As a vendor for eQMS software, we talk to potential customers all the time. That gives us an interesting opportunity to learn about new rumors in the medical device industry. Today’s finding is particularly interesting, and it was triggered by this message from a customer.
We’re currently with matrix requirements and just got an email that they’re retiring the Startup Essentials package we’re on and forcing us onto a higher tier.
Hold on, what? So they’d been using an eQMS software called Matrix Requirements, and apparently that company has increased its prices and is now forcibly upgrading existing customers to higher prices. While that’s already rather insane, it piqued our interest – maybe there was more to this story?
And boy, there was. Turns out, the company got sold, and it seems likely that the new owners are making some changes now to get the most money out of it. But let’s back up a bit first and see what this all was about.
Matrix Requirements: Founded By Two Medical Device Dudes
According to their published “Co-founder story” video, Matrix Requirements was founded by two enthusiastic dudes who had worked in the medical device industry in the past. They were frustrated with the existing software solutions out there and built their own. Cool!
The founders were Wolfgang Huber, a computer scientist from Germany, and Yves Berquin, a computer scientist from Brussels. Both of them had ample experience in both the technical and medical device fields. And that, in my opinion, really sets them apart from 90% of the other companies in this field which are usually founded by “regulatory” people who are completely detached from reality. No, these were technically people, and that’s impressive.
And, as far as I can see, they bootstrapped the whole thing! Because, in the earliest list of shareholders which I was able to find (from 2015), here’s how the ownership looks:
The total share capital of the company was €25k. Therefore:
- Wolfgang Huber owned 50.4% (€12.6k out of €25k)
- Yves Berquin owned 49.6% (€12.4k out of €25k)
This is a fairly standard setup with two co-founders – one of them owns slightly more, so he likely has the power to “overrule” the other one in case they disagree (which can actually be beneficial compared to a deadlocked 50-50 situation).
But the actual big news here is that they didn’t need any outside funding! Because no other person, especially no investor, is in the list of shareholders. In other words, both of them together owned 100% of the company. This can not be understated: Most eQMS software companies rely on taking on investor money because building such a software requires a lot of upfront capital.
(We also didn’t need investors, but that’s another story.)
So far, so good.
And Matrix Requirements was actually a fairly decent QMS software. In contrast to some more evil, investor-funded companies out there, they do check many boxes which, again, I’m very impressed by:
- They’re bootstrapped – not outside investors.
- The founders are still leading the company and have medical device expertise.
- It’s (likely) profitable – no need to cave to pressure from investors.
- They have entry-level pricing plans, enabling startups to use their software, too.
The last part is illustrated by their pricing page in mid-2024, take a look:
In case you didn’t know, €390 /month is a fairly reasonable entry-level price for eQMS software in this industry. So all was well in The Shire.
But then, things took a turn.
The aforementioned customer pinged us that Matrix Requirements had removed its entry-level pricing. We looked again. And indeed, here’s how it looks now, in December 2024:
So the entry-level price had been removed, and all other packages had increased in price.
Why would a founder-led, profitable, 100% self-owned company do such a thing? By all measures, I would expect them to keep the startup pricing around, given that they’re already making money, and that they’re likely idealists, wanting to help the medical device industry?
We did some digging, and what we found wasn’t pretty.
Matrix Requirements: The Sale
Turns out, the company ownership had changed. Here’s how it started looking like in 2022:
So wait, hold on, where had the founders gone? And who the hell was “Lauxetrix S.a.r.l.”?
Let’s answer the question first. In the “About” page, the founders had moved to the bottom of the page:
And, at the top of the page, they’ve been replaced by a new CEO and CTO – two dudes with black hair, and, with all due respect, more serious mustaches:
So the founders were out. And what about “Lauxetrix S.a.r.l.”?
Lauxetrix S.a.r.l. is an investment company registered in Luxemburg. It’s one of multiple investment companies through which Lauxera Capital Partners, a private equity (PE) fund, buys companies. In case you don’t know what private equity is, here’s a simplified explanation: Their main objective is to purchase companies at a certain price, then take measures to increase the value of that companies (cut costs, increase revenue, etc.) and finally sell the company at a higher price again, resulting in a nice profit.
They usually have a bad reputation among the general public because, well, as part of increasing the valuations of their companies, they often deploy measures which are, um, “not nice”:
- Reducing costs: Laying off people, cancelling investments (new products, software, features, etc.)
- Ramping up sales: Becoming more pushy regarding sales by e.g. employing more salespeople without technical backgrounds whose main objective is to make sales, regardless of whether the product is a great fit for the customer
- Making the company look nice: Redirecting efforts on “shiny” things which make the company look nice without resulting in inreased value to customers, e.g. a company rebranding, new website, etc.
