PeakSpan's Thesis for Simfoni

PeakSpan is thrilled to have led Simfoni’s Series B financing, partnering with the Company at an intense inflection point in their scale-up journey. Over the last several months Simfoni has launched into hyper-growth mode, seeing the product and GTM bets made over the years really start to pay off in a big way. Simfoni has grown at over 350% YoY, reaching mid-seven figures in revenue on a nearly bootstrapped basis. The senior team assembled at Simfoni spans over 50 years of procurement software expertise — from tail spend automation and spend analytics to procure-to-pay platform experience. Really the entire team from top to bottom has been aggregated or developed with domain expertise at the core, which is mission-critical given the Company’s value proposition and has been a key to successfully serving the mid-market customer base and changing the way procurement is delivered to this segment of the market. Our thesis for Simfoni is dynamic but can be summed up as follows:

Simfoni is bringing scalable, enterprise-quality procurement software capabilities to under-resourced, multi-national enterprises in the mid-market. The Company is the first we’ve seen to crack this nut and has done so through a differentiated GTM, product, pricing, and deployment model for procurement software.

At our stage of the company scale-up journey, we are investing in the “people” just as much as we are the “technology” (if not more). Scratch that. It’s not even close! The Simfoni team has built a global business, operating in four major regions with over fifty employees who operate on a fully distributed basis (the team has been run in this manner for five years, way before it was fashionable). What else makes Simfoni special? It’s surely the combination of talent, low-ego, and stick-to-itiveness. The pace at which Simfoni addresses and tackles challenges is impressive, to say the least. We’ve tracked a number of players over the years attempting to attack this segment but who have posted a dreadfully low success rate given how hard it is to sell procurement software to a business with no procurement function! Simfoni has refined and iterated their way into a truly unique and differentiated solution to a multi-decade-long problem (e.g., how to deliver procurement software to the mid-market). We continue to canvass the market extensively (see here for our market map), and have yet to come across any players with nearly this much traction. This is an irony and a shame given the immense opportunity in the mid-market! As you read on — you’ll see this is not just a story of technology disruption, but also one of GTM, deployment and revenue model disruption.

Simfoni serves over 100 customers across two distinct offerings supported by a single platform: Spend Analytics and Spend Automation. Together, these solutions help mid-market enterprises generate intelligence on their spend, identify cost savings and automate the procurement process. Powered by machine learning, Spend Analytics quickly distills and organizes complex spend data onto a rich analytics dashboard, auto classifying each line of spend into a distinct category and pinpointing where bottom-line savings can be realized. The platform is also leveraged to measure and report on ESG goals. Simfoni’s Spend Automation solution manages and executes on a company’s tail spend, streamlining the sourcing process and automating purchasing and invoicing with a diverse array of vendors. In aggregate — Simfoni is able to identify and drive home immense cost savings with relatively limited effort being expended on behalf of the customer.

Our Thesis for Simfoni

[abstracted from our investment memo]

The market for procurement software and services is vast (it is a function of every Company at a certain scale) and has seen accelerating demand pull on the back of the global pandemic. Historically, enterprises have been first to formalize the procurement function, often hiring a Chief Procurement Officer (“CPO”) whose first objectives are to build out a team an implement software. Simfoni sits just below the enterprise segment where organizations are nearly as large in terms of spend but who are not well positioned to build a full procurement function in house (no expertise or resource). Over the years, we have seen a plethora of mid-market procurement software players try and fail to build a market leader in this segment, mimicking Coupa with a pure-SaaS offering and typically falling short due to the customer’s lack of expertise and reluctance to pay for expensive software and to poor change management and usage. This lack of capability/desire to focus on procurement automation in the mid-market is reinforced even further when dealing with tail and tactical spend which is where Simfoni specialized first. As such, the mid-market remains open with the majority of Simfoni’s target prospects not having a procurement suite and where the function is being informally owned by the CFO. The Company’s combination of software and managed services provides a potent combination given mid-market organizations either can’t or don’t want to handle procurement. Once Simfoni lands an account, the solution quickly becomes sticky (given that Simfoni alleviates key pain points completely and immediately, taking ownership of the procurement function from end to end entirely) and the future expansion opportunity becomes vast (through capturing more of the Company’s spend, generating stronger savings and sharing in the upside). Central to this model is the “Pay-As-You-Save” consumption-based pricing. With continued execution and further investment, we see ample room to run in the mid-market and see Simfoni, at scale, as a market leader.

