Why we invested in Keelvar
..and why Sourcing Bots will conquer procurement-land 🤖
After “Falling In Love With Procurement”, we are really excited to announce that Paua Ventures is investing in Keelvar alongside Mosaic Ventures and Elephant Partners.
We believe that Keelvar is pioneering a new procurement software category— Intelligent Sourcing Automation— and that it is poised to dominate this new market in the years to come. The product is enabling procurement functions to do their job both better (= spend less money when buying goods or services) and faster (= automating processes and thus save operational cost) than ever before. Keelvar’s rapidly growing base of 40+ blue chip customers such as Siemens, Coca Cola, Inditex, BMW, Novartis, Daimler, Logitech or ABB is spanning across industries and highlighting a massive value creation potential already today. 🚀
Procurement: A huge and under-digitized market
Our friends from Lakestar presented some impressive numbers during the DLD Conference in Munich earlier this year. While Procurement is a staggering 18 trillion USD industry, only 2 billion of VC funding has flown into it. This is a tiny amount when comparing it to verticals such as E-commerce or FinTech with a funding inflow far beyond that of Procurement — measured in absolute USD and even more so in relation to the respective market size.
Further and as I explained in more detail in this article on “ProCuring the Virus”: Covid-19 has exposed a painfully slow supply chain reactivity and heavily increased pressure on the bottom-line. These developments are dramatically accelerating the adoption of software in the procurement space.
Keelvar is Solving Sourcing — say what? 🤔
“Sourcing Events” are structured tenders or auctions via which Corporates buy goods and services. Today, running sourcing events creates a massive process overhead for procurement departments that often employ thousands of employees. More than that, the available tool-set to analytically optimize outcomes (=which suppliers should we award the deal to?) is limited in functionality and reserved for a few, well trained Strategic Sourcing Managers. On a high level, sourcing can be structured into three buckets.
- Strategic Sourcing includes those (10 to 100 p.a.) events with very high spend, e.g. the big, fat deals with up to €500M in contract values. Quite obviously, for Corporates the key priority here is optimizing for spend: Paying €450M instead of €500M = very happy CPO 🤑
- Tail Spend, in contrast, includes all purchases which fall below a certain spend threshold, e.g. €100k (= no tender or auction). Here, the Corporate priority is to reduce process friction / cost and to increase speed.
- Now, Tactical Sourcing is everything in between. That is, sourcing events that are not necessarily on the CPO’s Agenda, but still require tenders & auctions as we are talking hundred thousands to several millions in contract value. In these cases (often 1k+ events p.a.), Corporates face the trade off between optimizing spend while also controlling process cost.
Keelvar is offering two, intertwined products: The Sourcing Optimizer, which is targeted at Strategic Sourcing events (=a few big deals p.a.). And Sourcing Automation , which is targeted at Tactical Sourcing Events (= the “mass market”)
Product 1: Sourcing Optimizer — The backbone of the Sourcing Bot
Keelvar’s Sourcing Optimizer is built to run strategic sourcing events & is explained in detail within this whitepaper. It enables “award scenario” analyses based on cost, value and risk by simulating answers to questions like: “What if I choose 3 instead of 5 suppliers”, “What if I switch from my incumbent to a new supplier”, etc. As large sourcing events involve hundreds of suppliers (“Bidders”) and dozens to hundreds of bidding dimensions (e.g. capacity, price, various SLAs, quality, discount schemes, bundles, etc.), the optimization engine is cutting through an enormous amount of complexity. Additionally, the product is riddled with slick automation features that enhance process efficiency & speed (e.g. proactively validating supplier offers during the bidding process, thereby reducing time to correct erroneous supplier submissions). The Sourcing Optimizer delivers an average of 2–12% saving on the spend and up to 75% in operational cost.
Product 2: Sourcing Automation — The rise of the Sourcing Bot
In September 19', Keelvar introduced Sourcing Bots to the procurement world. With a focus on the “mass market” (e.g. Tactical Spend), these easily customizable, category-specific systems are fueled by external and internal data to autonomously execute sourcing events (read this whitepaper to learn more). In doing so, Sourcing Bots make use of the Sourcing Optimizer’s bells & whistles, applying Game Theory and Mechanism Design to derive the best outcome without human interaction. Also, Bots can be integrated with external systems to trigger events based on market conditions or low stock levels. As the system is learning from every transaction and across company boundaries — a bot eventually becomes better in what it is doing, than a human could ever become. As Keelvar puts it:
AI is trumping expert human performance in many domains. For example, poker is a complex game and few people ever master it. Those that do invariably require many years of practice. Today, however, even the world champion cannot beat a bot that has learned how to master the game theoretic analysis and calculation of mixed strategy equilibria to optimize payoffs. Whilst experts need continual practice to maintain standards, AI is anti-fragile. It would be a mistake to assume that AI won’t be competitive in the task of strategic sourcing and ultimately overtake humans in this role. Once the boundaries of decision making are communicated, then the game theoretic reasoning for optimizing the mechanism for sourcing goods & services becomes just another complex but tractable calculation for Artificial Intelligence
Finally, Intelligent Automation is not a “Tool” — it’s much bigger than that. As there is no user, like for a SaaS tool— how does the business model work? The pricing scheme is similar to electricity or hosting services: Infrastructure as a Service (IaaS). To capture the notion of “work done”, throughput is measured by counting Bot Actions that replace tasks a human would do. When a tender/auction is conducted by a Bot, the number of Actions is between 8–20 depending on the complexity . If each Bot Action costs less than $1, then the cost per event is roughly one or two orders of magnitude (yes, that is 10x to 100x times) cheaper than for an event operated by manual labor. Now, these cost savings only capture the value driven by process automation. As “mini-tenders” are not run by sourcing experts, little to no optimization takes place (in fact, often personal relationships drive the outcome). Sourcing Bots, in contrast, analytically optimize each and every event based on business priorities. Thus, they create additional value in reduced spend — every time they are at work.
Born & raised by an exceptional team… 🦸♂️🦸♀️
Keelvar was founded in one of Europe’s largest Artificial Intelligence research labs by a team of computer scientists and engineers specializing in AI, Optimization and Game Theory. The team around Alan bootstrapped their way to double digit monthly growth rates, driven by inbound leads and hefty upsell from raving customers with close to zero churn. While Gartner credited Keelvar as a Cool Vendor, the recent strategic partnership with SAP Ariba will further boost the growth momentum currently led by a single person sales department.
Today we are truly excited to set-out on the journey for procurement world domination together with Keelvar ;-) We cannot wait for what is laying ahead !! 🥁🔭
To all Procurement Professionals that have read this far: Feel free to reach out if you want to learn more about Keelvar — we are happy to tell you more and connect you to the right person within their organization
To all (future) ProcurementTech founders: If you are building an exciting start-up that has the potential of becoming a billion dollar company in the Procurement space: I would love to chat with you and get to know more. Also, if you know anyone embarking on a Start-Up journey in the Procurement space: Shout out to me anytime ;-)
📞→ felix@pauaventures.com ←📞
