Chapter 11: Big Money

Funding can change everything - or ruin it. Discover how Signavio navigated its first major investment deal, balancing ambition with the fear of losing what made them unique.

www.linkedin.com/in/gerodecker/

Transcript

“Gero,

I hope this email finds you well. My name is Steffan Peyer and I am reaching out from Summit Partners, a growth equity firm that looks to partner with entrepreneurs in market-leading software, technology and tech-enabled service businesses globally. At Summit, I focus on software, SaaS and technology businesses in Europe and recently came across Signavio in an article late last month in BPM.com, a site I read on a regular basis.  

If you have a couple of minutes to get introduced personally in the near future, I’m in the office this afternoon and tomorrow and would be happy to work around your schedule. If you have a conflict and don’t have any time this week, please feel free to suggest when would be best for you.

Cheers,

Steffan”

Venture capital firms were not new to me. Since my trip to California, they have been omnipresent. I enjoyed reading startup news sites and also followed funding rounds as part of that.

We never proactively reached out to any fund. We were not looking for money, as our revenue was sufficient to constantly hire additional employees. We were “bootstrapped” as the startup press would call it, only using customer generated income to finance and grow our company. Still, I was intrigued by what these firms would think of Signavio.

I can’t tell where it came from, but suddenly all of the investment firms started reaching out to us. Maybe it was the first “honorable mention” in a Gartner report or maybe just a result of presenting at all those Silicon Valley events. Either way, a new investment firm was sending me an email almost every week.

At first, I ignored it. Over time, though, I started paying more attention. I created a spreadsheet to track the different funds, their portfolios, contacts, and our conversations. It helped me see patterns and spot which firms had true interest versus those simply window shopping.

Among all those names, Steffan Peyer and Summit Partners stood out. He was based in London and was persistent. Every time he visited Berlin, he’d suggest a meeting. Unlike many others, he took the time to learn about our market, offer helpful insights, and even guide us on trends. It was clear he had done his homework. Steffan felt more like a mentor even though he was probably the same age as I was.

I told everybody that fundraising was not an option for us at the moment, that we didn’t need the money. Signavio grew very nicely and was highly profitable - a combination that made all the investors even more interested.

In early 2015, things changed internally. Torben announced he wanted to gradually exit the company in the coming years. It was time for a shift. He said: “I have anticipated for a long time that my role at Signavio would eventually evolve and that a different skill set would be better suited to get the job done. I am an engineer at heart and we have engineered a truly great company. But with a middle management installed for the first time, a lot of my tasks are now handled by other team members - which is the way to go. What is left for me is a CFO role - a far cry from my engineering roots. Signavio has outgrown the demand for generalists like myself. At a certain company size, you need specialists in the critical positions.”

We agreed on hiring an external CFO to help transition Torben’s responsibilities. Part of this process involved Torben selling some of his shares. We didn’t have a clear sense of Signavio’s valuation, but we knew buying him out ourselves wasn’t an option.

Also our U.S. expansion stalled. We signed far fewer new customers than I thought would be possible. We lacked experience on how to best approach the U.S. market. It became clear that finding external backing would be necessary for the next stage in our evolution.

I ran into Julian Riedlbauer from GP Bullhound at an event one evening. I still knew him from our brief M&A discussion with Software AG a few years earlier, and we had kept in touch since. He told me the story of a computer games company where he had done the fundraising. I had read the announcement in the news but didn’t have any background on it. What Julian told me stuck with me: In that transaction, the investor had not only injected money into the company, but the three founders had also sold 30% of their shares as part of the same deal.

Julian explained how these “secondaries” had completely changed the founders’ lives. They all still worked for their company and were very motivated to develop it further. At the same time, they were now super relaxed and could take more courageous decisions because they had already brought some money for themselves “behind the firewall” and could be sure they wouldn’t end up empty-handed even if their company went bust.

I didn’t know that this was even possible. I had always believed that investors would prohibit founders from selling any of their shares before an "exit" - meaning the company being sold or going public on a stock exchange. I assumed selling shares early would be interpreted as a lack of belief in the future of the company.

