29 Apr 2021

Why we invested in Pactum: A new category of Intelligent Automation

The $200B opportunity for Intelligent Automation

Global enterprises spend $500B a year on software, with a further $1T spent annually on IT services to support this. There is also estimated to be over a billion knowledge workers globally, conservatively accounting for $20T of workforce spend.

Intelligent Automation is the name for a collection of technologies including pattern identification, anomaly detection, item classification and language understanding which are driving the current wave of Enterprise Software disruption, and unlocking technology’s ability to take on more of this spend. We see Intelligent Automation upgrading existing software with better more powerful solutions, replacing the need for services through simpler self configuring tools, and taking on whole new categories of task not previously possible.

At the forefront of Intelligent Automation to date has been RPA, which is estimated to be a $2B per year revenue software market led by recently IPO’d UiPath. Other horizontal software categories like Hyperautomation (where we have invested in Automation Hero), Document Understanding and Conversation Automation are earlier in the journey, each with a number of unicorn status companies generating tens or hundreds of millions of dollars of revenue. Industry verticals also have significant potential for focussed Intelligent Automation solutions (such as our investments in Spacemaker in the real estate space and CloudNC in industrial manufacturing).

An illustration of the scale of the opportunity

But we believe that this still leaves billions of dollars of opportunity for new Intelligent Automation categories and companies. If Intelligent Automation can drive a 20% growth in the overall Enterprise Software market by providing tools that automate processes, augment experts, drive productivity and discover value, the prize is a $100B revenue opportunity, equivalent to 50 RPA sized markets.

Negotiation will be the next Intelligent Automation market

Negotiated agreements are the backbone of the economic engagement of large companies, with a typical Fortune 500 spending over a third of their revenue on categories that could be bought via negotiated contracts.

However speaking to the procurement teams of these organisations, we heard consistently that they were under resourced, challenged even to manage their largest suppliers or focus on priority strategic initiatives like supplier diversity. As such, they said that they would never be able to renegotiate the majority of the thousands of contracts that make up their total spend. This means many of these contracts are negotiated once and then never revisited, leaving potential value for these companies on the table.

On the other side of the table, where the suppliers or counter-parties are not contacted, they are left feeling undervalued. When they are, they are often dissatisfied with the outcome of a telephone negotiation with a skilled and rushed procurement professional, where they always feel at a disadvantage.

Unlike in the conflict negotiations from which much of negotiation wisdom is drawn though, counter-party relationships in business are not a zero-sum game. It’s theoretically possible to find win-win solutions that optimise the outcome for all parties, where each considers different items of most value.

Take a relatively simple supplier contract with 10 negotiable terms and an average of 5 variations for each. With almost 10 million possible combinations of these terms, it’s impossible for any two counter-parties to fully explore this space during a negotiation, and in many cases the heuristics people use and the emotions that come into play hinder rather than help this discovery.

The Pactum negotiation interface

A computer on the other hand can explore all these possibilities simultaneously, generating and evaluating different options, and then presenting them for consideration and negotiation, patiently exploring this space to find an optimal solution. And this approach generalises to any kind of negotiation, not just those of the procurement teams of a larger corporate.

By setting negotiations in a digital conversational UI, with options clearly laid out and no limits on the time given to respond, counter-parties are given a much more positive experience as they consider what might be the best deal for them.

Intelligent Automation is successful when the automation led approach performs better than the status quo, and as such negotiation is a perfect candidate.

Pactum are leading the way in Negotiation Automation

Pactum was founded in 2019 by 3 co-founders with the unique experiences and complementary insights to make Enterprise-grade negotiation automation a reality.

The Pactum team (Kristjan, Martin, Kaspar)

CEO Martin had previously built and sold an agtech business, working in an environment rich with complex negotiations between producers, distributors, buyers, materials suppliers and governments. CPO Kaspar was the MD of the e-Residency system for the Estonian Government, creating a totally new kind of digital product from the ground up. And CTO Kristjan was Head of Computer Vision and Head of Data at leading Estonian autonomous delivery robot startup Starship, where he designed systems required to make complex decisions and trade offs in order to help robots navigate.

I left my first interaction with Pactum just over a year ago incredibly excited about the many potential applications of the technology they were building. At its most general, the technology works with one party in a negotiation to develop a value function based on a set of negotiable terms, and then automatically negotiates with their counter-parties to optimise this function against the counter-party’s preferences. They had already built the core technology, and had strong interest from Enterprises of many types — they just needed to show it could work in the wild.

A little over a year later we were speaking again, and they showed me the data from successful negotiations that prove it worked, and far better than their customers had expected. This was a real “wow” moment, quickly reinforced when speaking to these customers, who were overflowing with ideas about how Pactum could add value across their businesses.

Pactum are at an incredibly exciting stage of the journey as they release their “Negotiation-as-a-Service” solution to the market, giving them the opportunity to apply this technology in more companies, industries and scenarios. With this they will be able to build a unique dataset on negotiation strategy, driving continued improvements in their negotiation approaches and ultimately their outcomes. They are already seeing incredibly rapid outcome improvements in their negotiation cohorts, and their data science team are observing some unexpected strategic insights.

We are thrilled to join Martin, Kaspar and Kristjan on their journey to build Pactum and Negotiation Automation into the next multi-billion dollar Intelligent Automation category, and to create another Estonian success story.

It’s also fantastic to co-invest alongside our good friends Jaan Tallinn, Ott Kaukver, Taavet Hinrikus, Sten Tamkivi, and Thies Sander and team at Project A.

Welcome to the Atomico family Pactum!

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