Why we fell in love with Procurement

Why the space is hot, how we slice it and what we look for when making an investment🧨🍕💸

Felix Plapperer
Oct 27 · 8 min read
Procurement: Where the money leaves the house (Photo by Erik Mclean on Unsplash)

At Paua Ventures we always ask ourselves: Where will the next wave of disruption hit shore? After investments in Sales (Pipedrive), Payments (Stripe) or Marketing Automation (Outfunnel), we are currently taking a closer look at Procurement. Why (now)?

First, past exits and significant financing rounds 💰 indicate Procurement market potential. They include Ariba (acquired by SAP for $4.3BN in 2012) and Coupa (IPO in 2016, reached $1.7BN valuation in ten years), for example. Besides that, Procurement companies attract significant VC funding as well. For instance, Tradeshift raised a $250M Series E last year.

Second, Procurement is a topic with increasing strategic relevance 🔮 and a clear ROI. Nailing Digital Procurement directly adds to the bottom-line and leads to meaningful results: 5% -10% in purchasing cost savings and a 30% to 50% increase in efficiencies, according to my former colleagues at BCG. Thus, 33% of CPOs believe that their digital procurement strategy will enable them to deliver on their objectives according to Deloitte. Efficio says that 78% even believe it should be a boardroom priority. For the best Procurement startups, this hefty impact makes Sales a piece of cake.

Third, the untapped potential for startups is huge🌊. Digital champions disrupted back- and front-office functions such as Finance, HR and Sales already. What Hubspot does for Marketing, what Salesforce/Pipedrive do for Sales and what Personio does for HR redefines how these functions work. In Procurement, digitization is just about to kick in. McKinsey thinks so, too.


So, what the heck is “Procurement”?

Procurement is “The act of obtaining or buying goods and services. The process includes preparation and processing of a demand as well as the end receipt and approval of payment.”

While Procurement & Purchasing are often used as synonyms “Purchasing is a small subset of the broader procurement function” encompassing only the transactional side of Procurement. To talk about Procurement more precisely, let’s look at strategic, transactional (i.e., purchasing) and supporting steps of the Procurement value chain (each step can be broken down further):

Strategic Procurement 📡

Step 2: Strategic Sourcing
Once needs are clear, the optimal suppliers (highest quality & reliability at lowest price) have to be identified, which requires extensive market screening, product and offer comparison.

Step 3: Negotiation and Contract
Next is negotiation (and signing) of supplier contracts. That can get complex because there are diverse aspects to consider besides price and since, mostly, many individuals are involved.

Step 4: Supplier Relationship Management (SRM)
Strategic Procurement doesn’t end with a signed contract. Ongoing key supplier relationship management (incl. monitoring, close communication and co-innovation projects with key suppliers) prevents issues such as quality drops or delays.

(Transactional) Purchasing 🛒

Supporting Processes 🤜🤛

Data Driven Optimization
Increasingly sophisticated analytics/automation tools pop up to make the lifes of Procurement managers easier. Use cases range from strategic spend optimization to rule-based automation of transactional purchasing processes.

How do we slice the market

1. e-Procurement: Some companies have a clear focus on transactional ordering: e-auctioning solutions empower users to run tendering processes with multiple suppliers digitally. An example is RFP360 — the two-sided platform empowers the buyer side to issue requests for proposals and the supply side to answer to these online.

2. Procure-to-Pay: Digital Procure-to-Pay solutions cover the entire transactional side of Procurement. They enable companies to run the purchasing process online. For instance, Precoro enables the digitization of all steps from purchase requisition to payment processing.

3. Source-to-Contract: On the other side of the Procurement value chain, there are startups covering the strategic Procurement process. For example, Scout offers a solution to analyze spending, source strategic suppliers, negotiate contracts and manage supplier relationships.

4. Source-to-Pay: Source-to-Pay solutions go even further; they cover the entire Procurement value chain — strategic as well as transactional. Solutions such as Coupa digitize the entire process from budgeting and spend analysis to invoicing and payment.

5. Strategic Sourcing: Another company cluster focuses the strategic sourcing step of the value chain. Startups such as Scoutbee and Globality offer solutions to discover and evaluate potential key suppliers.

6. Supplier Relationship Management (SRM): With Procurement becoming increasingly strategic, several startups have recognized the rising need to better manage key supplier relationships. For instance, Kodiak Rating primarily helps to ensure supplier quality through close monitoring while Vizibl drives value creation through supplier collaboration and co-innovation solutions.

7. Team Collaboration: Some other startups tailor their solutions to the team collaboration aspect of Procurement. Task management/ collaboration tools such as Procurement Flow built the “Trello of Procurement”.

8. Procurement Optimization: Startups in this cluster bring data analytics to Procurement. Their solutions make different steps of the value chain smarter. For instance, SpareTech leverages data and analytics to identify spare parts that are identical but carry different names from different suppliers, thus enabling companies to pool inventory and reduce working capital requirements.

Based on this assessment we created a market landscape. This is by no means exhaustive (and an evolving endeavour!)— ping me if you feel like your company should be included here!

The Paua-Procurement-Landscape (v01…)

Now where is the “So What” for you as a founder?!

  1. (Initial) focus on a clearly defined problem (step of the value chain) and/or vertical to generate early traction based on a real problem that’s easy to sell on. Many B2B start-ups choose to build out their solution with an early enterprise “prototyping customer”(as Celonis did with Siemens, ScoutBee did with Audi or SpareTech is doing with Porsche).
  2. A technological edge that allows to substantiate the defensibility of the value proposition fast enough to win the race that starts once incumbents or others try to jump on the bandwagon.
  3. Expansion of your “footprint on the value chain” from an initial “on-point solution” into a suite/integrated product that interacts with 3rd party solutions, thereby giving access to yet untapped pools of value and creating an ever more defensible ecosystem.

ScoutBee is a case in point: Founded in early 2015 already, it took them a while to build their product and establish PMF. In late 2018, however, ScoutBee took off like a rocket when raising their Seed round. Today, less than a year later — as rumour has it — the company is in the process of raising their Series B (!) round with international Tier 1 investors. Let’s recap this breakout journey:

Early days: Clearly defined problem + technological edge

Launching the rocket: Expansion into a product suite


The world of Procurement is rapidly evolving and we want to support those who are making a difference in this process. Are you building an exciting start-up that has the potential of becoming a billion dollar company in the Procurement space? Get in touch!! 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, feel free to reach out.

📞→ felix@pauaventures.com ←📞

Thanks for co-authoring this post to our rockstar intern Merlin-the-wizard-Schirmer! Thanks to You for sharing your thoughts, sharing this post or just providing a (couple) Claps on this one! :-)

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Felix Plapperer

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INSIDE THE PAUA

Ad-lib Thoughts from the Paua Family

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