The procurement technology market is quickly becoming crowded.
Although consumer demand remains high, new joiners to the market need to ensure their fundraising efforts stand out.
According to Insights’ 2023 ProcureCon CPO Report, technology has consistently been named as one of the top three barriers to building a more mature procurement operation.
As a result, one of the top three focus areas for CPOs – over the next 12 months – is technology implementation or transformation (cited by 39% of respondents), and an impressive 49% of respondents said their CPOs have led initiatives to acquire, implement, or adopt new technologies in the past 12 months.
But, such high demand is fuelling an increasingly saturated marketplace. As a result, for new procurement technology companies looking to enter the space, successfully gaining investment is set to become more challenging than ever before.
Jack Freeman is a Partner at PeakSpan Capital, with over ten years of experience in the fields of B2B SaaS investing, investment banking, growth-stage software, supply chain and procurement. Alongside this, he has been on the boards of over 20 growth-stage B2B SaaS companies.
In the first part of this two-part blog series, we’ll be hearing Freeman’s insights into how companies can successfully manage the investment process.
Targeting the right investor
Although you might automatically think that any investor is a good investor, in reality, the situation is not this straightforward.
It is critical that you target (and then proceed with) an investor that is fully equipped to support your company’s growth, that you can trust in, and offers a strong match to your company’s size, value proposition and future projections.
As such, selecting the right investor requires you to consider:
- Valuation and terms
- Time horizons
In addition to these factors, determining the ‘right’ investor is largely dependent on the recipient’s annual recurring revenue (ARR).
Freeman outlines the best-fit investors for each ARR stage as follows:
- Pre-revenue – friends and family, angels, industry-relevant high-net worth individuals, corporate VCs, accelerators and corporate accelerators
- <$1mn ARR – seed-stage VCs, industry-specific VCs, corporate VCs and your customers. Look for similar companies that share similar themes
- <$1mn – $5mn ARR – industry-specific VCs, institutional VCs, “early” growth equity. Look for similar companies that share similar themes
- $5mn – $10mn ARR – institutional VCs and traditional growth equity. Adopt a B2B focus, looking for similar companies that share similar themes
- $10mn+ ARR – growth equity and private equity, checking for the right size fit and implementing a value creation strategy
What do investors look for?
Taking the perspective of the investor, it is also important for you to understand what they are looking for. That way, you can frame your pitch deck around the elements of your business that are the most likely to generate successful investment.
According to Freeman, the key points that a potential investor will be looking for are:
- A unique thesis
- For you to clearly outline, ‘Why you?’
- A unique strategy
- A clear and evidenced market opportunity
- Competitive positioning
Freeman also stresses that there is an art to selling to an investor:
“Having a unique perspective goes a long way. ‘Why you? Have you lived through the pain in an operator role? Do you have the network? It’s important to be really clear about why you are well positioned… what’s your unique take on those markets, and why are you best positioned to attack them?
Having too broad a vision confuses investors… so, be very narrow and specific about what your vision is and what you’re attacking. It goes part and parcel with a lack of thoughtful positioning. Positioning is super important – at PeakSpan, we have operating advisors dedicated to helping our companies with positioning, because it’s hard, especially because there are more and more vendors out there. So, you need to position yourself; have a unique spot in the landscape and really stick to that and build upon it.” – Jack Freeman, Partner, PeakSpan Capital
When it comes to your pitch, you need to work to:
- Create competitive tension
- Lay out clear timing guidelines
- Meet with impressive executives
- Strike the right balance between formal and casual
- Invest in the right relationships
- Create clear term sheet expectations
“For the pitch deck, make sure you’re hitting the basics upfront. State in plain English what you do. State your thesis. Why is your company interesting? What’s the problem statement and what’s your solution? What’s your value proposition? – Jack Freeman, Partner, PeakSpan Capital
You also need to build a proper data room, which provides a comprehensive answer to any potential questions that they may have (before they ask them). This should include:
- Framing churn
- Consumption based pricing
- Framing sales efficiency
- Cleanly formatted financials
- Revenue x customer x month
- SaaS KPIs
- Projections (with / without drivers)
- Sales rep performance
- Customer testimonials and case studies
- Market reports and research
Creating your pitch deck
Inevitably, the pitch deck will form the crux of your proposition. Its contents need to not only articulate your company’s unique value and market positioning, but also clearly outline how and why your brand will prove to be a success (over all your competitors).
To this aim, Freeman recommends that your pitch deck includes answers to all the following questions:
- What do you do?
- What is your thesis / mission statement?
And, as the core message of your pitch deck, Freeman stresses that this information should be written in concise, plain English.
Why your company?
- What are your problems and solution statements?
- Why is your startup unique? What makes it a winning idea?
- What is the value proposition?
- What compelling reason are you using to convince people to buy?
- What makes your approach unique and successful?
- How is the market segmented, and what segment do you play in?
- What is your ideal customer profile (ICP)?
- How do you reach your ICP? (And, when they learn about your service, why will they care?)
- How are you positioned to win your ICP?
- What is your use of proceeds? How do you turn $Xmn of capital invested into $Ymn of ARR?
- What are the specific programmes and initiatives that you use, which have been proven to work?
Why this market?
- What are the market statistics that support your thesis, problem and solution statements?
- What is at stake? What is the market opportunity, and why now?
- What is your positioning relative to your competition? Why are you uniquely positioned to win?
- What are your existing customer-level proof points? (including early traction, ROI and quotes)
- What is your revenue scale?
- What is your growth rate?
- What is your gross margin?
- What is your capital efficiency?
- What are your retention metrics?
- What is your sales efficiency?
“Investors are most commonly looking at evidence of traction which they derive from historical financial performance. But this can be very short-sighted. We all know historical performance is not a prediction of future performance, and that is even more true for growth companies where the baseline situation is not the same; for example, historical performance can be a reflection of founder selling whereas future selling is a function of scaling a sales team” – Chirag Shah, Executive Chairman at Simfoni, a PeakSpan portfolio company.
“The best investors focus more on understanding the market potential; i.e. what is the competitor landscape, how will the product requirements evolve over time and what are the unfair advantages that the target company possesses in order to be a leader in the future.”
To receive actionable insights into how you can improve your procurement technology funding pitch, speak to PeakSpan’s expert team.
PeakSpan is a software-focused, software-enabled firm, which is deliberately architected to deliver outcomes.
The growth equity firm is based in New York City and Silicon Valley. It has partnered with over 30 scaleups, and has $1.5bn+ in AUM to its name.
Its mission is to be the partner of choice for growth stage entrepreneurial teams building innovative software.
ProcureTech is on a mission to accelerate and amplify the digital future of procurement.
Solving the most pressing social, environmental and economic challenges requires new thinking and a new platform for procurement leaders, entrepreneurs and the procurement technology ecosystem.
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