In this conversation, Anton Loeffen shares his entrepreneurial journey, detailing the challenges and triumphs of building a successful software company over 25 years. He discusses the importance of grit, the evolution of his business, and the lessons learned in leadership, sales, and funding. The conversation also delves into the exit process, emphasizing the significance of having a strong vision and the right team in place. Anton reflects on his experiences, offering valuable insights for aspiring entrepreneurs.
This is what we discuss during this episode:
- Resilience and Grit: Anton’s unwavering commitment, programming day and night from a young age, laid the foundation for Eshgro’s success. His advice? Embrace setbacks and keep pushing forward.💡
- Financial Savvy: Over 2.5 years of preparation taught Anton the critical importance of EBITDA and financial metrics. Hiring top-tier professionals and understanding valuation metrics like revenue multiples are crucial for a successful business exit. 📈
- Leadership and Trust: Transitioning from CEO to CTO, Anton learned the value of trusting his team and letting go of excessive control. A harmonious work culture and a vision employees can follow independently are key to sustainable growth.🔑
As always – hosted by Peak’s very own co-founder and managing partner Johan van Mil and Anke Huiskes founder & managing partner of NP-Hard Ventures 🕺🏻🕺🏼
You can find the episode on your favourite podcast platform, linked below. And, if you are truly 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:
Johan:
Starting a company is easy. Growing a company is harder. But selling your company, that’s a whole different story. In the big exit show, we lift the curtain of secrecy around selling businesses by learning from ambitious and successful founders who have been on this roller coaster. Our hosts, venture capital investors Johan van Mill, the founding and manager partner of Peep, and Anke Huiskes, the founding and managing partner of NP Hard, will help you on this exciting journey.
Anke:
Hey, Johan, that was a beautiful 50 minutes. Talk about how he started the business from basically his bathroom being like a seven year old kid teaching himself to code up to a massive acquisition 25 years down the line. Incredible learnings. What was one of your main key takeaways from history of Anton?
Johan:
I like it a lot that this is typically a person who really dives in and goes in fully. Right? Also the way how he learned to code himself, how he learned how to sell to his first clients, how he learned to sell the company to get the first investors on board. He did everything on his own and he really dove deep and he really showed grit on that end. And he built a company, of course, for 25 years that’s also showed a lot of grit. But I think I like that a lot when founders really go in full. Also the way he financed the company, he could force mortgage on his house, second one, then a personal loan until the bank said, whoa, stop, this is getting too much. And then he reached out to some Asia funding, strapped all the way down to his first external round. So I think that really shows grit and passion.
Johan:
I think that’s also the way that you build successful companies over time. So I like it a lot, what we heard.
Anke:
Yeah. And also the books that he shared because it seems that he’s also pretty obsessed with personal development, like reading other people’s biographies and using these stories as mentors especially I think because he started the company in the nineties, they were not like VC was not really a thing. I think these types of tech companies. So the peer group is also spread thin, but that obsession also with personal development up to the end when the exit came and then he really brought the professionals in, I guess because that’s where you don’t want to make any mistakes. So yeah, to the listeners. Enjoy the show.
Johan:
Today we will speak with Anton Loeffen from Eshgro. He is the founder of a company, what is called now Eshgro. But he wrote his first software when he was only 14 and reached the finals of a national programming competition of the Ministry of Education and Science when he was 17. He started his first company in 1991 at the age of 21, and three years later he sold his self
written software to 60 regional banks. The software company started with a software as a service in 2004 and has grown now into the top ten cloud companies in the Netherlands. He’s a visionary, he’s an initiator, and he’s an innovator who loves original ideas and also has the drive to make them a success. Anton, welcome on the show.
Anton Loeffen:
Thank you. Very nice introduction indeed.
Johan:
So what brought you at that moment to start Eshgro, right? Especially your first company at that time.
Anke:
The start?
Anton Loeffen:
Well, I started, well, maybe because I was not a very popular kid on school, and I watched a tv series, Wizkids, which was at that time already on artificial intelligence. And of course that was just mainly science fiction, but I was triggered by the idea of a computer and the ability to program something like a, let’s see, a friend, a virtual reality friend. And that’s how I got interested in programming. And I asked my parents for a computer. And from that point on I learned that of course, that you create something from nothing with software. So I got all kinds of ideas to develop software. And as you mentioned, I developed software for several companies, but also for banks. And I sold my first offer to banks.
Anton Loeffen:
But yeah, the idea originated just from being, let’s say, a little bit of a loner, socially awkward guy. I think I’ve improved a little bit on that. But at that point in time, I was really not popular, to say the least.
Anke:
So being self taught, especially during that time, right now you can go to Google or like all these online courses, did you go to the library to get books or how did you taught yourself to code?
