, you need to focus on one segment. You cannot serve all segments at once. That’s not possible. So you need to have that inroad. You need a success story, and then a proof point. And then you can actually scale it in that segment. And I think that’s what is– sometimes, some people develop SaaS concept and try to sell it to everyone at the beginning, which is difficult. I don’t believe in that model. I really believe in a focused model with a step-by-step approach. And I think that’s the recommendation I’m usually also giving to younger startups.

Remy: Were you worried at any point that one of these big players were like, “Oh, that’s a good idea you guys have. Let’s build it ourselves.”

Bernd: Well, you know what? We do have that situation, actually. When you look at it, we have, for example, the hyperscalers like, say, Azure or AWS. They all have IoT platforms nowadays, you know? [00:25:00] And we just got recently a rating, a Gartner Magic Quadrant. So we are a leader at Software AG Cumulocity. We are one of the four leaders globally but the others are AWS, and so on. So they’re big, big players. So in the Leaders quadrant, actually, we are the only European software vendor, by the way, in the global leader’s quadrant for internet-of-things platforms. There are, nowadays, hundreds of platforms, you know? And our Forrester, Forrester Wave, they’re also a very well-known analyst report, we are number one. On the top right corner, number one for all IoT platforms even having Azure and AWS there.

And I think that the point always is, it’s not just the ideas, also the timing. That’s what I’m trying to make, because if you have the right idea and the timing fits– in the beginning, timing was wrong. We were too early. To really pull from the market, only happened two, three years after we started. But it’s [00:26:00] better to be early than too late, as you know. And a lot of these copycats or followers, and I believe, they have been too late. Of course, also our customers or some of the telcos then we’re saying, “Hey, I developed it myself, or then they actually say, “Okay, I created on top of Azure IoT or AWS IoT, and so on, at the end of the day, I think what most people– I’m now very honest here, very open, I think a lot of people do not fully understand what’s their real stake, what’s their strategy in it. Is it to reinvent a wheel or is it to add competitive differentiation on top of something, which you already have and you can get?

And a lot of people is trying to reinvent the whole stuff, whereas they should actually focus on where they can really make a difference in their domain with their own capabilities and know-how. And some people are a bit confused about that, even so, I don’t know why but that’s– and I have these [00:27:00] type of discussions still today, you know? Some people tell me, “Listen, I’m building this platform myself.” “For what?” I’m asking them, “For what? Why would you build that yourself? You have so many different platforms. Don’t take ours. Take another one but focus on where you can make a difference, where you can differentiate.”


Remy: The exit.

Remy: Bernd, you just told, indeed, that you’re different clients around the world, NTT, KPN, Deutsche Telekom, really growing. You had to open offices also to follow the sun, as you mentioned, so you needed extra capital and at a certain moment, you try to raise some capital. You already worked with Software AG. What was the moment that, first, you began to realize you should exit the company and not raise another funding round?

Bernd: That’s a good– I’m not sure if I realized that or not, but I have to say that growing the company in Europe was a quite [00:28:00] straightforward thing. I mean, a lot of difficulties not just– sorry, don’t get me wrong. I don’t want to be arrogant. It’s not straightforward but it’s manageable because I think when you have a network, people you have trusted, employees, and so on. So now, going internationally, for example, incorporating in Singapore as I mentioned, and in the US, you need to hire people. You need to set up for that structure. You need to set up a complete different company. You need to implement an ERP system, a controlling system. You need to strengthen things. You have to have four-eye principles. You’re completely different. So the company needed to change. We were sort of a naive startup, working– it was fun and working, and everything was fine. Everyone was easy, no hierarchy in a sense. And what we–

Remy: How many people were working there at this point?

Bernd: I think it was 70. And then [00:29:00] when you go this– make this internet, you need a complete different set of a different company. So that’s why I believe that the approach from a partner– and by the way, we got approached by many companies to acquire us, large international– multinational corporates. I always felt, “No,” but what happened there is your small tiny wheel out of the hole, we will not continue to drive our strategy and what we want to achieve. So we always declined. Sometimes, we did do the exercise to a certain stage because that was the kind of the learning. I wanted to gain that learning experience but it never really happened. We felt it was too early, and so on.

