commercetools: From software start-up to Isar Valley unicorn
AT&T, Audi, BMW, Bang & Olufsen, Danone, Flaconi, Lieferando – well-known global brands rely on commercetools when designing, implementing and scaling their e-commerce channels. This Munich-based company with locations in Europe, the US, Asia and Australia is a global market leader in the area of cloud-based e-commerce solutions. A USD 140 million funding boost in September 2021 headed by top US investor Accel drove the valuation of the Bavarian grown-up to around USD 1.9 billion. That’s quite a success story.
Most unicorn fairytales don’t begin on the world stage – they start from modest beginnings. This is especially true in “Isar Valley”, as the Munich region is now often called among IT and hi-tech players. It is also true in the case of commercetools: The company’s two founders Dirk Hoerig and Denis Werner got to know each other playing indoor volleyball during their studies in economics and computer science. Both men shared a passion for software. The sports partners became friends, and the friends became business partners. In 2003, alongside their studies, they established an agency in Munich and began to develop modern e-commerce solutions. The two young entrepreneurs successfully completed their first projects and business went well. From 2006, they began to implement their own first e-commerce solutions.
This was definitely needed, as the online landscape continued to change. The needs of businesses and retailers were changing at breakneck speed due to technological progress. Existing solutions were no longer able to meet the challenges of online commerce. The two business partners allowed themselves to “dream bigger” – and to develop a vision: They wanted to take the e-commerce market to a new level using their own novel solutions. To do this, they needed to grow.
2000s: Germany is a venture capital wasteland
Werner and Hoerig need equity and want to get venture capital investors on board –no easy task at the time. The software market is highly competitive and investors are still cautious after the experience of the dotcom bubble at the turn of the millennium. Germany’s venture capital landscape has only just emerged and existing structures lack transparency. Start-up financing in the high-tech sector is still uncharted waters for many domestic investors. With their forward-looking but still early ideas, the founders are brushed off by the few potential VCs.
Following a recommendation from an entrepreneur they know, Werner and Hoerig turn to Bayern Kapital. Since its foundation in 1995, the venture capital company from the Free State of Bavaria has pursued a public mission of closing financing gaps in the high-tech market under the slogan “Public Money – Private Funds”, helping promising innovations and scalable technologies to get up and running and remain on track. Bayern Kapital recognizes the potential of the young company’s first e-commerce solutions. In 2006, Bayern Kapital successfully closes a seed round together with strategic partner High-Tech Gründerfonds and business angel Benedict Rodenstock – just one year before a certain Californian company with its new product “iPhone” turns the online world, and thus online retail, upside down.
The online world goes mobile
As the first smartphones are rolled out, many market players are not yet aware of the impact of mobile disruption. Facebook, Instagram, WhatsApp – before the early 2010s, these information channels were still in their infancy. Few developers foresaw the extent to which these platforms would revolutionize societal structures and the way consumers and end customers find out about products and brands. Hoerig and Werner anticipate that online retail will shift from conventional computers and laptops to mobile devices. The “smartphone generation” forces a revolution in online retail.
Back to the drawing board: technological reboot
From a technical perspective, the e-commerce solutions available at the time – including Werner and Hoerig’s first products – consist of more or less ready-made platform components. These individual modules and program parts work well and are attractive to retailers and end customers. But the growing technological demands of the large brand and enterprise segment – new, different mobile terminals, thousands of online orders or queries per minute, globalized markets – require a faster, more flexible and more powerful solution. What is needed is something along the lines of the Lego principle: an e-commerce operating system that gives companies the freedom to independently build their online markets from scratch and keep developing them individually as required.
The idea for commercetools is born. However, the information technology architecture that Hoerig and Werner envision is fundamentally different from their previous software solutions. To make their idea bear fruit, their company has to reinvent itself. Around four years after founding the company, right in the middle of their growth phase, the two entrepreneurs suddenly want to hit the restart button. Their decision is met with skepticism by their investors. However, their timing is actually good as they have anticipated the market trend relatively early on. But no one at the time was prepared to provide more capital. The only reason the idea stays alive is that public VC investors are on board who don’t feel short-term pressure to exit. They believe in the founders’ vision and enable the change in strategic direction.
The right product at the right time
The two founders reach a milestone with the development of a proper commercetools platform. In 2008, the company wins Red Bull as a customer, it adds its Berlin office in 2011, while in 2013 the company goes to market with the first headless commerce software. And now things are really taking off. Successful pilot partnerships bring more and more momentum: In 2014, REWE Digital joins commercetools as a new major investor. The company provides the software infrastructure for REWE’s entire online trading. Just a few months later, commercetools expands to the USA (Durham, North Carolina) to exploit the head start afforded by its leading technological position.
This early expansion presents a certain risk, but proves to be a growth catalyst. In the following four years the company opens additional locations in Amsterdam, London, Singapore, Sydney and Zurich. The commercetools network expands its reach. At the same time, the company acquires many major, well-known customers. Insight Partners (Twitter/Shopify/alteryx), one of the world’s leading private equity and venture capital firms, joins commercetools in 2019 and further fuels the the company’s growth.
A Munich unicorn is born
As with almost all companies, the outbreak of the coronavirus pandemic initially presented commercetools with internal organizational challenges. However, due to its impact on digitization, the pandemic turned out to accelerate the scaling of the business model: January 2021 alone has been more successful than the company’s first five founding years combined. And that’s not the end of the success story.
In the summer of 2021, Accel – another top investor from Silicon Valley – joins the company. The 140 million round pushes the Munich-based company’s valuation to a total of 1.9 billion. At the end of the same year, commercetools takes over Frontastic, a composable front-end platform. This lays the foundations for opening up new growth prospects. The idea here is that, in order to expand the offering, individual parts of the platform (such as checkout, subscriptions or search functions) will now be offered as independent, marketable products. This fragmentation gives commercetools all of the necessary prerequisites to bring additional companies on board in the future and thus further diversify its own brand.
Today commercetools is a global market leader in enterprise e-commerce solutions, employing over 350 people from around 45 countries across nine locations. Both of the company’s founders are still on board – and as ambitious as ever: In the years ahead, their platform is to grow into a globally successful tech brand for e-commerce tools. The acquisition of Frontastic has put the initial groundwork in place. One thing is certain: Hoerig and Werner are already a big step closer to realizing their vision.