Anton Loeffen:
Yeah, it was really self taught. So yeah, there were a few books on programming. And so what you did was more or less you copied the code that you find and then you started altering it, tried different things, and it was really trial and error. So I started with basic and then went on to assembly for the developers. Assembly is really machine language. And it was trial and error, trial and error, trial and error, and learning from mistakes. That was just keep going, keep going until it works.
Anke:
Maybe for my understanding. Was it like for minutes a day, hours a day, were you on your computer for like seven days a week because you didn’t feel like playing outside with other kids?
Anton Loeffen:
Like, no, it was 24/7 yeah. So my parents got a little bit worried at a certain point, they tried to more or less forbid me to spend certain amount of time. So I did it in secret at night. And, yeah, I think certainly when I wrote the program for the banks I have, and I think that’s a family thing. We all sleep very little. So I, on average, I sleep between four and 6 hours a night, and my sister and my brother have the same thing. But at that time, I think I skipped two, three nights a week programming. I don’t do that anymore.
Anton Loeffen:
Sometimes when I’m really inspired, I still skip a night, but not that much.
Johan:
And how did you bring that software to the market?
Johan:
Right.
Johan:
Because you were really good in programming and building it yourself, locking yourself up in the middle of the night building it, but you also had to sell it. Right. How did you do that on that end?
Anton Loeffen:
Yeah, so it was really, I think that was also really hard on me because I had to learn to communicate. So I also tried to learn a lot about marketing and sales. So how. Yeah, practically get a book from the library, try to learn about sales, try to learn about marketing, and then copy that and do the same thing. When I did the programming is just learn how it works and then try to figure it out. And so I went to, really went to local banks and sold it. And what I also had was at some point in time, a number of theses banks tried to get some, let’s say, consultancy from me. So I did some consultancy, and that gave me an entrance into the bank.
Anton Loeffen:
And then I learned I got all the addresses of all the other banks and all the information I needed. And then I did a direct marketing campaign at that time already. And just, you sent the information to like 600 banks. So here’s a piece of software that will help you get your compliance and security straight on certain specific items. And, and then I did a follow up by phone. So it’s quite traditional, but I think it’s still going on this way at the current time. But that’s what I did. And I got it from just reading books, reading magazines, learning from the successes of other entrepreneurs.
Anton Loeffen:
So I read a lot of biographies I like to read. That’s one of my hobbies. So I read a lot and I did that also at that time.
Johan:
But I think if you program. Right, you have a continuous feedback circle, right. Because if you program something and it doesn’t work, you get an error.
Anton Loeffen:
Right.
Johan:
Or it works.
Anton Loeffen:
And if it works or doesn’t, and then you improve.
Johan :
And then you improve. Right. With human interactions. Right. Especially with getting on board with banks, then that works different. How did you learn that, especially? Did you have coaches? Did you ask people for feedback? Did you have other ways to, let’s say, improve yourself and learn, especially the things that you readded to implement them, but also to improve them.
Anton Loeffen:
Good question, because I knew that I was not good at that. So I started with NLP, which was then also a very new thing. So I started NLP and neurolistic programming myself, more or less. So how to for less copy in the communication and hand gestures, etcetera, from others. So more or less mirror in the communication and learn from that. And I asked for feedback, and I think, but that was, I think five, six years later, I did have a really good strategic coach. And that was professor doctor Brevoort AR, which at that time was professor at Rotterdam University. And he teached me a lot about strategy for like two years.
Anton Loeffen:
So I went to him one, two evenings a week, and we read books, we had discussions, and that was more on the strategy part, which is the part I like even more than programming or it. So that was a really good coach for me. But I think on the communication part, I just learned from experience. I just learned from experience. And you have just to have expose yourself to the problem and then learn from the feedback.
Anke:
And were you during that time always a solo founder? And you have people reporting to you, or at some point you also look for co founders, as you were growing to like.
Anton Loeffen:
So at a certain point in time, but I think we had a number of learnings. I had a guy who I had joined, because then I said, the software company, I split it in two. The one part of the company became, let’s say, server based computing, because cloud didn’t exist at that time, so it was server based computing. And the other part was still, let’s say, the traditional programming part. And I wanted another guy to run that. So I hired him as more or less as a co founder and give him some shares. And I think he was with the company for at least ten years. And then at a certain point in time, let’s say it didn’t work out, and then we more or less separated.
Anton Loeffen:
And the same thing goes for, let’s say, at certain point in time, I try to improve in the sales organization, and I did a share deal with what was then called escrow, a sales company. And yet I think it was a complete mismatch on culture, really complete mismatch. So it took me about two, three years to get rid of that, but a really bad decision and to get rid of.
Anke:
So you saw, you bought a company and then you had to like sell it again. Is that what you’re talking about?
