“San Mateo, California-based Coupa, which said last year it was valued at $1 billion in a private funding round, has already registered for an IPO confidentially with the U.S. Securities and Exchange Commission and could file its IPO prospectus publicly in the fall,” the story notes. “Coupa would be one of the largest software companies looking to float on the U.S. stock market this year, which has seen few IPOs due to market volatility.”
I personally think a Coupa IPO would be a net positive for the procurement industry and its various constituents overall. Here are five reasons why:
1. Increased Awareness of Procurement
It would be good for general investment in the sector as a sort of second debutante ball for procurement technology (a “sweet 21” perhaps to follow a “sweet 16”). In the same way that the Ariba and FreeMarkets IPOs (and SAP’s acquisition of Ariba) called attention to the sector originally, so too would a Coupa IPO. In short, it would “up” awareness around where procurement is headed as a function and what core supporting technology, networks and adjunct solutions can do to improve businesses overall. It would also show that even in a very tough IPO climate, pure-play procurement vendors can hit escape velocity and stand on their own capital markets feet.
2. A Vote of Confidence
A Coupa IPO would be a vote of confidence in the broader procurement sector for investors. Investment drives innovation, which in the end benefits customers the most (and creates a virtuous cycle of new technology and new vendors). A liquidity event of this scale would help fuel future startups by expanding funding options and, potentially, valuations.
Curiously, the level of private equity interest in procurement solutions has grown dramatically in the past 18 months, based on my personal observations. But general investor interest and venture capital interest has not grown at the same clip, at least as far as I’ve seen. While clever upstarts like Scout RFP and BuyerQuest have all raised decent-sized seed or small Series A rounds in the past 18 months, and SirionLabs announced a larger funding round this week, earlier stage procurement investment in new technology has been for pioneers rather than settlers (with the exception being big bets on new platform-based business and technology models such as Tradeshift).
This needs to change. Investors are like cattle. They move in herds. And it’s pretty clear that a successful Coupa IPO would bring them together in supporting the sector more.
3. A Spark for Consolidation
Coupa has been acquisitive in the past with small deals and shown its willingness to expand its suite inorganically (replatforming acquisitions and IP on its own stack). An IPO would likely provide a war chest to expand its corporate development efforts and speed up the pace of acquisitions in the sector overall. Coupa’s past acquisitions include Contractually, ZenPurchase, TripScanner, InvoiceSmash and Xpenser.
4. Best Results for Coupa Customers
I’ll go out on a limb here, but I believe a Coupa IPO would be better for customers and future customers than the alternative exit options. At Coupa’s scale, history has shown it’s better for the market and practitioners for a provider to be independent rather than part of a tech giant. (Ariba was larger and hit escape velocity to create its own gravitational orbit within SAP; Emptoris, Agile and other acquired vendors did not.) Given this, if you believe competition is a good thing in the market, Coupa is likely better off independent than as part of an Oracle or IBM, either of which would likely constrict Coupa's sales and marketing reach outside of its existing and target base, raise prices and all but certainly put a damper on Coupa’s outrageous pace of innovation.
5. Increased Competition & Innovation
A Coupa IPO would put pressure on Oracle and SAP/Ariba to invest further in products and product innovation across their suites from a competitive perspective. SAP/Ariba has been up to some clever things of late in terms of building out direct procurement connectivity, deeper desktop and Microsoft integration, and broader trade financing efforts and partnerships (not to mention going to market more closely with Fieldglass and Concur, also part of the SAP juggernaut).
But there’s a ton more that SAP/Ariba could do. By way of comparison, Oracle has been complacent by delivering innovation that generally only checks the functional box in key areas (with the exception of Endeca) versus leading the market with new or disruptive ideas. Moreover, IBM can't keep beating the Watson drum alone around cognitive procurement given the comparative functional stagnation of Emptoris's sourcing and supplier management capabilities relative to a market moving at warp technical speed. In short, a strong, independent Coupa with a burgeoning and less constrained war chest for further investment would pressure both firms to invest more (and IBM for that matter, too -- I hope). That’s a good thing for customers of all of these providers.
As a final, unrelated thought, the deviant corporate development guy in me suggests another scenario as well — that the IPO plans would push Oracle or IBM to finally pull the trigger on a deal with Coupa. (Both deals have been rumored for years.) But for the sake of procurement innovation and the reasons I’ve explained above, I sincerely hope that’s not the scenario that unfolds.
And for many reasons, I don’t believe it will.
This column represents Jason Busch’s views and opinions, which do not necessarily reflect those of Spend Matters or Azul Partners, Inc.