But then with Software AG, they approached us at a time where we had this issue with internationalization and setting up a new structure, new team. We started into doing that and I found myself doing a lot of stuff, [00:30:00] corporate stuff, I would call it, if you don’t mind, which isn’t so enjoyable. I mean, do you want to negotiate the managing director agreement with guys and set up the controlling system, and the reporting structure? So in that moment, Software AG approached us with a very attractive proposition.

The proposition is, “We help you to scale. We have been told you want to scale globally. We are active in 70 countries. If you want to do that, you need 10 years plus, but if you join us, you are there almost immediately.” So the proposition was very attractive for me at that moment in time. And I haven’t thought about the money, honestly. The money was the second thing, which complemented the positive impression on helping us to internationalize.

Remy: What were, those days, the other options you had on the table? [00:31:00] Because you mentioned that you were also talking to other giants in the market also raising other funding. Did you have any other options? And what were they roughly? How did you compare them?

Bernd: I thought I cannot name– I have a confidentiality agreement on this but we had to function for large chip makers who believed in that idea of billions of things connected, and they wanted to do more than just supplying chips—microcontrollers, and so on. So we had very large giant companies at the back who believe the platform will help them to create additional profitable software business on top of their hardware business. And we had very, very large software player, a large router company at our back, and a couple of others. I think the usual suspects when you think about companies who innovate through startup acquisitions, you know?

Remy: Yeah.

Bernd: They have been with us.

Remy: And how did you manage that process at that time? [00:32:00] Because you were running the company together with your other founders, you had to open offices, have the [F&C 00:32:06.2] parts solved, et cetera. How did you run that process talking to different buyers at the same time and running a company on the side, so to say?

Bernd: Yeah. We did that closed community, basically, the founders, the four of us. We managed the process. We haven’t had any external contractors or help. It was just the four of us. And we went through one process. So that helped us to create the first data room, so to speak. We had a documented data room. And then we used this effort. I mean, many companies nowadays maintain a data room, right? I didn’t know that at that point in time, but there was the consequence out of these kind of dialogues you had. You needed to have some sort of a data room available. But we learned a lot by this, by the way. We learned really a lot because [00:33:00] these investors, they’re asking actually a lot of good questions.

Remy: Mm-hmm.

Bernd: Yeah. And they want these KPIs they’re looking for, the whole way that helped us because I wasn’t so familiar with all of that, helped us to create our own KPI system. So retention figures, and then customer acquisition cost, and lifetime values, and the ratio out of that. And all of this kind of stuff was something we kind of got from these dialogues, which helped us really to create a very modern look at the business, not just the costs or budgets, or something like this but more really top-line driven and value-driven.

Remy: Now, you mentioned that the valuation wasn’t your main concern, of course. You wanted that the company was being helped scale internationally, but the money still comes second. How did you know what a fair valuation was?


Bernd: That’s a good question. I don’t know. People using multipliers, I don’t know. You probably have better under insights in multipliers than me but what I did is, I just checked out market comparables and multipliers and use that a bit of guidance, you know? That’s how I came up with my understanding of a fair evaluation. But honestly, I never did what I learned. I went to the business school at some point in time in my professional career like London. I went to London Business School. I did an MBA at London Business. What we did there was, we created these discounted cash flows and net present values here and there, and all of that. And to be perfectly honest, I never, never did that.

Remy: No, completely not relevant, right? For these kinds of companies.

Bernd: No, not really.

Johan: And what’s, in your opinion, the best way to go from a founder perspective but these days, you’re an angel investor as well? Should you, as a founder, make the first offer of what you think is a fair value for the company, [00:35:00] or do you wait for the other party, in this case, Software AG to make an opening offer?

Bernd: The latter, definitely. So I’m trying also, in business life, when I’m negotiating contracts today, I never ever try to come first with the price, you know? That’s my recommendation. And if (so), please anchor very high because what you do, you’re incurring a price.

Johan: Mm-hmm.

Bernd: You will never get away with that party on that level on price. It will only go down, if you say first the price. So if you do it, anchor high. That’s my recommendation. I would not do it. I didn’t do it. So I didn’t say a price.

Remy: That’s a good suggestion.

