Recent news about Scout RFP raising a Series C round has me considering the e-sourcing software market.
I have never loved e-sourcing software as a business. I used to jokingly say that e-sourcing tools had created enormous value, but all the value had been captured by buyers at the expense of:
- Suppliers, who were forced to compete in (admittedly fun to watch) reverse auctions
- Shareholders of sourcing software providers, because it just did not seem the companies that had invested in e-sourcing software had done very well.
Sure, Ariba had acquired Freemarkets in 2004 for $493 million in cash and stock. But Ariba also acquired Trading Dynamics and SupplierMarket for $400 and $580 million respectively, in (cheap at that time) stock. Many years later Ariba also acquired Procuri for $100 million. That was a lot of dilution and cash for what ended up not being the primary value driver for the company.
Other examples of not-so-great sourcing software company outcomes:
- Marlin Equity acquired Emptoris for an undisclosed, but likely not impressive, amount. To be fair, Marlin resold Emptoris to IBM for a rumored $600 million. But then again, IBM discontinued the Emptoris product line, which proves my point.
- Selectica (now Determine) purchased Iasta for $7 million plus 1 million shares of Selectica stock. DTRM stock is now $0.25 per share.
- Most of the other pure-play vendors sold themselves and/or became suite vendors: BravoSolution, Ivalua, CombineNet, TradeExtensions, ScanMarket, the list goes on.
Is E-Sourcing Software A Commodity?
I always felt e-sourcing technology was close to a commodity and certainly did not offer network effects. It’s a very, very competitive market as these diagrams from the GTY Technology (Bonfire’s owner) investor deck and the Spend Matters SolutionMap show:
Jack Welch in his 2001 book, Straight From The Gut, pointed out that GE’s power systems division purchased “auction software from an outside firm for $100,000 and a pay-by-drink fee. Jack Fish, the sourcing leader of our transportation business, liked the idea but didn’t want to spend $100,000-plus for it.” So what did GE do?
“With a couple of Penn State students and some help from our software engineers in India, McNamee built a prototype in three weeks for $17,000. Two weeks later, they held the first online auction–for industrial gloves….The other businesses picked up on it quickly–and we dumped most outside vendor auction programs for good.”
I feel about the e-sourcing market, the way Warren Buffet used to feel about airlines:
“Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
— Warren Buffett, in the 2007 Berkshire Hathaway shareholder letter
Scout RFP May Be Proving Me Wrong
The news this week that Scout RFP raised $33 million in Series C financing suggests a bunch of smart investors (e.g., Scale, Workday, Salesforce) disagree with me. After all, this brings the total Scout RFP has raised to $60.3 million!
Admittedly, I do not know a lot about Scout RFP, but here’s what we do know:
- Scout RFP started in 2014.
- “Over the last twelve months, the team has seen 2x growth in annual recurring revenue and added almost 100,000 users to the platform.”
- “The company has over 175 global enterprise customers, including Beam Suntory, Conagra, Gilead, VMware, Starbucks, and Zebra Technologies, with users spanning 117 countries.”
- We also know from the above graphic that Bonfire thinks Scout RFP scores well on the collaboration dimension and not so well on the decision automation dimension!
I would love to know what Scout RFP’s enterprise valuation and ARR are. We know the valuation is impressive, the ARR better be as well!
Next up more on Bonfire and GTY.