5 Themes That Excite Me About Procurement & Finance Tech Venture Investing

I’ve spent over 20 years studying the procurement solutions and technology market. A tremendous amount has changed in this time.

When I first wrote a column for Information Week about B2B negotiations and reverse auctions in early 1999 before meeting the founders of FreeMarkets — who convinced me to leave management consulting and join them — there were perhaps a dozen providers in the market with any commercial traction.

To say the sector has grown up is an understatement!

There are over 1,000 providers out there today that my Spend Matters colleagues track (a number that is growing weekly).

Besides the sheer growth, there are five key reasons I’m excited about this market today from a seed/angel and venture perspective. These are:

Growth and TAM

• Coupa claims a TAM (total addressable market) of over $50 billion for its core products (not counting payments); I can materially add to this number based on adjacencies (not counting B2B payments) that Coupa is starting to serve today, at least in part.
• B2B payments alone is larger than this eye-catching number — much larger (and a key outgrowth of P2P and AP).
• Regardless of how you slice it, the current core 2020 market for source-to-pay is at least $10 billion today (our numbers are above this — I am being conservative) with at least a 12%+ CAGR for cloud applications in each individual sector (some exceed 15%).

A Lack of Consolidation (but without the need to educate on the basics anymore!)

• Today, my colleagues at Spend Matters track over 350 providers that are squarely in the “center” of the procurement technology market — and over 1,000 in total if you count adjacent sectors with increasing Venn-diagram overlap (e.g., accounts payable, specialized analytics, trade financing/working capital, B2B payments, category specific solutions, T&E, etc.)
• By my own back-of-the-napkin calculations, SAP is the largest, with roughly 5-7% market share given its various acquisitions (Ariba, Fieldglass and Concur), legacy book of business (ECC, SRM and other apps), and not-so legacy procurement buildout on S4/HANA. And Coupa is certainly challenging with its fantastically consistent high growth rate (rule of 40/50) which I don’t believe has ever caused the blood pressure among covering sell-side analysts to spike at quarterly earnings time (a true feat!)
• SAP and Coupa — among many others — have done a great job educating tech buyers (as well as their channel partners). People know they need to invest!

Emerging, Self-Sustaining Ecosystems

• Strategy and operations consulting firms are getting serious about advising clients on emerging procurement and finance tech (e.g., Accenture Digital Safari)
• The SI ecosystem is FINALLY well established — and growing
• Communities of buyers are collaborating more together (e.g., standards for data collection, sourcing, in benchmarks/KPIs, etc.)
• Procurement is no longer in the shadow of “supply chain” — it has usurped it!

Lower Risk Than Other Sectors

• Procurement and finance teams are now “conditioned” to buying technology in this area
• As a sector, the market is generally weathering the downturn extremely well
• Procurement/finance-led business cases can entirely be driven on savings and risk reduction/compliance…
• … But there are many ways to make money in this market (including over a dozen supplier funded revenue models we track)
• There are more exit options for investors — strategic and financial buyers, let alone IPO — than there were even a couple of years back

Procurement/Finance Leaders Realizing Better Information = Hard Dollar Savings  

• Procurement has historically been an asymmetric market in terms of pricing benchmarks, invoicing data and related intelligence (i.e., sellers have had better insight than buyers); entire business models (e.g., Grainger, metals distribution, etc.) have built their margins on taking advantage of procurement’s lack of detailed data and market intelligence…
• … But, procurement and finance are increasingly pushing to have better information to drive savings (among other benefits), which is leading to new digital investments to drive information symmetry.
• I believe we are on the cusp of more procurement organizations, beyond early adopters alone, realizing that the gains from better information far outweigh the costs of investment in specific technologies in such areas as: supplier search/discovery; data on inventory, master/internal, supplier; sourcing/event-based intelligence; contracting/obligation data; risk reduction; category intelligence; recovery/audit; spend compliance data, fraud detection, etc.

Look for 10 thesis articles highlighting different areas and vendors related to these five themes. If you’re in the seed/angel or venture ecosystem, don’t be a stranger! I’d love to trade thoughts. You can message me on LinkedIn or drop a line directly: jbusch (at) azulpartners (dot) com

Thesis 1: Automation

Thesis 2: Marketplaces