Bernd: That would be my recommendation. And let me also tell you why. These buyers, let’s say, strategic exit, they have their own business cases. Let’s say you have a large software company. They have a very different way of scaling you across different multiple industries. Then let’s say, [00:36:00] Deutsche Telekom who wants to buy us. They have their own business case with a platform for their own customers and all market penetration, and that business case is probably much lower than a software vendor who goes and sets you across the countries globally. And that’s why there is nothing like one price for a company. It depends who acquires you. That’s the important message here.

Remy: During that process, talking to different investors and talking to the different exit partners, what was at that time the involvement of your current investors, also in the exit process but also regarding the decision making on that end?

Bernd: Yes. Software AG reached out to us based on the successful partnership model they created, based on our technology. So they came to us with a very attractive proposition because they actually studied us and learned through speaking to our employees, and so on, not [00:37:00] just to me. They understood what is the pain point I’m having, or we are having, at the moment. [chuckles] So I think they did it in a very smart way. And they really wanted to understand what’s the current situation, is there any issue they could help with. And they identified our internationalization was the key pain point we faced at that point in time. So they came with that proposition.

And then of course, after speaking to the management team, they actually asked us to sign, “If you’re interested to sign us a letter of intent…” and with a due diligence process where they actually assigned 20-30 people with contractors and advisors, and so on. And they did very thorough process, and then really reviewing everything you can imagine. And so the involvement in that sense, I think it was a very professional way how they approached us and pitched it to us, because they knew as well, [00:38:00] by the way, that we have been approached also by other companies.

So they knew that. I think they have heard that from a market room, or I don’t know where. So they really wanted to differentiate their proposition and not just come with money. And that was a very clever move. I think that is also my– would be my recommendation to a strategic company acquiring startups, that you really should study that startup and really understand– it’s almost like a sales case, right? They looked at us as we would be their customer where they need to create an account-specific strategy to successfully win us.


Remy: Now, take us to the days of closing. What was it like for you? How did the contract signing go? How did you celebrate?

Bernd: So I have to reveal a funny story here because when we did the due diligence, usually, [00:39:00] this is two weeks, or I don’t know, two or three weeks. We had a three weeks’ due diligence process. On the other hand, I had actually promised my family—that was during a February time—to go on a very nice vacation because I’ve worked a lot, we had no summer vacation really, and so on. So we booked that already well in advance. And for the sake of my family, I couldn’t cancel it again. I didn’t want to. So we went on a very nice diving vacation in the Indian Ocean during our due diligence, you know? And it was–

Johan: Great timing.


Bernd: Exactly, yeah. That was how it went out to be. So I had actually an interesting experience. I was actually doing a remote due diligence conference call, and they accepted that. They also visited our offices in Dusseldorf, and all of that, but when they wanted to talk to me and get all the insights, we were actually on the– I was actually often sitting in [00:40:00] the hotel. They called it something like a lounge room for– when people late arrive or early leave, I could actually manage to get a table in that lounge area. And I was then having a very late call because of time difference. I was sitting there until three o’clock in the morning, and then having my family vacation the other day, and doing due diligence in the evening again, you know? But it worked. The interesting one, it also worked. They told me afterwards, I was probably the most relaxed startup CEO they have experienced in this type of a due diligence process, you know? [laughs]

Johan: And how did you celebrate the closing when it was signed, and perhaps, you bought something for yourself as a present, or you had a big party, how did you celebrate it?

Bernd: Yeah. So I think then, I came back from vacation. It was clear, So verbally, they wanted to buy us. Everything was clear. The commercials were clear. We had a couple of open issues still, contractually. [00:41:00] And on our hand, we had, of course, also our legal team. We had a legal team assigned, which was helping with the contracts, and so on. And I remember that we went to the notary. I think it’s the same in the Netherlands, I suppose, that you have to go to a notary, or not.

Remy: No, you don’t have to. In Germany, you really have to go there and listen for hours to a notary reading but that’s not in the Netherlands.

Bernd: That’s terrible. I mean, this is [crosstalk 00:41:24].


Remy: And by the way also, not in the rest of Europe, which is funny, but it’s–

Bernd: Yeah, yeah, that’s the worst system that you can imagine, what we have there. So it’s really they’re reading the big contract. They need to read it through. And the whole party sit there, very expensive lawyers on both sides, yeah?


