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10 Theories on Procurement Technology Venture Stage Investment (Thesis 1: Automation)

07/20/2020 By

Last week, I shared what got me excited about early stage procurement technology investing in a series of five themes (really tailwinds driving the sector generally from a start-up perspective).

In a series of columns the rest of this summer, I’ll share 10 theories that I believe will drive investments in earlier-stage (angel/seed and Series A/B) start-ups in the procurement technology market. Today I’ll start with automation.

A couple of weeks back, I caught up with an old friend (socially distanced, of course!). He is currently Chief Digital Officer and CIO for a $2 billion manufacturer. I was curious, since overall tech spending rolls up to him, including procurement technology, what he is investing in.

One of his top areas of investment — and the one he was most excited about — was automation and “bots.” In fact, he did not distinguish between solutions that we would label as “AP” or “source-to-pay” and “bots” — to him they are one and the same. If you can eliminate touch-point interaction from a process, it is automation! Period. Bot or no bot. Who cares if that process is related to AP, e-procurement, analytics, quality/performance or another area?

This got me thinking: we should look at procurement automation as an investing theme alone at the angel, seed and venture stages — not just as an extension of existing source-to-pay or services procurement modules and suites.

There are times when people are not buying, say, AP enablement, sourcing, contract automation, risk or category management technologies. Rather they are buying the removal of humans from a process (or the insertion of “bots” into a process where humans never intervened in the past because there is a hard dollar benefit to it).

Here are six examples of seed and venture stage companies that illustrate the theme of automation as a stand-alone criteria for technology investment:

  • Bid Ops — A sourcing vendor that automates negotiation management, in part by recommending prices to suppliers in the course of bidding. As we have noted in past coverage of Bid Ops’ Vendor Analysis (Part 1) and (Part 2) on Spend Matters PRO, “within each round, sell-side users have the option to toggle on/off suggested bid prices and then modify prices with individual line items as desired.”
  • Catalytic — A flexible toolkit that combines RPA, AI, an integration platform, workflow and templates to enable the automation of different steps in the procurement and contracting process (for example, pulling information from one or multiple systems into another to streamline, say, the creation of a new contract).
  • Cirtuo — Automates category strategy definition/construction based on its own knowledge model and user survey inputs. This is likely to be faster (and perhaps more effective in specific cases) than an 80/20 approach to writing a whole category strategy. The solution generates recommended strategies based on spending, market dynamics as input, etc.
  • Keelvar — a sourcing technology provider that is leveraging RFI/RFP and optimization capabilities to drive bot-based negotiations that remove people from the sourcing/bidding equation.
  • Pactum — Automates long-tail contract negotiations by bringing sales reps into a bot conversation that tries to settle close to your desired terms. It recently got an investment from DocuSign (which might signal a tie-in to the DocuSign platform ecosystem). The website walkthrough is cool. Try it yourself!
  • Prewave — A young, start-up risk management provider that automates the collection of data on suppliers from various sources, including a “freemium” version that anyone can use with select suppliers. A user enters the supplier name and is “off to the races” as the solution brings in recommended data feeds to monitor supplier-related incidents.

This list is just a start. I expect we will see dozens of new automation-centric procurement tech providers in the years to come.

If you’re in the seed/angel or venture ecosystem, don’t be a stranger! I’d love to trade thoughts on automation and other themes. You can message me on LinkedIn or drop a line directly: jbusch (at) azulpartners (dot) com

Read Thesis 2: Marketplaces here.