- Increasing revenue: Trying to make more money in the short-term while potentially sacrificing trust in the company in the long term, e.g. by raising prices.
Yeah.. raising prices. That’s what we’re seeing here, too. And it’s likely that this is the doing of the new owner of Matrix Requirements, Lauxera, a private equity company.
So this happened. These are the facts. Why did it happen? We can’t know for sure. Here are some ideas.
What Happened At Matrix Requirements?
One possible scenario is this: Wolfang Huber and Yves Berquin wanted to retire.
You see, building a bootstrapped software company is no joke (and yes, I’m speaking from experience): Initially, you’re not making much money and have to spend all your time coding and marketing, while receiving no salary in return. And even when you start making some money, that money is usually spent hiring people. It’s tiring. Joining Google would have been a wiser financial decision (albeit less fulfilling).
While their company might have been making solid money in recent years – after all, it now was established and had a solid list of customers to show – maybe Wolfang and Yves were simply tired and wanted out.
Simplifying greatly again, if you “want out” as the owner of a small, profitable company, you’re faced with two choices:
- Find a CEO who will replace you and hire them: You have to search for someone who can fill your role. Best case, one of your long-standing employees who is also very capable. The problem here is that “CEO-type” people are rare, and they tend to not, you now, work as employees in companies. And, regardless how great a person you find, there’ll always be a difference between a hired CEO and you, the CEO who also owns the company. This is hard.
But if it works, it’s great: The benefit of this is that your company continues running without relying on you, its founder, and maybe you only jump in sometimes to give some advice, but day-to-day, you’re “retired”. You retain full control: If the company starts doing things you disagree with, you kick out the replacement CEO and take over yourself again, temporarily.
But there’s no huge payout as you “only” get to keep the earnings of the company once they’re paid out as dividends. This is essentially a yearly, continuous payout, as long as the company stays profitable. - Sell the company: Or, if you don’t want to deal with all of the above, most likely because you can’t find a replacement CEO, you sell the company, e.g. to a private equity company. There’ll likely be some transition agreement, i.e. you’ll have to stay on for 1-2 years working in your company after it has been sold, but the private equity company will take care of all the rest, most importantly hiring your replacement CEO.
The benefit of this is that you get one huge cash payout upon the sale of your company. And after the transition period, you’re “out” – they can’t ping you anymore to jump in. But the drawback is that you’ve sold what was essentially your baby: If the private equity company puts your company on a course you disagree with (by e.g. raising prices), you no longer own it and don’t have a say.
I think the latter could have happened to Matrix Requirements. The founders wanted to retire. They weren’t able to find a replacement CEO or simply wanted to be “out” completely.
And then they sold 100% of Matrix Requirements. They are out. If Lauxera decides to do bad things with Matrix Requirements, they can’t intervene – they are now merely spectators to this drama.
What’s Next?
So what will happen next? Here are some speculative thoughts.
Lauxera might try to increase the valuation of Matrix Requirements. This might include:
- Price increases – fact. We’re already seeing these.
- Forcing existing customer onto those higher prices – fact. Also happening.
- Polishing the website to increase sales, even though the actual software still looks like Windows 95 – fact. Happened in the last two years (2022 – 2024).
- Shifting the company focus from building features to making more revenue and sales – speculation, based on the general principles of operation of PE funds.
If these speculations are true (and again, these are only speculations), it wouldn’t be great for existing customers, especially for startups. In particular, startups and small companies are “left out in the rain”, because there’s no longer a pricing option which is viable for them. And existing startups using their software are forced to pay (much) more money unless they want to lose their accounts.
But.. again, those are just speculations.
Look, I’m not saying that Matrix Requirements is “bad” or “good”. I’m only saying that 1) the company got sold to a PE fund, 2) the founders appear to be out, 3) prices are being raised and 4) the general objective of PE funds is to increase revenue and cut costs.
That’s all I’m saying.
Their product, last I checked, was really cool! Sure, we’re competitors as we also offer our eQMS software, Formwork, but I still think we serve different customers: Formwork is for startups which want to get started quickly with a pre-configured, easy-to-use experience, while Matrix Requirements is way more customizable and is therefore useful for mid-size companies in more complex situations.
And, again, we don’t know the reasons why the founders sold their company. As mentioned in the LinkedIn discussion which followed this article, there are of course all sorts of reasons we as outsiders can only speculate about: Maybe personal financial reasons, maybe strategic reasons. It’s overly simplistic to say “hey, founder X just wanted money and sold to PE!”. That being said, selling to PE is not the only option. There’s no rule that every company on this planet must be sold to PE at some stage. Founders have a choice, especially founders of profitable, bootstrapped companies. In this case, they chose to sell.
