The 1M1M Deal Radar 2010: Coupa ,San Mateo, California

Coupa is an e-procurement and spending management provider with a mission to build “procurement for the masses” through its SaaS solution. It says that existing solutions were developed to support a model characterized by scarcity of information, mandates from management, and a centralized bureaucracy that placed buyers in each business unit to purchase on behalf of others; market dynamics that foster the free flow of information and a self-service mentality have rendered existing models obsolete. The Coupa cloud spend management (CSM) solution includes e-procurement, expense management, executive dashboards, and benchmarking modules. Collectively, they provide companies with visibility into and control over all nonpayroll indirect spending.

The San Mateo, California-based company was founded in 2006. The current CEO is Rob Bernshteyn, who joined Coupa 18 months ago from SuccessFactors, where he led the global product marketing and management division. Bernshteyn is a Russian immigrant who came to the United States with no money and launched his first business in high school, a business which generated enough profits to pay Bernshteyn’s way through college and a Harvard MBA. He has over 16 years’ experience in enterprise software.

Founders Noah Eisner and Dave Stephens were instrumental in building Oracle’s iProcure product line. The opportunity they saw, and determined that Oracle could not capitalize upon, was a great democratization in enterprise software. To them, the concept was simple: every company spends money. But few control it effectively, because the systems that companies use to manage the procure-to-pay processes are prohibitively expensive and require too much expertise to deploy effectively. With cloud computing and development through the open source Web application framework Ruby on Rails, the founders sensed an opportunity to put procurement software within reach of all. The vision then and now was and is to be to Ariba what Salesforce.com is to Siebel. There is one slight problem, however. As we saw in my recent interview with Ariba’s president, Kevin Costello, the company has itself moved to the cloud, and the market opportunity that Siebel had left open for Salesforce.com in CRM is not exactly what Ariba has left open. The advantage, however, is that the SaaS market is quite mature, and barriers to adoption is a battle Coupa won’t need to fight.

The company’s cloud-based software, now in its tenth release, is priced on a subscription basis. At the heart of the solution are Coupa E-Procurement and Coupa Expense Management. The e-procurement function is a full procure-to-pay solution which helps companies to manage requisitioning, purchase orders, approvals, RFQs and quotes, invoices, receiving and inventory, budgeting, and reporting. Expense Management is an expense reporting and auditing tool. Coupa processes over 500,000 transactions a month, and spending managed through the company is accelerating and recently passed the $1.5 billion threshold. The primary go-to-market model is direct sales, but there are a growing number of partners who refer business to Coupa. There are three tiers of subscription pricing, based on size of organization, starting at $1,675 per month plus per-user fees.

When the company was founded, the e-procurement market was dominated by Ariba and the enterprise resource planning (ERP) vendors who package purchasing applications into their suites. Coupa believes there has been very little innovation in e-procurement technology over the past ten to twelve years. Ariba effectively created the spend management category and introduced important innovations such as the cXML standard but, says Coupa, has been hampered by an enterprise software business model that has stymied continued innovation. Costello would likely disagree with Coupa’s assessment of his company.

Coupa’s competitive strategy is to be the most cost-effective way for companies to squeeze savings from their indirect spending with software that allows businesses to control their spending as easily as their employees control theirs – a comparison also made by Costello. Specifically, Coupa aims to differentiate itself through “Google-like ease of use that drives adoption, increases spend under management and greatly reduces maverick spending;” mobile capabilities that allow mangers to review and approve requisitions and expense reports without logging into the systems and understand immediately the impact of each decision on budgets they control; innovations such as the patent-pending Frugal Meter and collaborative features like supplier ratings; predictive dashboards and proactive alerts that stop overspending; and instant benchmarking against the market. Spend Matters’ Jason Busch has an in-depth analysis of the competitive claims about Coupa’s features.

Coupa’s TAM is the approximately 98,000 firms in North America with 100-2,500 employees in the target sectors of retail, biotech, technology, education, and nonprofit that exhibit one or more of the following characteristics: low-margin business; multiple locations and distributed workforces; financial performance driven by operational efficiencies; and businesses that are newer and less established in terms of processes and IT standards, are just beginning to develop domain expertise, and for which procurement is a shared responsibility.

Coupa has over 130 customers, including Chubb Insurance, TESCO Bank, Salesforce.com, NVIDIA, Dollar General, McDonald’s, Reebok, Express, The Limited, ON24, and Pandora. The customer renewal rate is 96%, and over 17% of revenue in the most recent quarter came from existing customers expanding the number of users on Coupa software. The company’s beachhead was to come to market as a low-cost solution to automate the requisition approval and purchase order issue process for small businesses.

Since the beginning of 2008, Coupa has experienced 100%+ year-over-year growth, both in terms of customer acquisition and revenue (currently in the $5 million to $10 million range). It is not yet profitable, but Coupa says that its cash burn is modest. It has raised approximately $15 million to date: a $1.5 million Series A from BlueRun Ventures in March 2007; a $6 million Series B from Battery Ventures in April 2008; and a $7.5 million Series C led by El Dorado Ventures with participation from BlueRun Ventures and Battery Ventures in September 2009. Depending on market conditions, Coupa may seek additional funding in 2011 to hyper-accelerate growth. The ideal investor has a long-term view of Coupa’s prospects. Coupa’s current investors are active advisors in the business.

Coupa’s plans for growth include opening new markets with product innovations; localization will complement multi-currency support to open new international markets. Another priority is develop new referral partners and establishing an indirect sales channel. As the product matures, Coupa plans to go upstream for larger enterprise deals as the lower-cost alternative to Ariba and ERP solutions while investing heavily in sales and marketing to drive awareness (the sales team is now four times the size it was a year ago). Finally, Coupa aims to develop new revenue streams from product innovations (i.e. buyer aggregation, e-commerce). It did not comment on an exit, but as a venture-funded company, it will need to find an acquirer at some point. Ariba may well be that acquirer!

Recommended Readings
Pioneering SaaS In Business Process Optimization: Ariba’s Kevin Costello
Future of Purchasing Technology Lies Beyond the War of Words between Coupa and Ariba
Healthcare Supply Chain Management: Medassets CEO John Bardis

This segment is a part in the series : The 1M1M Deal Radar 2010