Anton Loeffen:
No, it was like these guys, they were good at sales and marketing, and they were selling our server based computing, us. Let’s later on cloud solution to, let’s say, their customers. Yeah, but they bought it from us. And then they said, oh, let’s do it. Let’s do some share deal. You give us some shares of your company and will be your sales organization. And I must say, most people said, don’t do it, don’t do it, don’t do it. But I was very optimistic, so I said, why not give them like a fee? Interesting percentage.
Anton Loeffen:
And then, and then it appeared, you know, they were complete mismatch in culture. They were like a hit and run type of guys. And our customers were all long term consultancy, type of sale, you know, partnership, a real partnership with the customers. And they were like hit and run, you know, so it was a complete mismatch. But, yeah, then they had shares, and then I had to buy them out. So that was a terrible thing.
Unknown:
And now that we’re on this topic, like, can you maybe give two or three other examples and we’ll get to the success later. But things that you decided that point because you were optimistic or opportunistic, and then afterwards you regret it because it wasn’t a match or it didn’t fit the, how you envisioned the company to grow.
Anton Loeffen:
Well, I think I made a list of all the learnings because I, you have to learn from your mistakes.
And now sometimes you have to read that list and see, am I walking the same direction as I did in the past? And how can I prevent myself from doing that? So I think one of the learnings was that I certainly, when I started, I thought that I needed to know everything myself, so I had to control every part of the company. Even if I hired managers, I was still maybe going over them, directing the people that they were managing to do stuff. So that didn’t go too well. So the good manager said, okay, Anton, either you are running this or I am running this, but not both of us. So I think that was a good lesson. And I think another lesson was that people are the most important thing of the company. So you can be smart, you can have good ideas, and, you know, but in the end, it’s a people business.
Anton Loeffen:
Certainly, if you want to grow the business, you’re very dependent on the people you hire and what type of mentality they have. So I really, really believe that culture is one of the most important things in a company. And the people you hire and the mentality and character of the people. I think you can learn them and coach them in, let’s say, the technicalities of the company. But I. But it’s very hard to change their morals, mentality, or character. So I think that’s also one of the learnings that when I started, of course, I was really into the strategic part, the mental part, being the smartest guy in the room, knowing everything. But that’s not the way to build a company.
Anton Loeffen:
You’d have to build a company based on, let’s say, a vision that everybody can relate to, and then they more or less know what to do based on that vision and related to the function or job they have and give them a lot of space to do that. So I think about maybe after seven or eight
years building the first part of the company, I really start to learn to be less controlling and giving more space to employees. And now I think it’s the most important thing. You have the good people with good mentality. They will tell you what’s good and what’s not and why they think they should do the things they do and how they would like to do it, and probably they won’t do it the way I would do it. So that’s okay.
Anke:
And how did you get there? That insight that you should have less control, as you mentioned. Right. And nothing. Micromanaging over other managers.
Anton Loeffen:
Right.
Johan:
Because then people were scared away.
Anke:
Right
.
Johan:
We’re not, let’s say, incentivize on that end. How did you, how did you find it out? Right. And what was, let’s say, the pivotal moment, personally, for you as a founder of the company, who learned everything to do yourself, right. Because that’s how you work, apparently, right. With doing it and failing and learning and stand up again and then. Right. And iterating. I think that’s, that’s really impressing what you did on that.
Johan:
But how did you learn on that aspect? Right. Because that’s a pretty impressive strategy to bear.
Anton Loeffen:
Well, because of that, there are people that dare to give you good feedback, you know, that they are not impressed by your controlling attitude and just say, okay, so I really got some mails and feedback from people in my face who said, okay, I don’t like this. This is not the way you should do this. And if you keep doing this, I’m gonna leave. And those were people I respected because I, I thought they were really good. So I thought, okay, if these people tell me that I should do this differently, then maybe I should take note, and then I try to go back to what I always do books and say, okay, maybe let’s learn a little bit more about how to manage an organization. Instead of, I started learning it by doing it. And then because I don’t like to manage more or less, I didn’t read a lot of books on management because I thought it was quite boring. It’s not so innovative and as a strategy or it.
Anton Loeffen:
So I said, maybe I should read a little bit more about that. And then you, of course, you have the 1 minute manager and you immediately see, okay, all the things I’m doing wrong, you can read them almost literally in that small book already. So that’s, I think, as always, I learned from the feedback. And then I go back to, let’s say, experience that’s written down, try to learn from that implement that I get into a feedback loop to learn.
Anke:
And maybe, and we can put it in the show notes afterwards. But you also mentioned you read a lot of biographies. Do you have a few people that even maybe they’re not existing anymore, but you really got to know them as mentors, although it was like a one sided relationship who were instrumental to the way you basically built your business in 30 years.
