Less Flashy Business Software Draws Investors.

"Beyond the buzz around generative artificial intelligence, startups selling enterprise resource planning tools (ERP) are drawing the attention of investors as well as corporate tech leaders looking to refresh age-old systems.

 ERP -- made up of a collection of interconnected apps -- are designed to help companies integrate and manage data from different software tools across business units, such as accounting, human resources, marketing and sales. By gathering data from different units together, companies are better able to track the entire life cycle of business transactions and manage costs.

With corporate IT leaders ratcheting up these systems as economic uncertainties drag on, in efforts to better manage costs and reduce waste, investors are betting that some will turn to startups for upgrades or new applications.

Aimee Gregg, senior vice president of supply chain and information technology at International Paper, isn't surprised investors are betting on big gains from ERP startups, she said. The Memphis, Tenn.-based pulp-and-packaging giant is currently looking to refresh its legacy ERP system, eyeing startups as a source of innovation in those efforts, Gregg said.

"Most people are at that 20- to 25-year mark with their system, and all of this new technology and data that has come out doesn't really bolt on well," Gregg said.

Amid a broad-based slump across the venture-capital market, ERP startups last year raised roughly $23 billion globally, about 37% of a total $62.4 billion raised by all cloud-based business-software startups, according to market analytics firm PitchBook Data.

Though down from amounts raised during the peak of the VC-market bubble in 2021, last year's fundraising by ERP startups outpaced the $13.6 billion raised in 2020, with that momentum expected to continue well into 2023, said Derek Hernandez, PitchBook's senior analyst for emerging technology.

"ERP is generally less flashy than other parts of enterprise SaaS," such as data analytics, Mr. Hernandez said, referring to the industry term for cloud-based software. But the ability of well-functioning ERP systems to wrest cost savings, he said, "keeps them attractive during periods of economic headwinds."

Companies worldwide are expected to spend an estimated $46.86 billion on ERP software this year, up from $44.47 billion in 2022, according to research firm Fortune Business Insights.

Jacob Kragh, chief executive of Stokke, a Norwegian company that makes high chairs, strollers and other products for babies and toddlers, called ERP the backbone of the company's supply chain and financial transactions. Cloud-based software startups will play a key role in the company's efforts to migrate its ERP tools to a full cloud-based system, Kragh said.

While ERP startups are unlikely to go head-to-head with industry veterans like Microsoft, SAP or Oracle, "startups are adding new functionality or vastly improving a few software features," said John-David Lovelock, vice president of research and chief forecaster at IT research and consulting firm Gartner.

Anna Khan, a general partner at venture-capital firm CRV, said most ERP startups are using a "wedge approach" to enter the market, by developing apps that either make data integrations easier within existing systems or make results and analytics from those systems more efficient.

Other startups are building ERP tools for specific industries, hoping to carve out a niche.Brussels-based ERP startup Thynk, which in April raised $13 million in a Series A round, focuses on integrating and centralizing customer data for hotel operators. XentralERP Software, based in Augsburg, Germany, targets companies' e-commerce sales. 

Rootstock Software, a San Ramon, Calif., startup backed by Salesforce Ventures, develops cloud-based ERP systems for manufacturers."For manufacturers, what was previously problematic in the ERP market was the intrinsic separation between demand and supply, along with out-of-sync manufacturing capacity," said Rootstock CEO David Stephans." [1]

1. EXCHANGE --- Business News: Less Flashy Business Software Draws Investors. Loten, Angus. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 10 June 2023: B.9.