Jason is off on a well-earned vacation, so I thought I’d chime in on Tradeshift’s latest funding round. It’s good to see healthy providers that are attracting investment to fund the innovation that the procurement, finance and supply chain space so desperately need.
To me, the latest funding round demonstrates a few things:
- Some platform-based businesses in B2B can take time to achieve critical mass, and as such, investors hope to see some “platform effects” (i.e., network effects due to the platform). Tradeshift has raised roughly $200 million to date, and according reporting by CNBC, the latest funding round values the company at around $600 million, based on a projected revenue target of $50 million. Those target revenue and valuation numbers may be a bit “aspirational,” but Tradeshift is after something much larger than many of its peers, and if network/multiplier effects truly kick-in, they could accelerate the business on a faster trajectory than the traditional cloud application market.
- In order to raise more capital, you generally need to execute. Tradeshift has been executing well, on a broad set of outcomes and capabilities as a platform rather than just just building out specific apps (e.g., its recent partnership with China-based Baiwang for VAT processing is a good example). But, competition is stiff. In terms of strong execution from a customer count and financials standpoint, you have a player like Coupa with roughly 500 customers and $100 million in trailing annual revenues — delivered with only $169 million in cumulative funding. On the flip side, you have a player like Deem, which has raised more than $500 million but has not yet executed in a focused manner like Coupa.
- The financing of supplier expenditures (i.e., not just the internal efficiency and effectiveness of that spending process) is also important. This may be why American Express and HSBC involved in the latest Tradeshift funding round. Although the market is littered with the bodies of failed efforts by financial services firms (including AmEx) trying to use procurement and payables technology as a pipeline into their trade financing solutions (and perhaps vice versa given what happened at Tungsten regarding bank ownership), execution is still key like mentioned before. My colleague David Gustin echoed this sentiment over on Trade Financing Matters. Still, many players are executing well, whether on the technology side (e.g., Taulia) or the multi-bank financing side (e.g., PrimeRevenue). But as Jason Busch has written, what many of P2P vendors are largely selling today from a trade financing perspective is a rounding error on the balance sheet of corporations and their suppliers.
Since Tradeshift has a platform focus, it can be an arms dealer, of sorts, and partner with not just AmEx or HSBC but also with others like it’s already done with C2FO (see related links below.) Now, should this agnosticism in turn command a double-digit revenue multiple because of the deeper platform focus? It will IF the actual execution can catch up with the potential market evolution and traction - and that will require some hard core engineering, partner development, and customer focused innovation. So, the money will hopefully be put to good use!
The market will, of course, ultimately decide the winners, and we hope that practitioners will:
- look beyond Feature 500 lists
- understand the differences between apps, networks, and platforms... oh my! Here's our 2016 take on the topic
- focus more on design-centered thinking in Procurement, and
- consider the role of procurement information architectures (including not outsourcing your supply chain digital strategy to any single supplier network solutions provider) for maximizing your options for digitizing supply and for blowing up your traditional procurement models
Innovative suppliers like Tradeshift and others will increase their odds of success by helping their customers better manage their spend / supply and deliver superior value to their shareholders. Regardless of which provider does the best, the ultimate winner will be the practitioner, who is offered better choices in the market.
And if platforms (and the funding to support their growth) lead to greater choice, we think that’s a very good thing.