I also asked Julian how much he thought our company was worth. He said he couldn’t really tell until he saw our numbers.

The next day, we discussed the possibility of bringing investors on board among the five of us. Nico expressed concern that we might end up resembling one of those Rocket Internet companies - driven solely by growth and financial metrics but terrible places to work. None of us really knew what would change if we took on investment, but it was a point worth considering.

At the time, our U.S. presence was the one part of Signavio that wasn’t working well. We had a small team in California, but sales were inconsistent. There were strong quarters with big wins, like landing Goldman, followed by dry spells without any deals. It was clear we needed to rethink and reboot our U.S. approach if we wanted to see sustained success there.

Steffan organized a call with another portfolio company of theirs, called Patsnap. Gerrit and I were struck by how different their sales strategy was - they proactively reached out to potential customers. Unlike them, we had relied on what worked for us in Germany: attending conferences and responding to trial signups. Patsnap’s outbound sales approach felt like something we needed to adopt, especially if we wanted to grow our U.S. footprint.

We hoped that bringing on the right investor could help us succeed in the U.S. market, but we were also intrigued by the idea of secondaries - selling part of our own shares. So, we decided to give the idea a shot.

Julian offered to help with the fundraising process and gave us an estimated valuation range of €55-70 million euros. We were stunned. That figure was much higher than we’d expected, and even coming close to it would be a huge win for us. Remember, we would have been willing to sell our company to Software AG for €25 million euros a couple of years earlier. Now, we talked about a significantly higher number.

Large company valuations were still rare in Germany at that time. The Facebook clone StudiVZ had recently sold for €90 million euros, which was considered a major outlier - a super-duper-mega success. Most notable transactions still fell in the €10-30 million euro range. And German unicorns at the time were still unicorns: non-existent.

We were not in a rush and agreed that we would prepare the fundraising process over summer and then launch the roadshow in fall.

I had another constraint for the timeline: Karolina was pregnant again and we were expecting our second baby in August. I didn’t want to risk being tied up in due diligence when the baby arrived. So, we pushed the more intense parts of the process to October and November.

Julian and his team gave us a long list of homework over summer - more than 80 questions investors typically ask. The list ranged from customer case studies and financial key performance indicators (KPIs) to intellectual property (IP) protection clauses in employment agreements and change-of-control clauses in customer contracts.

At that point, we had no formal reporting at Signavio and tracked only basic metrics like Annual Recurring Revenue (ARR). Terms like cohort analysis and net dollar retention were entirely new to us. We didn’t have shareholders other than ourselves before, so we simply didn’t need any of that stuff so far. We made the decision of whether or not to hire an additional colleague based on the cash balance on our bank account. This was the maximum amount of financial planning and controlling that we needed. Hiring decisions were simply based on how much money we had in the bank that day.

Torben was super excited by the exercise, this was his home turf. On weekends, we came into the office to scan paper documents and prepare everything. It was just the five of us throughout the process. A lot of night shifts, just like in the old days. Among our 75 colleagues, we had no finance or HR staff, a fact that surprised potential investors. But it made gathering the necessary information relatively easy. Torben pushed through with most of the work and the rest of us tried to focus on running the business as usual.

Right in time for the birth of my second child, Adam, we had finalized all the homework. The management presentation and the information for the virtual data room were ready to go, so I could at least take a couple of days off after Adam’s birth. 

When Adam was born, our support structures had to grow alongside our family. While my mother-in-law helped Karolina with the two little kids at home, I went straight back to the office. The business was cranking, and there was a lot to do. Managing life with two children was a whole new challenge, especially with both of us working full-time. 

Karolina wasn’t particularly happy about that but was sympathetic to what we were trying to achieve with Signavio. She had a strong interest in entrepreneurship herself and was already considering starting her own company in a couple of years.

“My parents were lifesavers,” she said, “They stepped in whenever we needed them, especially during times when work was demanding for both of us. Gero really tried to make time. Even when he was busy, he made it clear that weekends were for the family.”

Despite the challenges, we both embraced another new phase of life together. The early days of this time were a mix of exhaustion and joy. 

