Why we fell in love with Procurement (in 2019!)
Why is the space so hot? How do we slice it? What do we look for when making an investment? From Felix Plapperer and the Paua Ventures team.
At Paua Ventures, they ask: Where will the next wave of disruption hit shore? After investments in Sales (Pipedrive), Payments (Stripe) or Marketing Automation (Outfunnel), we are currently taking a closer look at Procurement. Why (now)?
First, past exits and significant financing rounds 💰 indicate Procurement market potential. They include Ariba (acquired by SAP for $4.3BN in 2012) and Coupa (IPO in 2016, reached $1.7BN valuation in ten years), for example. Besides that, Procurement companies attract significant VC funding as well. For instance, Tradeshift raised a $250M Series E in 2018.
Second, Procurement is a topic with increasing strategic relevance 🔮 and a clear ROI. Nailing Digital Procurement directly adds to the bottom-line and leads to meaningful results: 5% -10% in purchasing cost savings and a 30% to 50% increase in efficiencies, according to my former colleagues at BCG. Thus, 33% of CPOs believe that their digital procurement strategy will enable them to deliver on their objectives according to Deloitte. Efficio says that 78% even believe it should be a boardroom priority. For the best Procurement startups, this hefty impact makes Sales a piece of cake.
Third, the untapped potential for startups is huge 🌊. Digital champions disrupted back- and front-office functions such as Finance, HR and Sales already. What Hubspot does for Marketing, what Salesforce/Pipedrive do for Sales and what Personio does for HR redefines how these functions work. In Procurement, digitization is just about to kick in. McKinsey thinks so, too.
So, what the heck is “procurement”?
Procurement is “The act of obtaining or buying goods and services. The process includes preparation and processing of a demand as well as the end receipt and approval of payment.”
While Procurement and Purchasing are often used as synonyms “Purchasing is a small subset of the broader procurement function” encompassing only the transactional side of Procurement. To talk about Procurement more precisely, it is worthwhile looking at strategic, transactional (i.e., purchasing) and supporting steps of the Procurement value chain.