Opening the Public Sector: Our Investment in Stotles
Aristotle once said, “You will never do anything in this world without courage. It is the greatest quality of the mind next to honor”.
At Speedinvest, we are still not 100 percent sure if that quote was directly related to our investment in Stotles (derived from ‘Aristotle’). But talking about countering fear with courage does seem accurate as we made our first platform investment in the govtech space.
When businesses think about working together with the public sector, thoughts immediately hover to bureaucracy, long decision making processes and ultimately to wasted resources. This is an unfortunate thought. The public sector is the world’s largest buyer, and as it is facing a lot of challenges in procuring goods and services, there is an abundance of opportunities for startups to facilitate change and improve public sector procurement.
A big market, underserved
When it comes to size, the public sector has no equal. Every year, over 250.000 public authorities in the EU spend around 14 percent of GDP on the purchase of services, goods and supplies. For Europe, this amounts to a staggering €2 trillion Euro per year. At such a scale, even a 1 percent efficiency gain could ultimately save the taxpayer €20 billion on an annual basis.
However, selling into the public sector is hard. Government procurement processes follow strict and rigid procedures. And while tendering processes are transparent, the relevant data is scattered across thousands of data sources. Finding and qualifying the right opportunities for business to sell to the public sector is tough and time consuming, and many companies, therefore, simply refrain from selling to the government.
Governments embracing change
Recognizing that this status quo ultimately does not serve the taxpayers' best interests, governments are rolling out initiatives to make government procurement more accessible.
In its paper “Making public procurement work in and for Europe”, the European Commission listed a number of important priority areas to improve public sector procurement, including:
- Increasing access to procurement markets for companies of all sizes: Public procurement relies on open competition to deliver the best value for public money. Unfortunately, the competitive nature of the process is absent in many public tenders. Between 2006 and 2016, the number of European tenders with only 1 bid has increased from 17 to 30 percent. More importantly, SMEs have only been able to win 45 percent of the value of public contracts, clearly below their weight in the economy.
- Improving transparency, integrity and data: In order to enable more companies to compete in public tenders, it is important to make public procurement data more easily available. Currently, this is not the case. Tender information is scattered through thousands of siloed websites and portals. Consolidated procurement data is missing at the EU level and standards amongst countries differ, making cross-border procurement more difficult. In many member states, central authorities are even unable to indicate the exact size of public procurement spending in their own country!
- Boosting the digital transformation of procurement: Finally, the adoption of new technologies as an opportunity to simplify and accelerate the procurement processes is still limited. A 2016 survey amongst EU Member states showed that only four of them rely on digital technologies for all major steps of the procurement process. Archaic processes and a lack of digitization are pushing a lot of companies away from participating in public sector tenders, thereby reducing the overall level of competition.
Opening up the public sector with Stotles
Stotles launched in 2020 to effectively address all of these challenges. First, by using Stotles, companies of all sizes are able to access public tender information, neatly categorized and prioritized, through one simple tender feed. Thereby eliminating the need to research government procurement opportunities themselves and saving their staff a ton of time doing so.
Second, Stotles also provides companies with tools to start engaging with public sector buyers ahead of the tender process. This is particularly important, as win rates for tenders go up dramatically — from as little as 4 percent all the way to 46 percent — when businesses can leverage pre-existing, informal relationships with public sector buyers.
Many companies are already using Stotles to leverage their B2G sales efforts. Freshworks, UiPath, Gitlab, Medallia and Mulesoft are amongst the first brands successfully using the tender feed and the early engagement tools to win more deals in the public sector.
In a next phase, Stotles will make it easier for public sector buyers to run their tendering processes directly on the Stotles platform. Such ‘buyer tools’ will further bridge the gap between public and private sector participants, and ultimately lead to more competition, higher quality tendering processes, and a bigger bang for the taxpayer’s buck.
Supporting Stotles on their journey
Given the size of the public sector and the procurement challenges it faces, the mission of Stotles to make the public sector more accessible to companies of all sizes is incredibly important.
The Stotles team — led by the excellent co-founders John Witt, Taj Kamranpour, and Carsten Schaltz — has made great strides in opening up government procurement in their first year of business.
We are therefore excited to be leading Stotles’ pre-seed financing round. Together with our co-investors FJ Labs, 7 percent Ventures as well as a number of great business angels, we hope to support John, Taj and Carsten on their mission to make government procurement sexy again.