Anton Loeffen:
Yeah. So I really like Walt Disney, for example, how he built his company and even started over at some point in time, really more or less sold the first part of Disney and said, okay, I’m gonna do, I don’t like this corporate culture. I’m gonna do it again, which I thought was really impressive. Of course, the Steve job. Steve Jobs is really also really, I think, original type of guy. And we also learned from, I think, from the past because the first time he founded Apple and built a company, I think he also made a number of mistakes I’ve made. And then he was kicked out of his own company and he founded Pixar. And at that moment, when he found Pixar, he
already managed that differently.
Anton Loeffen:
I took, I think, a completely different approach on how to build that. And then I think with those learnings, he started next and then on a very strategic, smart way, brought next into Apple and more or less brought himself back. So, yeah, those are two examples I.
Anke:
Really like and maybe move up a little bit through, like, the different phases that the company has been with. Because maybe to your point, like Steve, Steve jobs, he switched logos, like brand names. You stick with your one company for over 30 years, am I correct?
Anton Loeffen:
Yeah. But I think the brand name and the logos change during the way. And that’s also because the company evolved from, let’s say, a software company to a cloud services company.
Anke:
And did you raise any external capital along the way, or was it always, you stay bootstrapped?
Anton Loeffen:
No, but we did stay bootstrapped quite a long time. I think if I’m looking back too long, but I think at that moment in time, and we’re talking about 1991. When I started, I didn’t know of the existence of friendship capital private equity. If you needed money, you go to your parents or to the bank, and that’s the only option you have and your savings account. So when I started, I first had, like, an idea, and we built software, and that wasn’t too expensive, so I didn’t have to fund it from more or less the consultancy I did. I funded the company from the earnings of the licenses of the software I sold, etcetera. And at a certain point in time, when we started with, let’s say, the server based computing part, we had to really buy, let’s say, a big number of servers and a big storage system. And I think at that moment in time, we were only eight people and our revenue was less than a million, and we had to invest about a half a million.
Anton Loeffen:
So I did get a second mortgage on my home, and then I got a third mortgage on my home, and then I got a, let’s say, even a personal financial note on me as a person, that if I would fail. And then the bank said, okay, this is it. You know, I don’t understand your business model. Cash is running out and is very slowly coming in because, of course, I sold subscriptions and we had to do the investment upfront. And of course, the total contract value in the future was big. But yeah, the money is coming in in the next five years, but the cash is going out on day one. And the bank didn’t really understand, let’s say that they were just looking for assets and to finance based on assets. They couldn’t understand this business model at that point.
Anton Loeffen:
After two mortgages and personal leverage, then I tried to get third party funding, and the first
thing I could do was a lease contract on the hardware part. So I made a deal with HP, and I think what’s really interesting to know is that what we developed with the HP in the Netherlands at the moment, that was later called Green Lake. It’s called Green Lake now. And then it was, it became, first, let’s say HP Financial services was funding this and it became Green Lake, which is a big, let’s say, cloud based leasing method now. And I think ten years later, we got a global award from HP because I think together with HP in the Netherlands, we were the first to invent, more or less, this kind of financing model. And so that was the first financing, more or less, like leasing and some financial tricks and not giving away equity. And not giving away equity. But in the end, I got some angel investors, and then we started to get, of course, to do something with shares.
Anton Loeffen:
And I was really, I think I should have gotten a coach then, and good advice on them. But then I stuck with my accountant, who at that moment in time, also not really, I think, was not into that type of business. So I think, you know, the angel investors were a little bit smarter than me, but not much on that part. But then from angel investors, we went to seed capital, and from seed capital, we went to venture. For venture, we went to prime. So I think we did a number of rounds, I think four in the end, getting from friends, family, fools, to angels to see, to venture. So I’ve seen it all, and I learned a lot, made a lot of mistakes there. But I think the first thing, what I would advise every entrepreneur is stay bootstrapped as long as you can.
Anton Loeffen:
And external financing is option c, plan c, not plan b and not plan a. But what I see around me is that it seems to be plan a for a lot of entrepreneurs. But I think it should be plan circumental.
Johan:
You should always finance your business yourself. Right. And build your own proof. And then if it works, if I understand you correctly, then you go out to the market.
Anton Loeffen:
Yeah. To scale the company. I can imagine that you, of course, try to do that through the external funding, but not to start a company. I would not advise them.
Johan:
So then you raise funding. Right. You raise VC funding. Right. At that moment, what changed, what dynamic did change that to the company, right. Because you were leading it as a founder, you learned a lot yourself at that moment. I think managers also who you weren’t controlling anymore. Right.
Johan:
So you think your role changed. What did it bring, let’s say, the external investors to the company and also to your personal role?