“We learned as we went,” she recalled. “It wasn’t easy, but we figured out how to make it all work. And seeing him with the boys - it is clear how much he loves being a father.”

Over the summer, we discussed the list of investors that Julian would approach. There were 40 investors who had previously expressed interest in Signavio, plus another 30 we hadn’t engaged with but who fit our profile. We were mostly interested in U.S. based funds, given the importance of rebooting our U.S. presence and benefiting from their extensive software market experience, which was heavily concentrated in the U.S.

Summit Partners and Insight Partners emerged as frontrunners - they had shown the strongest interest previously and seemed like a good match.

Julian established a strict timeline for all investors: management presentations and additional information requests throughout October, submission of term sheets by early November, negotiation and signing of the term sheet one week later, followed by due diligence and transaction signing by early December.

The investor response was overwhelmingly positive, with many scheduling presentations. The initial meetings took place in Berlin at GP Bullhound’s office to avoid stirring up any rumors within the company.

I did the first meetings together with Gerrit - he handled Go-To-Market topics, while I covered everything else. We kept Torben out of these sessions since he was selling shares, while Gerrit and I were staying on.

After two days of meetings in Berlin, Gerrit and I traveled to London for three more days of presentations. We met with all the big names: Index, Accel, TCV, and Warburg, to name a few. Three meetings a day, often followed by dinner or drinks with the investors in the evening.

Week two took me to the East Coast, starting in New York and then Boston. Week three was the West Coast, meeting with investors across San Francisco and the Bay Area.

It was fascinating to observe how the professionalism and efficiency of the funds increased as we traveled further west. In Berlin, each meeting lasted 3-4 hours; in London, they took 2 hours; on the East Coast, 60-90 minutes; and on the West Coast, only 45 minutes each.

I was exposed to so many interesting funds. Many had a long track record of successful investments and brought inspiring people with them. Next to Summit and Insight, General Catalyst impressed me the most with their team.

I had been to New York and San Francisco several times before, but it was my first time in Boston. I fell in love with the city immediately. The fall colors painted the trees beautifully. I strolled along the picturesque streets and wandered around Harvard campus after my meetings. I tried lobster roll, crab cakes and oysters for the first time and promised to myself that I would come back to this wonderful city at some point. It felt like I was getting a taste of the good life that would wait for me sometime in the future.

At the end of the three weeks, we completed over 30 meetings. The questions were often similar, but I found myself in a flow state - I would have been ready to do 30 more.

The term sheets started coming in. Most investors had followed the structure we requested: a secondary sale of 40% of the shares and no primary capital, since we were highly profitable and had sufficient funds within the company.

Why 40%? Ok, now it gets a little technical. At a minimum, Torben wanted to sell about half of his shares to achieve financial independence, and the four of us each wanted to sell a small portion. Mathias Weske, however, chose not to sell any shares. This would have meant selling 15-20% of total shares. But we also knew that to attract the most interesting funds, we had to offer a larger stake, as they typically needed to deploy at least €20-25 million euros for the deal to make sense for them. Based on an assumed valuation of at least €55 million euros, we settled on offering 40% of the shares.

In total, we received thirteen term sheets. The valuations ranged from €20 million euros on the low end to a high of €90 million euros, a whopping 4.5x factor between the worst and the best offer.

The €90 million euro offer stood out, but it came from an unexpected source - a Big Four consulting firm, one of our partners, had developed an interest in Signavio. They envisioned adding software revenue streams to their business. However, having them as a shareholder posed challenges. Regulatory limitations capped their stake at 10%, and their painfully slow pace in the process made it clear they weren’t a viable option.

Summit’s offer was among the top 3 and we were happy that they indeed had delivered a compelling term sheet. Some other funds who had expressed strong interest before didn’t hand in any term sheet or offered terms that were not attractive.

Summit had been our preferred partner for a large part of the process, so we focused our efforts on them. Negotiations were intense, with the valuation fluctuating up and down before we eventually agreed on a €72 million euro pre-money valuation for Signavio. This was slightly above the range that Julian had initially predicted. As part of the transaction, a total of €31 million euros would now change hands: €29 million in secondaries and €2 million in fresh capital for the company. 

