Why we invested in Lhotse 🗻

…and why tactical spend is 🤘

Photo by Martin Jernberg on Unsplash

“Lhotse, at 8.516 meters, is among the highest mountains on Earth. It sits right next to Mt. Everest — the reason that you have likely never heard of it.
Attention is focussed on massive Mt. Everest — neglecting its smaller sibling, Lhotse. The same holds true for tactical spend.
Across firms of all sizes, focus lies on the 80% of spend considered to be strategic.
The final 20% ‘tactical spend’ are overlooked — remaining largely unoptimized.
We are changing that.”

That has been the paragraph on page 01 of version 01 of pitch deck 01 of Lhotse (as seen sometime around Q4 2020). From then on it didn’t take us long before taking a decision: Investing in Lhotse is a “no-brainer” 🧠. In January 2021 we led the PreSeed round with a spectacular band of Angels such as Patrick Andrä (HomeToGo), Felix Jahn (Home24, McMakler), Pip Klöckner (Doppelgänger Podcast, KKR), the founders of Clark, Auxmoney, CarOnSale or Layer as well as several C-Level executives from the (Procurement) industry.

Just a couple of months later in June, our friends from Cavalry Ventures 🤠joined the boat and led Lhotses’ €5M Seed round to supercharge the team on their journey to the ProcureTech summit: It’s much easier to climb a mountain if you’ve got the Paua and then go ride the Cavalry (couldn’t resist on this one 😉)

From first meeting to pre-seed🌱

Can, Jan and Henning (from left to right)

The story of Lhotse starts well before pitch deck version one. I first met Henning and Jan in early 2020. They had just left their jobs at BCG and Clark where both had dealt with Procurement projects from various angles and decided build their own company in the ProcureTech field. While ideating, they stumbled across an article on “Why we fell in love with Procurement”, which I published back in 2019, and just shot me a message. Something along the lines of: “Hey, this is Henning & Jan. ProcureTech looks like a cool space. Let’s meet up for a coffee?”. From then on, we kept in close touch and bounced several ideas back and forth on what to build in ProcureTech Land.

As time went by, and as the idea around Lhotse became more specific — the time was right to bring Can on board to complement the team on the product & tech side. It was impressive to see how fast and decisive the team had searched & found for a third Co-Founder. From then on, Lhotse switched gears and started building — and commercially executing. It only took them a few months to identify and convince their first customer to co-develop Lhotse from MVP to product. Watching all of this from the sidelines, our conviction to put more money in the hands of the team started growing. That’s when the story ended up where the article started just above.

Tactical spend — a massive opportunity 🌊

With the so called “tactical spend” Lhotse has picked a procurement category that’s undermanaged in almost every company. It is stuck in the middle between “strategic spend” on the top — the focus area for most procurement teams , where they are “optimizing the big deals “— and “operational spend” on the bottom — which is often handled with help of catalog solutions such as Mercateo or Amazon Business. “Undermanaged in almost every company” ➡ we are talking about a huge, horizontal market opportunity.

Now, what exactly is “tactical spend”? It’s almost exclusively comprised of so-called “indirect spend” — that is: everything that’s not part of the actual product of a company. To give some examples: IT equipment, like a video conferencing system. Software, like a cloud back-up solution. Vehicles, like a forklift. Services of most kind. Yada yada. The common denominator and key challenge here: everything is different, e.g. every buying request is different: “Hey, so I need 2 forklifts, 1 cloud back-up system and a UX agency please— thanks buddy!” …ouch, poor procurement guy. It’s really tough for procurement people to efficiently go out in the market and buy these things. Why? Because before sending a Purchase Order to a supplier, they must be able to exactly describe what it is they want to have. Now: How would you exactly describe the forklift that somebody in the warehouse needs. Right — you start asking the supplier what info he needs. Then you ask your colleague in the warehouse for it. He starts asking somebody else again. Not efficient. Part of Lhotses’s solution is focused on making this communication intensive process much more efficient. Correspondingly the tool is in frequent use across the organization — which is why the team has put a super high emphasis on a stellar, consumer like UI/UX to ensure rapid adoption. Ultimately, Lhotse helps procurement teams to find the best suppliers for every request and to seamlessly orchestrate the buying process. And once you have cracked tactical spend — a hard nut to crack— other spaces are comparably easier to address.

The pain point and the market that Lhotse addresses are massive while their solution is fun to use and drives a rapid and measurable ROI. The team (the kind of guys that you want to go out and have a beer with) is turbocharged with motivation and ambition. Highly analytical + process driven. And combines execution skill, start-up experience + tech / product knowledge all at once. We are super happy to be part of their journey since day 0. The hike to the summit really has just begun! 🗻

Lhotse is hiring for several positions — if you want to join a rocketship, early stage start-up: Ping me or the team. And to all Procurement Professionals that have read this far: Feel free to reach out if you want to learn more about Lhotse — we are happy to tell you more and connect you to the right person within their organization. Finally: 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.

📞→ felix@pauaventures.com ←📞