Anton Loeffen:
I think when the angels came on board, they were really hands off. So they were really, like, trying to be a little bit of a coach. They gave some feedback, but also, of course, they were, because they were so far away from the daily operation that, you know, we met once every three months, very often they started asking questions that we already thought about, like three
months or a year before. So they were kicking in open doors, as we would say, which was a little bit frustrating, I think. So we thought, okay, there’s another board meeting coming on with the angels and we get all kinds of stupid questions. And on the other hand, these guys also tried to open doors to new customers, which has really appreciated that. And of course they coached and sometimes you don’t like to learn. And then looking back, maybe they did give some good advice, but at that moment in time, we were not ready for it.
Anton Loeffen:
But when the VC’s came along, of course we had a formal board. Then things got really different and we had our monthly reporting, balance sheet, P&L, and a number of other data that we provided every month. I think that really helped us get financially strong because you are forced to get your finances on really in order. And I hired a good CFO at that time, and he did a tremendous job on getting those things right. So Koen, who is still with me now in the next venture, I’m doing a, he’s a great guy and he did really a tremendous job, I think. And also we got good feedback from the guys that was first Starred Green and later on the Holland capital. I think that, I think we learned and improved a lot there. And of course, as an entrepreneur, what you not always like is that of course, these guys are more focused on the financial part.
Anton Loeffen:
And as an entrepreneur, I’m really focused on the long term, on the vision and investing on the vision. And they always are looking at the EBITDA part and the multiples and the impact, you know, is, of course, when I get capex out, that in the end, impacts, of course, the business case for these guys. So I think we had some interesting discussions on that part, and I think also we learned a lot. And when we made the deal, for example, I didn’t have a clue what a lick ref really was.
Anke:
You’re not talking about the deal for.
Anton Loeffen:
One of the first things that came in, okay, we want to have a lick ref. And we understood, of course, when there’s an exit, you will get your money first and then we’ll share again. But later I learned, oh, maybe I should have asked for a non participating lick ref instead of a traditional, you know. So these kinds of things is why I advise, you know, if you’re getting, if you’re raising money, get a really, really good advisor who knows that, you know, pay him a truckload of money because he will save you a truckload of money.
Anke:
And maybe talking about books, there’s his book venture deals that explains, I think, in pretty plain language, all these things that you should know about when signing these term sheets. Moving to the phase where at some point, you or the board members, like something happened where you decided to sell the business.
Anton Loeffen:
Yeah, I think that we grew into that situation more or less because, of course, when you have private equity or venture capital on board, at some point in time they want to exit. So like the Angels wanted to exit, and we exited them when the VC’s came on. And then when we switched from VC’s, one of the other VC’s got, let’s say, separated, and we stick with one. And then we moved into more like a private equity deal with the VC’s we had. And in that process, you learn a lot about Exeter. You start thinking about the future of the company. And I think at some point in time, we had, of course, discussions when, in this case, Holland Capital would leave and we already had done a number of acquisitions to grow the company. And we were more or less, okay, what is the road forward for us? Do we want to do more acquisitions and get a new private equity partner on board financials or strategic partner to do more acquisitions and grow the company, maybe internationally? Or do we want to leave the company, in this case me, and have somebody else do it? So at that moment in time, I got the advice.
Anton Loeffen:
They said, if you stay in the CEO role, you will not be able to exit as a, you know, even if you sell, they want to keep you on board for like maybe two or three years. If you change the roles, get more back to the founder part, maybe the CTO part, you can probably exit and really exit and sell the company without having to stick. So I think that was one of the things I did, and I really also liked it because then I got even more. I could go back a little bit to a founder role and, you know, get a little bit more time, space to think, think through.
Anke:
And you hired an external CEO or.
Anton Loeffen:
Somebody within your organization also now with the new venture. Yeah, I think we were a really good team at that moment because we were trusting each other blindly. We all had the same goal, vision and strategy with the VC’s and with the future of the company. So Adrian knew exactly what to do and what the goal was. And I think that same goes for Koon and me. At that moment, we had decided, okay, we’re going to go along with Holland Capital and we’re going to sell and we don’t care. Either we will join and continue with the new party or we’re going to go away. Depends on who it’s going to be.
Anton Loeffen:
We don’t know upfront. We’ll see. It might be a strategic player who wants us on board. It might be a financial who wants us on board, if not. So then we created the deal, we structured the deal in a way that we can leave within a year. That was more or less our goal. So there was a
lot of interest when we started the exit process, I think we had. After that, we did the, let’s say, teaser.
