Part 2: Positioning in Procurement Technology with PeakSpan Capital
As the procurement technology market becomes increasingly crowded, new joiners need to establish strong and clear positioning for their solution.
The procurement technology sector is one which is in extremely high demand.
Fuelled by the COVID pandemic and numerous other geopolitical challenges, companies across the world are turning to digital solutions to improve their resilience to these newly exposed risks.
Figures show that 78% of procurement leaders invested in a minimum of three digital procurement solutions from 2020-22. According to a recent Interos report, many organisations faced three major supply chain events within the last 12 months, where disruption cost an average of $199mn in annual revenue loss. So, this trend shows no sign of slowing.
What’s more, it’s interesting to see an emerging trend of businesses looking beyond the largest, most obvious players in the solutions market.
According to recent CPO Compass research, 59% of procurement functions have a “best-of-breed approach” to their technology adoption.
So, for new procurement technology companies looking to enter the space, if they can successfully differentiate themselves from competitors, there’s the scope for huge successes.
Jack Freeman is a Partner at PeakSpan, with over ten years of experience in the fields of B2B SaaS investing, Supply Chain, Procurement and growth-stage software. Alongside this, he has been on the boards of over 20 growth-stage B2B SaaS companies.
In the first part of this two-part blog series, Freeman shared his insights into how companies can successfully manage the investment process.
In this second installment, Freeman outlines how companies can approach positioning in the Procurement sphere, successfully raise capital, and manage key relationships.
The case for and against procurement technology
Freeman asserts that it’s important to understand the pros and cons of being within the procurement technology industry. That way, you can position yourself more successfully and avoid common mistakes.To that aim, the case for investing in developing new procurement technology includes:
- Procurement is now an enterprise-wide initiative
- B2B payments is a largely untapped opportunity, worth around $200tn
- Procurement is still in the early innings of proper digitisation
- Advancements – like APIs, big data, workflow automation – all favour digitisation
- There is the opportunity to converge with other categories, like spend management and payment evolution
- Companies across the world are prioritising recession resilience (for which procurement technology will play a huge role)
However, the potential cases against procurement technology include:
- It’s an increasingly crowded space
- Some may argue that the big ‘winners’ have already been established
- Or, if successful, there’s the difficulty of supporting $1bn+ outcomes
- Due to long sales cycles, selling into Procurement is hard
- User adoption is extremely difficult
Winning procurement positioning
Considering the points above, how can businesses adopt winning procurement positioning?
Freeman recommends that, when shaping their approach, procurement technology companies consider all of the following themes.
Key market themes:
- Digital transformation
- B2B payments
- Supply chain crisis
- The need for greater visibility
- Sustainability
- Corporate social responsibility and ESG
- Compliance and security
Segmentation:
- Customer size
- Vertical
- Spend type
- Suite vs best-in-breed point solutions
Key tech themes
- Extensibility
- Workflows
- Embedded
- Data and AI
- UX
Raising capital
Freeman lists the most common missteps in raising capital as:
- Setting unrealistic goals and expectations
- Having too broad a vision
- Lacking thoughtful positioning
- Presenting an unfocused ICP
- Missing clear differentiation
- Misalignment on round size
- Targeting the wrong investor(s)
- Lacking the “how”
- Lacking investor due diligence
These errors commonly cause businesses to fall short at this step. So, to maximise the likelihood of successfully raising capital, Freeman urges businesses to carefully avoid these pitfalls.
How much capital should you raise?
A notoriously difficult question to answer, Freeman advises businesses to consider the following factors, when determining how much capital they need to raise.
- Macroeconomics
- Sector dynamics
- Competitive intensity within your industry and niche
- Cash need and desired runway
- Whether it is primary or secondary capital
- Your valuation
- Your terms
- Your confidence
- Your goals
“Confidence – I think this is a cool one to think about. If I was an ultra, ultra confident founder, and I knew my startup was going to grow from one to five million in revenue next year, I wouldn’t raise any more than I needed, because I would rather raise more capital at a much higher price when five million in scale in order to limit dilution. The reverse argument is that no one knows the future and generally raising more than you need is the safe bet. Thinking hard about your goals and how much capital you want to raise to achieve those goals is not talked about enough. Especially with venture capital firms dictating the amount. In my view, the COMPANY should always dictate the amount based on need.” – Jack Freeman, Partner, PeakSpan Capital
Managing relationships
Finally, remember that investors are salespeople – it’s the investors’ jobs to get you interested in taking their money.
As Freeman explains, from the investors’ perspectives, there are little downsides for them in showing high interest in your venture. After all, the more relationships investors can maintain, the more options they have down the road. This is particularly true with larger firms and with junior employees.
“Make sure you like the person – that’s the most important thing, especially if they’re going to join your board. In terms of alignment, the people matter the most. I’m shocked at how little this point is brought forward. Talk about the future – are we aligned? Are we going after the same vision? Does the VC want a unicorn-like outcome? And are you ok selling for £200mn in three years? Making sure you’re aligning the vision and strategy is super, super important.” – Jack Freeman, Partner, PeakSpan Capital
So, when it comes to building and managing an investor relationship, consider the following points:
- Does your POC have influence?
- What is their meeting attendance? Are they always late or making excuses to rearrange?
- What timelines are they proposing to you? Are there extensive delays, or a generally low level of urgency?
- What is their body language like during your meetings?
- Who is selling to who?
- What is happening in the market?
- How do you interpret their data requests?
These questions will prove key in ascertaining just how invested your investor actually is in your idea. If you notice them consistently lacking in these areas, then it might be worth reframing this partnership.
“Relationship tenure really matters. If you can manage to have ongoing relationship development with investors – that doesn’t crush your productivity – I think it’s smart” – Chirag Shah, Executive Chairman at Simfoni, a PeakSpan portfolio company. That’s why you have to qualify really quickly and decide, here are the top three to five investors that want to lead my series A. Let me check in with them every couple of months, let me send them the company newsletter – then, if you’ve known them for two years, that’s going to make your life a whole lot easier when the time comes to raise.”
Read Part 1
To receive actionable insights into how you can improve your procurement technology funding pitch, speak to PeakSpan’s expert team.
About PeakSpan
PeakSpan is a software-focused, software-enabled firm, which is deliberately architected to deliver outcomes.
The growth equity firm is based in New York City and Silicon Valley. It has partnered with over 30 scaleups, and has $1.5bn+ in AUM to its name.
Its mission is to be the partner of choice for growth stage entrepreneurial teams building innovative software.
About ProcureTech
ProcureTech is creating the future with leading enterprises and innovative digital procurement solutions.
This is a dynamic platform for procurement and technology leaders, entrepreneurs and the digital procurement ecosystem. It is home to the ProcureTech100 – the 100 digital pioneering digital procurement solutions – and ProcureTechSOURCE – smarter, faster digital procurement solution matching and management.
