Bullet Thesis: AI procurement software for a $13tn opportunity
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Hi, it’s Michael from firstminute capital. Along with my colleagues Sam, Lorcan and Adriana, I am investing in European pre-seed and seed B2B software companies like this, this and this. In a previous life I was a journalist for the Financial Times and the founding editor of Sifted. Here is our latest thesis.
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Governments around the world spend $13 trillion every year on purchasing goods and services from private companies. That’s 13 thousand billion dollars that are up for grabs every year from the government. In the EU alone, over 250k public institutions oversee around $2 trillion annually across millions of contracts for goods, services and public works.
The way in which private companies, for the most part, access this money is very simple. Governments publish requests for proposals (RFPs), and private companies compete for these contracts. The US federal government, for example, signs over 11 million contracts a year that have been won by someone responding to an RFP.
Behind every successful bid though for a company lies weeks of painstaking work. Companies must analyze hundreds of pages of dense, unstructured documents to determine project feasibility. They need to source suppliers, evaluate quotes, prepare detailed project plans, and ensure compliance with technical specifications and regulatory standards.
Not only does this take a long time, but it can be hard to find people to do it. As one European CEO of a construction company that bids for government contracts confided, "It's very hard to find people who can do this work. You have to be very knowledgeable about the bid process, the company... but also frankly it's boring and unsexy work."
To help ease this burden, companies have long used RFP software like Bonfire, BidNet Direct, and Xait (formerly Privia) to help them manage the process or platforms like Mercell or Hubexo for public tenders. But we believe that there is an opportunity today for a new generation of AI-native companies that can provide a better offering than the incumbent players.
A new era
The recent evolution of AI, particularly generative and industry-specific models, has created an opening for startups to fundamentally reinvent the tender process. These AI-native players can leverage machine learning's ability to understand unstructured data, generate natural language, and automate complex workflows to offer a solution that's orders of magnitude better than current approaches.
The potential for transformation is comprehensive. AI can parse hundreds of pages of requirements, break down work specifications, calculate costs and margins, coordinate with subcontractors, and ultimately craft compelling proposals. What once took weeks can potentially be accomplished in days or even hours.
Challengers
There is a new wave of companies emerging - but we are still early. AI Tenders in France, which started in 2020, has processed an impressive $30 billion in tenders. Workorb in Canada, which raised a seed round in 2024, is building AI-powered solutions specifically for construction. Others are Cube RM, Jiga Vendict, Stotles, Brainial, Tender Copilot, Tendara and Tended.ai.
Top-tier VCs and investors are seeing the potential of public procurement software, evident in latest Seed and Series A rounds:
One we are most excited about is Scalera, which is in the construction space and has been a breakout success story of this year in Europe. It automates the bid parsing, supplier communication, and bid compilation, which traditionally required huge manual effort.
Led by three young founders with impressive execution Leonard Reinhard, Sven Affeltranger and Federico Gossi, the ETH Zürich spin out has blown past $1m in ARR in just a few months of selling.
One key insight is that Scalera not only helps you win the contract, but also manage the sub-contractors, which is a key part of making and then executing on an effective bid. This also puts them further into the wider category of supply chain management. They have seen extraordinary growth in Switzerland and are now set to take on the US market.
Going vertical...
Two ways to really win this market will be either going very vertical and/or going deep into procurement workflows (e.g managing the whole process not just winning the bids).
To start on verticals though. Scalera, Workorb and some of the others above are construction focused. But there is probably an opportunity to find a wedge by going deep in a whole range of sectors - including automotive, chemicals, electronics, medical technology and even parts of defence.
You can see here below the breakdown of where the most money is for public tenders in the UK by sector. Probably a company to be built in each of these.
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Supply chain management
One of the most interesting players to arrive in the supply chain space is Tacto, which is targeting medium-sized industrial companies, and raised a large €50m Series B from Sequoia Capital and Index Ventures. They are targeting companies that make a range of physical products from board games to cleaning agents and tunnel boring machines.
They are doing procurement, but have a much more lofty goal, which is to "future-proof supply chains", effectively being the platform by which companies manage their supply chains. This means not only making it more efficient for companies, taking them off Excel sheets, but also aiding with the handling of compliance, ESG regulations and other regulations.
The team behind Tacto has the right approach, because potential for RFP software extends far beyond tender management - into the broader realm of supplier management. Scalera are also doing this.
Because it's one thing to get an AI to write a tender proposal. That product becomes much richer if it is linked up with all the suppliers of the suppliers, and becomes core infrastructure if it becomes the backbone of how a company outsources work.
This is therefore potentially a wedge product into a tool that does more than tenders, but helps to manage the whole supply chain for a company.
The ideal would be a tool that could do:
Finding and writing the bids: understanding what bids are out there, collecting the external and internal data, managing workflows between different departments in constructing the bid and helping to write the proposals.
Supplier Management: Automating supplier processes, from ESG compliance to cost optimization, helping companies manage production-critical suppliers.
Data-Driven Insights: Evaluating cost drivers like raw material prices and supplier performance in real time, helping to make a more informed bid but also helping with the job itself, enabling businesses to negotiate better terms and improve margins.
Regulatory Compliance: With laws like the Supply Chain Due Diligence Act, businesses need tools to manage complex compliance requirements. Supplier management software can integrate these functions seamlessly into purchasing workflows.
Other companies in the broader supply chain space are Tealbook (raised $73m), Jiga (raised $4m), Emerix (raised $6m) and Archlet (raised $13m). But convergence of RFP and supplier management functionality represents a natural expansion for many startups in the space. By integrating tender responses with supplier data, these platforms can become indispensable operating systems for procurement and supply chain teams and become very sticky.
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If you are building any B2B company with an AI wedge, where ideally you have deep understanding of the workflow, and are interested in pre seed or seed financing, we’d love to hear from you and do reach out at [email protected], [email protected], [email protected] or [email protected].