Anton Loeffen:
41 interested parties wanted to have the information memorandum. And so when we started the process, we had to deal with a lot of interest and to narrow it down quite quickly because it was overwhelming to deal with. So we want to go down the funnel very quickly to the best parties to
deal with. So I think we went from 41 to 15, from 15 to seven, from seven to four, and then at the end, I think three, two. In the last part of the process, I think when we came to, I’m sorry, to the last three, at that moment, I already knew, okay, I think I want to try to stay, but I want to have the ability to leave because I’m not sure if I have a cultural fit with the next guys, you know, I’m not sure. And because I was already not in the CEO role and I structured the deal in a way that I would have enough, let’s say, cash to do whatever I wanted when the deal was done, that, of course, gave a lot of negotiation room to get it the way I think it would fit the company best, or the employees and the management.
Johan:
I think that’s smart, right. To be in a position that you can decide yourself what to do also, and it’s independent of you, right. So you can decide indeed whether you want to join or not to join. I think that’s a good. What was the time, because you mentioned, right, at a certain moment that Holland capital, in this case, the growth VC, which was on board, or PE, what was the moment that it took to, let’s say, sorry, decide that you go for an exit. Right. And to have a CEO and CFO on board until the moment that you really, let’s say, had that teaser sent out to the 40 ish companies. Right.
Johan:
Because the piece is really fast, but I think we learned also with other founders, it will take some time to get yourself in a new role, to make the company ready in all parts. What was roughly the time that it took for you?
Anton Loeffen:
I think it took when we started discussing the future. This was when we were acquiring companies. We were already doing that with or less. We know that Holland Capital will exit, so at some point in time, either way, we will get too big for Holland. Capital, because we need more and more money. And then at the end it will be too back for the fund, or they are already on board for five years, so they want to have an exit anyway. So I think two years before the real exit, a little bit more, 2.5 years, we already were doing the strategy on the exit, and that was a point in time that we changed the structure of the CEO, the CFO. So Kuhn was still the CFO, but we also got some support for him.
Anton Loeffen:
I got a little bit off board admin, put admin from the COO into the CEO role. I more or less was like founder CTO. So then we started structuring that, then we did that for two years and we
started to create everything in order to more or less be prepared for an exit. So even more focus on the EBDA and all the process, compliance, security, prepare the data for the data room, and still doing acquisitions on that time. We were still doing acquisitions. We even did an acquisition during the deal.
Johan:
And that’s funny, right, when you say on focus on EBDA, I think we can also learn from a lot of founders that they don’t realize how important their p and l is when you exit the company. Right. Can you give an example, Anton, how you, let’s say, practically did that also?
Anton Loeffen:
So, yeah, what we learned was, of course, I think when you start dealing with venture capital, maybe as an unknowing founder on the venture part, you’ll very quickly learn why these financials, and mainly EBITDA is so important. Because when the valuation of the company is more or less put into the market or you need new funding, it’s mainly done based on the FDA multiple. And what you also learn is, and I think that’s, of course, very interesting, is you have a multiple based on your own EBITDA, but as soon as you acquire another company, your EBITDA grows and you can do a little bit of EBITDA leverage. So maybe my EBITDA is seven, but I can buy for six, but as soon as I’ve got that company on board, the total EBITDA will be seven. So I already win in the process of buying, and if my EBITDA is ten and I can buy for six, and of course the leverage get even better. And I thought, I think I learned a lot of financial tricks, because then I thought, maybe this is also very interesting to learn for maybe the things I want to do in the future. So let’s deep dive a little bit on this type of business. So then I, you know, when I started with VC’s, I was a little bit turned off about, you know, all this financial driven focus.
Anton Loeffen:
And then I think in the last 2.5 years, I was turned and I tried to learn as much as possible and why every day is so important when all the smart things you could do, because of course you can do it also in your reporting and optimize that. You go in your capex opex situation, optimize that part. But I think the whole play in the market is around EBItda. If you like it or not, that’s the way the world works. So you better get ready for it and prepare the company for it. Because in the end, this is what it’s going to be.
Anke:
Maybe this is also a good bridge to. Because Joel and colleague, they really dove in to figure out what the final acquisition price was. And the things that you just mentioned are definitely taken into account.
Johan:
Yeah, one question before that, Anke, before we jump into the valuation, one question very, let’s say, solid process, right? Sending out a teaser, having multiple offers on the table. How did you, Anton, how did you run that? Or were, let’s say, also your investors involved in that? Did you run
it yourself? Did you hire people to do that? Can you elaborate a little bit on that before we go to indeed the estimation of the valuation?
Anton Loeffen:
Yeah, so we hired a lot of people because I think at that moment in time, we were really, let’s say, for the type of business that we were in, quite big at the moment we were having, our revenue was about 70 million, of which 60% contract base recurring. So we knew that if you want to buy something like that, this would be a lot of money that somebody had to pay. So we hired, I think we were really looking for who are the best lawyers, and I mean really the best. So we hired lawyers in loop, for example, KP and G Deloitte. And we had our own IP, so we had a patent on our own software. And so we hired McKinsey to evaluate that part. So how strong is our software part? Because we are not a traditional MSP. We are MSP with our own software platform, which was quite different from, I think, all the LMSP’s that were there.