Bernd: And they’re sitting there, they’re smiling. They’re in a good mood, you know?


Bernd: The notary gets a piece of the cake from the total. It’s by law. It’s the system. It’s like this, yeah. It’s an amazingly inefficient way of doing it. But I remember [00:42:00] when I entered the room, it was quite funny because there were a lot of Red Bull cans on the table. I said, “What’s wrong here?”

Remy: Because you expected a champagne?


Bernd: Yeah, I expected, or whatever, a coffee also, but they had Red Bull on the table like a very traditional letter C type of bought table. And I knew then, after, let’s say, two o’clock in the morning, I knew why there–


Bernd: Actually, we had some issues we needed to clarify, and had even a break in between for an hour because there was an open issue we needed to renegotiate. And so the whole thing took, I think, six hours or more. Very inefficient process by anyone.

Remy: Did you buy something for yourself as a congratulation to making the exit a reality?

Johan: Or perhaps your next diving holiday with your family again, right? Given your good experience, all that?

Bernd: Yeah, exactly. So we went then for three weeks’ vacation. There was like, I think, in the springtime, [00:43:00] we signed. And we went actually, at school break, for three weeks’ vacation. And then we had this closing dinner, of course, together with the VCs. It was a very nice evening, long and nice evening, and all of that. So we did our part of celebration. I have to say that there was not much we left out. [laughs]

Remy: Great story. Hey, last question, I think. What’s your advice for entrepreneurs who are now thinking about selling their company in the near future, also based on your own experience as a founder who successfully sold his company but also as an angel investor, what would be your advice to them?

Bernd: If they feel they’re in the right situation, have developed a company in the right way, I would advise them to open up a process. And we didn’t do it, honestly. In Cumulocity, we didn’t do it because we had this opportunistic situation [00:44:00] with a partner who wanted to buy us. And these things sounded quite well, but I will never know it was that real market price or not. I will never know that because I didn’t test the market. So in that sense, if I regret anything, I mean, honestly, usually, I’m not redirecting or looking forward in the future but next time, if I’m doing something like this, I will test the market. Why not? Why not open up a process?

So my recommendation is don’t try to sell your company to your partner or one of your big customers. You should really open up a professional process. If you don’t know how it works, probably, it’s worthwhile to have even an M&A advisor at your hand, you know? I think you shouldn’t always try to do everything yourself. There’s a lot of knowledge and know-how out there. If you’re missing something, get it into your remix and get an advisor at your hand.

Remy: Yeah.

Bernd: And don’t try to sell to your existing customer [00:45:00] or partner. There’s a great chance that you undersell the valuation or you don’t get the right valuation, which is probably in the market.

Remy: And that’s what we’ll be hearing right now, right?


Remy: The valuation.

Calin:: Hey, what’s up, guys? Here is Calin from Peak. Let’s try to do the valuation for Cumulocity. Looking at the P&L of Cumulocity in the public German company database, we can see that they had €4.2 million sales in 2017 and €2.8 million sales in 2016, which points to a growth rate of 50% between 2016 and 2017. When checking the SAS benchmarks, a business growing 50% in 2016 to 2017 will have a 5.5 multiple on the annual recurring revenue. Given [00:46:00] that the sale was made early 2017, the valuation would have been made on the 2016 numbers. Adding on top of that, a premium of 10% as it was a strategic buy, we will arrive at an exit value of €17 million.

Remy: Bernd, is that number too high, too low, or exactly right?

Bernd: What do you think?

Remy: Johan, you’re the expert.

Johan: I think it’s correct because my colleagues made it, right? And they’re really good.


Bernd: Yeah, it’s too low. It’s too low.

Johan: Thank you so much.

Remy: Ladies and gentlemen, thank you so much for listening to this episode of The Big Exit Show. We hope you enjoyed today’s program. And if you did, please subscribe to our show at Spotify or at your favorite podcast platform. If you have any feedback, please send us a message at [email protected]. My name is Remy Gieling.

Johan: And I’m Johan van Mil.

Remy: Thanks again for listening, and we hope you join us at the next episode.

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