$1 billion of funding has gone into e-procurement companies since 2011. 2015 could see another $1 billion of funding, 4 times all of 2014’s investment level and by far the most intensive rate of new investment the space has ever seen.
E-procurement involves automating the boring, but enormous, market of connecting suppliers and customers. It includes electronic invoicing, e-tendering, online catalogue/ordering, supply chain factoring and financing, and the back-office administration of supplier relationships.
By any measure this is a multi hundred billion $ market. Many of the larger players are invisible to the general public; firms like Coupa, Bill.com, and Tradeshift are market leaders heading for $1B unicorn valuations.
There are several reasons e-procurement is suddenly ‘hot:’
- The potential market is huge, and volumes are growing 25% annually – The value of trade between large corporates and hundreds, often thousands, of suppliers is one of the largest segments of any economy. It is also one of the most antiquated, manual, and inefficient. Properly sold and delivered, technology can revolutionize such markets. Since 2009 the volume of electronic invoices has grown 25% per annum according to researchers Billentis, much faster than almost any other B2B segment; that growth rate will almost certainly continue over the next few years.
- Attention is shifting to B2B technologies after a decade of B2C innovation – unprecedented B2C innovation in devices, apps, and has led to unprecedented B2C company valuations, driving many investors back to more boring, but far lower risk, B2B start-ups.
- E-procurement is inherently global – growth drivers exist in both the US and Europe, and vendors can sell internationally far more easily than other B2B markets, for example accounting and HR.
- E-procurement is very ‘sticky’ and so the value of each customer is high – once a large company installs an e-procurement system and mandates its suppliers use it, that company will stick with the system for many years; advocates refer to ‘rip out pain’ being extremely high, and a deterrent to churn.
- Governments encourage adoption – As part of its efficiency initiatives, the EU is promoting e-procurement across Europe, between companies and companies to government. EU promotion is driving increased adoption in many European markets. Yet today still only 25% of invoices across the EU are even sent electronically in any form, let alone handled automatically and electronically at both customer and supplier (a much, much smaller percentage).
- Spin-off revenue opportunities are massive – an e-invoicing provider has valuable insight into a customer/ supplier relationship, and can sell high-margin invoice financing to cash-strapped suppliers based on the data insights gleaned from monitoring payment flows. Or (subject to data laws) the holder of e-procurement data can aggregate and sell proprietary credit and payment information to third parties for a handsome marginal fee.
Much of the e-procurement market today is actually barely ‘e’ at all, but instead amounts to electronic invoice pdf’s being sent, or even printing invoices at the customer or supplier end. This is hardly ‘being digital,’ and procurement still requires teams of dozens and sometimes hundreds of staff at larger companies.
Not surprisingly the single biggest procurement objective amongst CFO’s at these larger companies is reducing cost; in fact 90% of $500m+ revenue companies stated this as their #1 procurement objective according to a 2013 SourceOne study.
It is only a matter of time before this imperative builds multiple $1B+ ‘unicorns’ in the e-procurement sector.
Posted by Victor Basta @MaExits