Mid-Market Procurement Market Drivers

Mid-Market enterprises are experiencing a more pronounced need for digital procurement solutions given a lack of procurement leadership, lack of sophistication and lack of internal resources needed for tactical spend initiatives — all underpinning the opportunity for a hybrid software / managed procurement solution. We’ve detailed below some of the top trends supporting our thesis for mid-market procurement.

Globalizing Supply Chains

Research has shown that less than 20% of organizations have an exclusively domestic supplier base. Managing global supply chains means confronting multiple languages, currency fluctuations, and macro-environmental disruptions.

Burgeoning Supply Base

Companies experiencing extreme expansion often see a rapid increase in their supply base. This can mean inefficient onboarding of suppliers and inadequate consideration of augmented supplier risk. A growing supplier base necessitates more procurement resources.

Expansion Through M&As

Mid-market organizations boost their growth potential through mergers and acquisitions. Lumping together two supplier bases, merging operations and finance functions, and identifying synergies is heavily dependent upon strong data visibility and process adoption/consistency.

Rampant Non-Compliant Spend

As businesses grow without adequate controls or systems in place, end-users do whatever is easiest when it comes to purchases. On average, according to Hackett Group benchmarks, as much as 56% of spend is non-compliant, likely creating savings leakage on the order of 8% for every dollar of maverick spending and diminishing spend visibility due to miscoded or misclassified transactions.

Antiquated Systems

Procurement teams are looking for solutions beyond outdated legacy or homegrown tools which they have outgrown as the business matures. Digital procurement solutions can help lean mid-market teams with scant resources achieve untapped productivity gains.

Best-In-Class Software is Too Costly

While highly effective procurement software solutions are crucial, they have historically been too costly for mid-market players, giving large enterprises an imbalanced competitive edge. The upfront cost to implement in addition to the SaaS fee commitment and ongoing investment in content management can be daunting.

Consumption-Based Pricing Model

Consumption-based pricing is seeing strong resonance in the software world. For products that are inherently sticky and where the value is extremely clear, SaaS contracts are not a requirement to achieve outlier retention rates, expansion potential, and, as a result, valuations (link). Examples include Snowflake and AWS.

Lack of IT Support for Implementation

Implementing a new procurement suite is expensive and time-inefficient due to the lack of IT resources available to assist in rolling out new platforms.

Understaffed Procurement Departments

Staffing for the Procurement Department has fallen short of keeping pace with the growth or increased complexity of doing business. Meanwhile, headcount budgets have remained relatively flat. Moreover, 62% of existing procurement resources are allocated to tactical, transactional activities–leaving just 38% for strategic pursuits.

Global ESG Transparency

For a globalized supply base, numerous subcontractors and sub-tier sourcing relationships result in opaque supply chains, making it challenging to identify environmental inefficiencies and societal deficiencies. Procurement teams must implement systems to improve transparency and reveal ESG related risks at a global scale.

We will be providing the Simfoni team with capital to invest in their technology platform, sales and marketing programs, delivery and success organizations and to fund inorganic growth. PeakSpan will be bringing Simfoni years of procurement software expertise, a bench of supply chain and procurement executives and several GTM advisors to assist the business with their continued rapid growth. On the Company’s current course, we see a clear path for Simfoni to grow into a scale business with true market leadership status in their segment.

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