Spend Ramblings: Aravo Raises $27 Million From Cisco and Others

Later this morning, Aravo will announce that it has closed on its latest round of funding. For observers of our industry, this should provide significant validation that the demand for innovative procurement and supply-chain software remains healthy. Moreover, both the size of the round ($27 million) and the cache of the lead investor (Cisco) suggest that the growth prospects for at least one area of the Spend Management world might be significantly larger than many initially thought. The fact that the funding round happened in this environment, where large amounts of venture money are hard to come by at fast-growth start-up technology valuations, makes the investment and what it represents even more impressive. Altogether, Aravo has now raised $50 million in venture funding.

Cisco is not alone in supporting this deal: Many of Aravo’s earlier investors in their series A, B, and C rounds also participated in this round. Clearly, Tim Albinson, Aravo’s Founder and CEO, has got some good contacts in the investment arena, perhaps owing to his past stint as an investment banker at Goldman, not to mention the contacts he's made in building out Aravo’s business. The individual investors in this round who also participated in earlier series funding include Charles Schwab/Big Sky Partners and Stephen Friedman (former Chairman of Goldman Sachs). New individual investors include William Harrison, who previously served as CEO/Chairman of JP Morgan Chase. While I do not have the details on whether this is an "up round," I suspect, given Tim's financial savvy, that he would not have raised such a war chest if the multiple were not to his -- and his previous investors' –- liking.

But the announcement today goes deeper than just a new cash infusion. In the announcement, Aravo will also introduce the concept that its products will no longer exist in a collaboration vacuum. Rather, Aravo’s platform will be integrated with Cisco’s well-known WebEx platform, creating an entirely new paradigm in buying organization/supplier collaboration. Yesterday afternoon, I had the chance to speak with Tim, and he hinted that what they’re pursuing with Cisco (and independent of WebEx) is bigger than the market they originally envisioned. Tim suggested to me that, "We are now describing the market opportunity as broader than the supplier-information management or SIM market we pioneered in 2005. We are now pursuing what I describe as Enterprise Supplier Collaboration (ESC), which involves an entirely new approach to engaging suppliers that transcends basic supplier enablement and information management.”

But why would Cisco, which many people think of as a networking company, be interested in partnering with -- let alone investing in -- a software provider focused on supplier information management and supplier collaboration? Tim explained it to me as follows: "The way I described this to our investors is that Cisco is a railroad company: they build and manage the infrastructure that the Internet runs on. Because of this, their strategy is similar to the 19th century railroad guys, finding ways of making the infrastructure more valuable. In other words, make the network larger, increase usage, find new ways of enabling business value that drives traffic/volume, etc. And for Cisco that strategy is encapsulated by one word: collaboration. Aravo fits extremely well within that strategic framework."

Tim told me that Cisco became particularly interested in this vision when they began to understand the scale involved in supplier management. In this regard, Cisco saw both the potential depth and breadth that such a deployment could take on when they look at Aravo’s marquee customer. “GE uses Aravo to manage information for 750,000 suppliers,” says Tim. “When Cisco did their due diligence on Aravo's work with GE they saw a persistent technology -- unlike Webex, which is periodic (use it/turn it off) -- that is driving a new level of collaboration within the supply chain."

What is next for Aravo now that they’re flush with cash relative to their competitors in the SIM (or enterprise supplier collaboration) marketplace? Tim told me that Aravo “plans to allocate much of the funding to engineering and product development -- and have a major product announcement planned for Q1 involving both Cisco and GE.” Beyond software development, “We will also be increasing sales and marketing headcount.” In other words, expect Aravo to get louder in the market as it competes against both best-of-breed players (e.g., AECSoft, CVM Solutions, Hiperos, Xcitec, etc.) and suite providers (e.g., Ariba, Emptoris, Oracle, etc.) Moreover, Aravo plans to get more aggressive on international expansion. Here, Tim hints that we might see some M&A activity: “In addition, we plan to examine targeted geographic acquisitions focused on acquiring presence in regions where we do not have a strong sales and marketing foothold today."

Stay tuned for further analysis of this funding round later this week when Spend Matters examines the potential for the SIM/ESC sector in the context of the type of capabilities that we’re seeing customers ask for in the marketplace. Clearly, with this funding round Aravo has established itself as the provider that everyone else will be gunning for. But will they prove the right choice for prospects given actual supplier-management requirements? We’ll hopefully shed some more light on this issue as well. Check back soon!

- Jason Busch