Anton Loeffen:
And so we hired McKinsey and all of that to prepare more or less a set of data, but also information memorandum and a vendor DD set that would give us a head start when we would start the process. So it was all, I think, and I think really Holland Capital did a really good job in also managing that part. So I think we were more on the content part. That of course was our responsibility. But managing the process was really Holland capital and of course we were involved in a day to day base in all the decisions. But I think we also learned a lot during that process because of course, hold capital has done this many times, but for me it was the first time. But the preparation, I think would that, as I told you, more or less, we started 2.5 years before, but in the end, of course, you get more or less in a pressure cooker of six months and get it all done. But yeah, we hired really, really good advisors and really smart people who have a lot of experience to get this, to get this really on a solid state.
Johan:
So at the end of your journey, you didn’t read the books and did it yourself and fail and went back, right case, you really get the best, got the best people on board, if I understand you correctly.
Anton Loeffen:
Yeah, yeah. Because, you know, you also have to admit that it’s not your expertise and they have like the experience. I don’t. So I, of course, I tried to learn as much as possible during that process and I did read some things, of course, inevitably around it, but I don’t think I would have done it better than they could. You know that that’s impossible.
Tycho:
Let’s jump to the real question. The valuation the acquisition of Eshgro by strike Verda Investments is not surprising given the fund’s active engagement in the IT outsourcing and connectivity sector through its bio build platform. TSH Eshgro’s position as the 12th acquisition in this series underscores its significance. TSH focuses on a buy and build strategy in a sector that has been particularly vibrant in a dutch private ectocene. Several notable deals in recent years highlight the appetite within the sector. In May 2022, Eshgro acquired a majority stake in Arcus. Arcus had 300 full time employees back in the day. In the summer of 2019, Fortino capital acquired a majority stake in Odin Group, later acquired by Apex Partners in February 2022.
Odin Group was doing around $130 million in revenue that year, an in demand sector for buy and build. It’s therefore reasonable to expect strategic acquisition commanding premiums. To make a guesstimate on the purchasing price of Eshgro, I looked at the market dynamics and at some of Eshgro’s performance parameters. Reports of the Dutch Financial Times at Finacieel Dagblad suggested an annual revenue of 60 million in 2022. Eshgro primarily sells subscriptions for cloud solutions, aligning its revenue model with the typical software as a service business model. Online sources indicate revenue multiples between three and 14 times. For companies with a SaaS revenue ranging between 50 million and 100 million, the median of 5.5 is expected to be on the lower end. For the acquisition of Eshrgo, assuming the reported 60 million revenue is recurring, and applying a 5.5 revenue multiple, we arrive at a 330 million enterprise value.
Considering the arguments on the market dynamics as provided, I would opt for a higher revenue multiple. But since I made the assumption of the 60 million in revenue being 100% recurring, I would only go for a slight increase in the revenue multiple, getting to a six x on revenue. So to you, Anton, was the exit valuation in 2022, 360 million?
Anton Loeffen:
It was less than that.
Johan:
It was less than that. Okay. And what was the reason that it was less than that? Where is our calculation wrong?
Anton Loeffen:
I think the main discussion is around the part, how much, what’s the percentage of recurring revenue of the total revenue? And I think he took 100%. And I told you, I think a few minutes ago that there was about 60% to 70% contract based recurring. So I think that’s one of the elements where I think the calculation goes wrong.
Johan:
Yeah. What’s the difference, if I may ask? Because we discuss that a lot with the investments that we have, right. That SaaS companies, you always should have, let’s say, in that 80% to 90% recurring revenue, and sometimes there’s some consulting, right. But indeed, the valuation when you exit is way lower than, let’s say, the recurring revenue. And you confirm that. But is there a thing, is there a conclusion to take on that end from your experience?
Anton Loeffen:
No, I think we are, because if you are a true SaaS company, then you only more or less sell these software subscriptions in our card. We were a mix of MSP and SaaS. So we have our own software as a sales platform that we use to onboard MSP’s and then improve their processes. The traditional MSP, I think we acquired quite a number. They have like a recurring revenue between 30 and 50% on average. So they have a lot of one offs still. And most of the IT companies, they do like everything related to it, selling, hardware, whatever. So when I give you an example, when we are a pure cloud player in I think, 2007 to 2014, we grew to, I think, maybe 98% contract based recurring revenue.
