Technology

E-commerce entrepreneur scores again in Salesforce deal

Salesforce.com Inc. agreed to buy Burlington-based Demandware Inc., a provider of cloud-commerce services.

Robert Galbraith/Reuters/File

Salesforce.com Inc. agreed to buy Burlington-based Demandware Inc., a provider of cloud-commerce services.

If it weren’t for smoked fish and gardening gear, Stephan Schambach might be several hundred million dollars poorer.

Schambach founded Demandware Inc. to provide e-commerce services to businesses in 2004, still the early days of online retail. But with the dot-com bust still fresh in their memories, many investors thought the idea too risky to finance.

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“I would get all the meetings,” Schambach recalled. “But I explained what we wanted to do, and the meeting ended. And it ended at the term ‘e-commerce.’ But I was convinced that we were on to something.”

Schambach eventually spent about six months working on Demandware out of the Harvard Square offices of venture firm General Catalyst. But those investors still wanted to see some proof of a possible market.

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“We probably said no to him about 100 times,” General Catalyst managing director Larry Bohn said. “We kept saying, ‘Well, maybe we would do it if you could find a customer.’ ”

That first customer turned out to be the iconic New York deli Zabar’s. And with venture capital backing, Demandware next landed Gardener’s Supply Co., the Vermont cataloguer with millions of dollars in annual sales.

Hundreds of other retailers and brands eventually followed. And as a pioneer of so-called cloud-based services, one of hottest segments of the software business, Demandware proved to be an attractive target.

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On Wednesday, industry titan Salesforce.com Inc. announced it was paying $2.8 billion to acquire the Burlington-based company, a 56 percent premium to Demandware’s previous closing price.

Schambach stepped aside as chief executive long before Demandware went public in 2012, but remained chairman until about two years ago. Importantly, he still owns about 7 percent of the company—which at the $75 a share offer from Salesforce.com makes his payout a tidy $204 million.

“I have owned it,” Schambach said with a laugh, “for quite a long time.”

A German-born entrepreneur who already had one startup success to his credit when he founded Demandware, Schambach is now on his next enterprise in the Boston area: NewStore Inc., which aims to ride the rise of mobile computing by helping retailers reach customers who are tapping away at their smartphone screens.

As a young entrepreneur growing up in what was then East Germany, starting a business wasn’t an easy proposition. At first, Schambach and friends built their own electronic gear, including amplifiers and computers, which they sold under the table to companies that couldn’t easily buy high-tech gear through government-approved channels.

“Officially, you could never be an entrepreneur. But unofficially, you could do something in a basement and make a living from it,” Schambach said.

That all changed when the Berlin Wall fell.

Demandware has about 1,000 employees. Its annual revenues from 2013 to 2015 more than doubled, to $237 million.

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The customer base for black-market computers quickly dried up, but Schambach was free to pursue new ideas. He co-founded Intershop Communications AG, an e-commerce software company that went public. He left Intershop in 2004, and moved to the US to found Demandware.

He remains in Boston for NewStore Inc., which is trying to capitalize on mobile computing by helping retailers reach customers on their smartphones. Last fall, NewStore raised $38 million in venture investment. General Catalyst led the deal.

“He sees the future,” Bohn said of Schambach. “He lives it.”

Today, Demandware has about 1,000 employees worldwide, and its customers include adidas AG, Panasonic Corp., and Samsonite International S.A. Its annual revenues from 2013 to 2015 more than doubled, to $237 million. But like many other software companies that concentrate on growing fast, Demandware is not profitable: its losses grew from $18 million in 2013 to $37 million in 2015.

But with its established base of big-business customers, Salesforce.com will likely get Demandware’s products connected with larger accounts more efficiently, said Adam Silverman, an analyst with Forrester Research Inc.

Salesforce.com is a market leader in software that manages a corporate sales team’s customer databases, and it has added marketing programs over recent years.

“But when it came to taking the order and actually managing commerce, Salesforce had a gaping hole,” Silverman said. “Basically, what this gets Salesforce is an instant e-commerce solution.”

Demandware chief executive Thomas Ebling said his company, which has about 100 job openings, plans to continue hiring after the Salesforce.com acquisition and the company even recently signed a long-term extension to keep its headquarters in Burlington.

“The focus of Salesforce is very much on growing the business,” he said.

General Catalyst and another Boston-area venture firm that backed it, North Bridge Venture Partners, did well on the Demandware investment long before Salesforce came around. General Catalyst made hundreds of millions of dollars on its stake, returning roughly 30 times what it put into the business, Bohn said.

“If there are 40 companies in a fund and you have one of those, it makes up for all the sins,” Bohn said. “This is what drives the venture business.”

Curt Woodward can be reached at curt.woodward@globe.com. Follow him on Twitter @curtwoodward.
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