What it means to work towards a major exit

As you might have seen, yesterday evening it was announced that Siemens is buying Mendix, the leader in low-code cloud based enterprise application development, for 730M$. Such a major exit for our ecosystem is not something which happens overnight, far from it. This has been a journey that has taken a decade as you can read from the blogpost from Derek Roos, Mendix’ CEO.

I would like to share a bit of investors’ perspective on this journey, as this is a marriage with intrinsic inequalities baked in, so many reasons to share and learn for the next generation of successful and ambitious entrepreneurs. Let me start with sharing the congratulations we exchanged internally upon the news: “Roald, Derck Jan and Derek, It has been wonderful to be part of your vision for 12 years, and to see the next jump into hyperspace happening for you guys at this very moment. You leave us at the base, which we happily accept, but not without stressing how grateful we are and what a great ride it has been”. Imagine henQ being only Coen and Herman, and Mendix being as small as the 3 founders and some of the key personnel (most of which are still there!) end of 2006, a totally different VC market compared to today. There were not many early stage VC’s and sometimes when we decided to pass on an investment opportunity it meant they would not find any funding, even though their solution was solid in itself. What a pity! What made Mendix stand out at the time was an ambition level and a comprehensive vision which surpassed all the others we’d seen. And the great thing is, this is still very much the case.

But ambition and vision is not enough… It was so early days, that we had trouble with the positioning of the Mendix platform for one thing. Many potential customers did not believe or comprehend the idea of a platform (compare lego) that would solve all of their software development issues for the total workforce (so including the business people), they were used to a proprietary locally hosted solution, which took months or even years to implement by 10’s or 100’s of implementation officers or consultants. We experienced what it meant to be too early, maybe even years too early. Nevertheless, it helped shape the pioneering role which resulted in the definition of the market, which even today is seen as a vast blue ocean. We also had to transition from locally hosted traditional license model to a cloud-hosted saas model, which we all know, is a way of financing your customers (but has it’s perks in predictability and related valuation of the recurring revenue), and expand our international footprint (and transition our headquarters to Boston, US), all far from easy transitions, which meant we needed additional financing (in a number of steps, with Prime Ventures and Battery Ventures).

As much as you are opposing parties when you first invest, during these follow-on rounds you are better aligned with the founders than you’ll ever be. But by attracting differently sized investors at different moments, the Company introduces inequality in terms of runway and expectation, which requires special attention at a later stage. In terms of return, the earlier investors will be happy with lower exit, as their multiple on the investment is favorably shaped. As a new investor usually gets some sort of veto-rights, the founders might find themselves solving a puzzle which is hard to solve, at the time that exit opportunities emerge (inbound interest). Either stay independent & attract more money for further acceleration, or work towards an IPO at some time, or find a strategic partner who will not cut the Company up in parts, and leave the founders rendered with disappointment in a few years. In the strategic route you ideally find one who supports and helps accelerating the growth of the Company as an independent entity, therefore maintaining the pioneering capacity, which bigger enterprises lack by nature. We believe investors have the moral obligation to weigh in the latter, as it is the founders and the whole team who have been the sole reason why the Company has reached the stage it’s in. Making a (timely) choice between these options, and at the same time maintain focus on running the business is a very hard task for the management team, and one of the major risks.

So all in all, I am not saying it was an easy ride, but it definitely was an incredible one, in which we all learned a hell of a lot. I sincerely hope that the ambition and vision which Derek, Derck Jan and Roald have displayed during the ride is a great example for all entrepreneurs in Europe, and the Netherlands in particular, as this is one of the biggest successes we’ve seen in this ecosystem. And the beauty of it is, that for Mendix this is just the beginning…

Coen van Duiven