When our team met with Michael Otis and Ryan Muckel, the co-founders of Procoto, for the first time, we knew we had discovered the exact type of founders TampaBay.Ventures was established to support. As they explained their vision for Procoto, we as investors, were able to share their vision and understand the apparent market they were attempting to address.
Procoto is a procurement and spend analysis platform that allows businesses of any size to manage their value chains. Inside large enterprises, procurement software providers such as Workday, SAP, and Coupa have been essential pieces of infrastructure since the late 1990s. These providers capitalized upon the complicated and human-intensive process of understanding who all of the company's vendors are, what they have bought from them, and what the contracts with those suppliers contained. Creating such a central source of information for a process allowed the aforementioned large-scale providers to become deeply entrenched with their customers over time. In the subsequent 20 years following the rise of these platforms, they continued to target larger customers and ultimately build tools that were only suited to a small number of "mega customers." The providers began to depend more on services such as implementation and integration into other systems as the total number of potential customers shrunk with their expansionary strategies. While these strategies allowed companies such as Coupa to grow to a market capitalization of $15 billion as of August 2021, they did so at the expense of a much larger serviceable market, the 99.7% of US companies in the SMB market.
Michael and Ryan explained how their previous experience and frustration with a lack of options in procurement management led them to the concept for Procoto. Having a deep understanding of the customer or user from a personal experience is a core principle that TampaBay.Ventures looks for in founders and hearing Procoto's founding team detail the deeply flawed market dynamics of the procurement software space. The bloated sales and service infrastructure prevented the large providers from being able to service any engagements under $100,000 and, with a lack of competitive options, left the vast majority of organizations to manage their procurement with spreadsheets. They also explained how they could help their customers understand their procurement over time through machine learning and data science. By becoming the same central source of information for smaller companies and other procurement platforms had done in the enterprise, they showed our team how Procoto could drastically impact the way their customers measured their businesses.
As we reconciled our research along with Michael and Ryan's pitch, we arrived at three key realizations that led us to our investment decision. The size of the market they were addressing was immense. With 28.8 million SMBs in the United States alone, a long tail approach would allow them to become a substantial business if they captured even a tiny segment of the market. The second key factor was the stickiness of their product. By providing simple insight into a complicated process that involves multiple parties and terms, Procoto could quickly become a central piece of infrastructure for their customers. Procoto users would eventually engage the platform as a key planning tool from where a business owner could manage the entire supply side of their business. So long as the Procoto platform continues to release features that help these business owners better understand their companies, companies will continue to "build upon" the platform. The final realization that supported our investment thesis into Procoto was the strength of the founders. Both Michael and Ryan had experience scaling organizations as well as leading teams inside global software companies. They had a clear understanding of who their user was and why along with how to address their challenges. The job of technology company founders is to collect feedback from users and turn the input into valuable features. We saw an incredibly talented team in Ryan and Michael that, we believed, had a unique ability to serve in the aforementioned roles.
Ultimately, our investment is in the belief in the founding team as much as it is weighed upon the business they are building. In Procoto's case, a fantastic founding team paired with a market ripe for innovation provided the motivation for TampaBay.Ventures investment.