Tech

How three friends turned a college project into a $2.5 billion software unicorn

Key Points
  • Celonis started out as a college project from three friends to address problems in business processes.
  • The company just raised $290 million from investors including the CEOs of Qualtrics and Procore.
  • Now valued at $2.5 billion, the German software firm is one of Europe's top unicorn companies.
Celonis co-founders Bastian Nominacher, Alexander Rinke and Martin Klenk.
Celonis

Eight years ago, three friends at college started a club. It wasn't a sports society or some kind of excuse for heavy drinking — quite the opposite.

Instead, they created a project that would entail consulting businesses; some large, some small. One of those businesses, an unnamed company with 5,000 employees at the time, needed help with its IT processes.

"There was a lot of IT service work, and it was not handled very effectively," Alexander Rinke, a co-founder of the project, told CNBC in an interview. "There were a lot of delays. People were frustrated with the service."

Rinke says he and two friends — Bastian Nominacher and Martin Klenk — noticed the company relied on a ticket logging system to process requests. So they decided to look at the log data and found a way to "automatically reconstruct" it with software to figure out what was going wrong.

"That was revolutionary, because suddenly you don't have to talk to people anymore to understand where the problems are," Rinke said. "You can figure it out by looking at all the logs this company produces."

Fast forward to 2019, and that university project has turned into a company with a $2.5 billion valuation. Named Celonis, the firm is a pioneer of a technology called "process mining," which uses specialized algorithms that analyze data from a company's event logs to identify problems with certain processes and work out a solution.

The start-up has just picked up a $290 million financing round from a group of investors that includes the CEOs of fellow software firms Qualtrics and Procore. Based out of Munich, Germany, Celonis is now one of the top unicorns — private tech companies with a valuation of $1 billion or more — in Europe. The company also has U.S. offices in New York City.

It's more than doubled its valuation since its last funding round announced back in June 2018, with investors valuing the company at $1 billion at the time. The business claims to have been cash flow positive since it began operations, a rare sign of profitability from a tech unicorn. UiPath, a start-up with a valuation of $7 billion, is another player in the space and has previously formed a partnership with Celonis.

Nominacher, who is co-CEO of Celonis, said that the main reason behind the jump in the company's valuation was due to its customers seeing "tangible" results thanks to its software. The company claims one of its clients, L'Oreal, improved their order to cash efficiency rate by three times using Celonis' processing mining technology.

While it's hard to pin down the size of the process mining market, a Gartner estimate in 2018 indicated that revenues related to the sector were approaching $160 million. It projected that the nascent industry could "easily triple or quadruple in size during the next two years."

Our biggest competitor is also one of our biggest customers.
Alexander Rinke
co-founder and co-CEO of Celonis

Celonis' latest fundraising was led by investment company Arena Holdings and backed by Qualtrics chief Ryan Smith and Procore boss Tooey Courtemanche. Existing investors Accel and 83North also contributed to the investment. The company has now raised about $370 million since it was founded in 2011.

Smith, whose company was bought by SAP last year for $8 billion, is set to become a special advisor to the firm following the deal. Nominacher said Smith did an "amazing job" at Qualtrics and that Celonis was "very lucky to have him on board to help us move forward."

He added the company would use the fresh capital to "double down in sales and marketing" in the U.S., to "scale up and keep our operations growing." According to Rinke, who also serves as co-CEO, Celonis racked up $100 million in sales in the fiscal year ending May 2019, and he expects that figure to more than double next year.

Rinke said that 90% of business improvement initiatives still involve companies organizing workshops and putting up sticky notes on whiteboards to understand where processes are going wrong. "Our biggest competitor is also one of our biggest customers," he added, referring to 3M, the maker of sticky notes. Other than 3M and L'Oreal, the company also counts Airbus, Siemens and Uber as customers.

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