Anton Loeffen:
But then we started the acquisitions and we got companies on board that have like 30% contract based recurring revenue. And then of course your average goes down. And what we do is more or less, we, there are traditional processes. We kill and we put our platform in place. But then it still takes years to get from 30% to 60% of recurring revenue with these kinds of companies. So by means of acquisition, our average recurring revenue went down from like 98% to a lower percent. Yeah.
Anke:
From me or.
Johan:
Sorry, Anke, last question for me, Anton, you, because you mentioned already, right, it’s a fantastic ride that you had in roughly, what is it, 25 years, right, where you run the company, build it out to one of the leaders, also with a successful exit. But also you had a few learnings, what you already shared. Right. On different things, what are, especially on the exit process and also, let’s say, the financials that you’re just using.
Anton Loeffen:
Right.
Johan:
And how to run the company, what are, let’s say, the last suggestions that you can share to our listeners and our viewers.
Anton Loeffen:
Let’s say, concerning the exit process, I would really hire the best guys. That would be my advice. So, you know, it’s a lot of money, but in the end, I’m sure it will pay off depending on, of course, the size that you have. Let’s say if you are really a business that’s also into m and A and you want to grow like that, then you should hire the best guys. Thing. The second thing is you need to have a very strong vision that even the buyer can buy into, because in the end, they buy the company, but they also buy the strategy of the company and they have to buy into the
strategy of the company that they can continue that. So you have to have the proof points that they should be able to continue on that. So the strategy should be good.
Anton Loeffen:
And then in the end, I think your team should be very good that you can either, you know, prove with an, let’s say, owner that you can build onto that strategy and grow the business, or that they can hire good guys to continue that strategy. So I think that those are important things. And, and
you have to have your financials in order, like two years ahead. I think you should have, you know, that’s what we were discussing, like Ebda, let’s say, your PNL optimization part on that, your capex, all these things. You should really, if you’re thinking about exiting, then you should work with the end in mind.
Johan:
Yeah. And especially a few years ahead, also about your own role. Right, as you mentioned. Yeah, exactly.
Anke:
Maybe one last question for me, because you mentioned previously that with the people in your executive team, you’re now working on a new venture. And I think as I’m listening to your experience. Very obsessed with the company that you’ve built from scratch all the way to the end. Really curious what’s next for you and how the acquisition changed your fuel on things or even your life.
Anton Loeffen:
So. Well, I think what has changed? Of course, I think if I’m looking back, I think certainly I spent too much time with the company and too little time with the family. I think I made a mistake there. If I look back, I think I’ve improved on that in the last decade, but I think I really made some mistakes there. And if I looking at the company, I think I told you a little about the learnings and I can even mention a few more. But considering, let’s say, the new thing that we are starting, I think we are a little bit more relaxed and laid back. And of course that’s easy when you have a little bit money in the bank. Of course that’s also the help.
Anton Loeffen:
But also I think we are more in the process of finding out what works before investing. We do the MVP part, the lean startup part, better. If you are already running the company, it’s also very difficult to do that backwards, by the way. You’re already in a process, but now you have the ability to really start again. So then now we are really more testing the market, finding out what works, what doesn’t work, what resonates with the potential customers, what doesn’t. Before developing something, creating, spending a lot of money, I think we are a little bit more ease with don’t rush things. Take a little bit more time, take a little bit more reflection before investing.
Anke:
Maybe last, last question because you mentioned something like there’s more tips to share. Is
there one final tip that we didn’t ask you that you would like to share with the audience as a.
Anton Loeffen:
Closure of the show. I think the one thing I believe in is that if you want to be an entrepreneur, you really have to have grit. I think that’s the most important thing. If you have to stomach a lot of shit, you have to, you know, things will never go your way. It will never go your way. And you have to be able to fall and fall hard and deep and stand up again and then a hundred times. And I think that’s if you, if you don’t, you know, if you, if you, if you’re not in the circumstances to do that, then you shouldn’t do it because you will get into trouble.
Anke:
Thank you. It’s a beautiful way to close this one off. Thanks a lot for sharing your story. If founders want to reach you with follow up questions or get your piece of advice. What’s the best way for them to.
Anton Loeffen:
Reach you at of course everybody can find me on LinkedIn. Drop me a line there and I will respond. And I think my mobile number is also on LinkedIn people if they would like.
Anke:
Cool.
Johan:
Thanks for sharing everything. Also, thanks. Really great examples that you use. So great to have you on the show.
Anton Loeffen:
Thanks for having me.
Johan:
Thank you so much for listening to this episode of the big exit show. We hope you enjoyed today. If so, please subscribe to our show on Spotify or your favorite podcast platform. If you have feedback or suggestions for guests that you want to see on the show, please send us a message to podcast at Peak Capital. Thanks again for listening and hope you join us for the next episode.