To make this work, both Torben and Mathias had to sell all of their shares.

Throughout the due diligence process, the stock markets started to get shaky. Julian was concerned this might impact the transaction, so he pushed hard to get the deal signed before Christmas - and he was right. In early January, the NASDAQ plummeted, which posed a significant threat to killing the deal.

We met in one of the skyscrapers at Potsdamer Platz for the signing. All five of us were there in person, and even Mathias had come around. 

Torben was sentimental: he absolutely loved the team we built together and was about to sell all of his shares in Signavio. It was clear he was replaying a lot of memories. This transaction marked the end of an important chapter in his life. The Summit colleague noticed, too, and simply said, “Well done and thank you for the opportunity, Torben.”

Mathias seemed unhappy, too. I expect from his position it may have felt like being forced out of the company against his will. I did not see this as a personal decision against him; it was a natural stage in the evolution of Signavio from a family, a close group of founders and core staff, to a larger company. I don’t know, we never talked about it and rarely saw each other since.

Unlike Torben and Mathias, I was in a great mood that day and even suggested that we all go to the Christmas market across the street, in order to celebrate this big milestone, once done. Unfortunately, the notarization dragged on. Lawyers found flaws in the contracts that had to be corrected. By 8pm, Julian thankfully brought in a big tray of mulled wine, and progress picked up. Finally, at 2am, it was done, and we were all relieved. We celebrated with a few bottles of champagne before I went to bed, happy and exhausted.

The next day, we gathered the team to share the news about the investment round. News outlets started covering the deal, as it was considered significant at the time.

Venture capital was still new to many, and employees weren’t sure whether to feel excited or worried. At a minimum, it was a strong validation that someone would invest over €30 million euros to be part of Signavio.

We also had good news to share: as part of the deal, we distributed a cash bonus of €2 million euros to employees, along with stock options for the future. Everyone got a slice, and those who stayed until our acquisition by SAP five years later saw their options payout anywhere from one hundred thousand euros to several millions.

Katharina, our head of marketing, asked me whether we had thought about external communications around the investment round. I told her that we had agreed on an exclusive interview with a major business newspaper and that the story would go live that day.

I could see how sad she was. She didn’t say anything. However, the fact that we hadn’t even told her, our head of marketing, about this big step annoyed her a lot. It was easy to interpret as a lack of trust, which was not the case at all. Rather, we had been in such a tunnel the last couple of months that we missed the point to involve more people. I felt guilty and realized that it was time to think about who our leadership team actually was - beyond us founders.

The news generated a lot of excitement for Signavio. Until then, as a bootstrapped company, we’d been mostly invisible. Only a few insiders saw us as a “hidden gem” of Berlin’s startup scene.

From this point, that had changed. More than €30 million euros of investment for a Series A was noteworthy.

Suddenly, people began reaching out to learn more about our company. It was also the largest funding round in the process management space to date. In the years that followed, companies like Celonis and UiPath would produce even more significant headlines, but we were the ones who kicked off the frenzy in process management, helping others raise their ambition levels, too.

Friends congratulated, partners were proud and also our customers reacted very positively to the news. I received a flood of phone calls. 

“I always knew you would make it.” I heard that line many times, even though, when we first started, most people predicted we’d go nowhere. I didn’t mind. The euphoria propelled me forward, and I enjoyed every bit of the positive attention.

It was close to Christmas, and we closed the year on a strong note, hitting our targets. I was relieved to finally have some time to rest and spend the holidays with my family.

Now, I suddenly had a few million in my bank account. And for the first time, I felt safe. I knew I could pay off the mortgage for our house in one go and would still have money left. It wouldn’t last for a lifetime without work - I had calculated I would need at least €5 million for that - but I still had significant shares left in Signavio and I was confident that I would eventually get something for those shares as well.

Over Christmas, I finally exhaled and felt a sense of pride in what we had accomplished. We closed the year with €8.7 million euros in revenue, €6.7 million ARR, €3 million EBITDA, and a team of 75 employees.