Scoutbee, and the future of strategic sourcing
Exploring the rationale behind HV joining a $4m seed round in Scoutbee.
HV Holtzbrinck Ventures, 42CAP and Toba Capital recently announced a $4m investment into Würzburg-based Scoutbee. Let’s dig into the details around what Scoutbee does, as well as the rationale behind the investment.
What Scoutbee does
Picture an employee in the sourcing department of an automobile manufacturer. That person could be responsible for sourcing items as disparate as safety vests, aluminum parts and lighting components. Finding suppliers is a thank-less process, involving personal contacts, internet research, and site visits. For larger projects consultants get involved. Total project time? 3 to 6 months. And likely longer if the company is dealing with overseas suppliers, who need to be qualified.
Using artificial intelligence, Scoutbee plans to transform global sourcing into an effortless process. The platform searches through millions of suppliers, evaluates them and then makes supplier recommendations. There are currently over 9m suppliers in the database, at the time of writing. The quality of sourcing massively improves, and what is usually done in a matter of months is reduced to hours. New project time? 4 weeks.
Plus, Scoutbee also surfaces new suppliers, which generally leads to lower cost. More suppliers, faster? Win.
The market
It is hard to find exact numbers on the global B2B procurement market size, as it is so varied. Trade has become bilateral, intra-industry exchange is common, many companies operate global value chains, with extensive networks of suppliers. The current political climate also has companies scrambling to create secondary sourcing options, e.g. to avoid sanctions or tariffs. The complexity of global supply chains will continue to increase, making sourcing more complex.
For a few data points, one estimate shows global corporate goods exports at $17trn in 2017, which excludes domestic transactions. SAP Ariba alone processes $1trn in transactions per year in their marketplace. A company like Bosch has 4,500 direct suppliers, with another 40,000 via marketplaces, delivering into 800 globally distributed logistics centres. A pharma company we spoke to sources $1.2bn per year of goods in transactions under $100k. These transactions run through unchecked.
It’s no news that the procurement function is highly inefficient. These slow procurement processes lead to frustration among CPOs, who desire faster end-to-end procurement cycles as well as greater visibility into the efficiency of their purchasing organisation. And, as always, lower costs.
In all fairness, procurement solutions do exist on the market. Here is an (incomplete) overview:
At the top end of the market, Scoutbee will compete against (or integrate with) procure-to-pay offerings integrated into ERP systems from SAP, Oracle, JDA etc. Other rivals in the procurement space include Coupa, Jaggaer and the like. The global market for supply chain management and procurement software was ca. $13bn in 2017. Interestingly enough, most of the growth is happening outside the top 10, showing a market moving towards highly-targeted, specialized supply-chain solution (go Scoutbee!).
Existing solutions often focus on the management of existing supplier relationships and ignore the sourcing aspect. What is crucial, is that no existing software uses AI/ML the way Scoutbee does to improve sourcing. If at all, legacy vendors work with static supplier catalogues (e-commerce model).
Based on our many discussions with industry professionals and consultants, we also found that current software was a far cry from state of the art, due to legacy systems, high costs and inflexible processes.
Unsurprisingly, the procurement professionals we surveyed were very optimistic on what AI could do for their work. Especially for offering much-needed relief to bottlenecks in the procuring cycle.
So how does Scoutbee’s AI work? It collects data records (4 billion today), on the basis of which supplier profiles are created. These profiles are then classified for the user. E.g. If a supplier is currently working with established companies or OEMs, this is taken into consideration and is positively reflected on the supplier’s trust score.
Ultimately, Scoutbee’s AI-powered approach will lead to a fairer and more transparent marketplace for both suppliers and purchases. As one co-founder explained, “Scoutbee is doing to B2B sourcing what Linkedin has created for the recruiting industry”.
To recap, the status quo makes procurers highly receptive to new SaaS solutions. Plus sourcing was previously largely unaddressed. Through the provision of supplier suggestions (powered by the world’s most comprehensive supplier search engine), high tech collaboration tools and guidance at every step, Scoutbee optimizes the sourcing process from start to finish. The integration process (none, just bring a purchase order and get a login) obviously helps too.
Key reasons to invest
Relevant team with a clear vision
We were immediately drawn to the three founders’ ambition coupled with extensive experience in the space. Obviously a topic like this requires deep domain expertise.
Gregor, who focuses on product and technology, has previously been in B2B sales and procurement positions for around a decade. Scoutbee solves the issues he faced while a buyer at major German automotive suppliers. Lee, who is building out sales, has over 10 years’ experience in retail management and purchasing (primarily at Lidl) under his belt. Christian (known as Professor Heinrich in the classroom) worked as a procurement consultant in the past, and now lectures on the topic. Fabian joined shortly after, bringing experience from Rocket Internet. Needless to say, we are pretty convinced that they are the best people to carry out Scoutbee’s vision.
Disruptive idea in a huge market
As mentioned above, the market is huge. Every single reference call came back positive, people in procurement are big believers in the power of AI. One of Scoutbee’s early customers found the startup via their own search. Other procurers we’ve talked to mentioned that when investigating sourcing tools recently, they just didn’t find a solution. A few even tried to build something on their own (and failed). Scoutbee fills that gap. The platform is also globally scalable and capable of meeting industry-wide challenges.
Market Proof
The Scoutbee team has been working on the idea since 2015. The first sellable SaaS solution went live in March 2018. In the first four months the tool has achieved impressive traction among German blue-chip clients. Audi, Siemens and Bosch Rexroth, amongst others, are paying customers. The strong results from early 2018 show initial product market fit and lay a good foundation for future growth.
Investors
Obviously not a reason to invest, but the group of investors the team put together made the decision even easier. Alex and Thomas from 42CAP built one of Europe’s largest SaaS companies. Toba Capital is a US fund focused on SaaS, with a strong operational history. Existing angels with very relevant experience also invested significantly. HV obviously brings a long history of successfully scaling companies to the table. This is a great group to support the team.
What’s next for Scoutbee
With seven-digit sales and the existing pipeline, it’s safe to say that Scoutbee has successfully entered the market. In fact, the team didn’t strictly need a funding round. The money from the investment will allow a rapid expansion of the Scoutbee team, support faster product development and help the company to internationalise faster. As we speak an office in the US is being setup, with Lee leading the charge.
Scoutbee has done great so far, but it has set its sights on even more ambitious goals for the future. I am very excited to see what the team will achieve!
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