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Is negotiation-as-a-service the next startup frontier?

Pactum, a negotiation software company founded in Estonia, has just announced a $11m Series A round — and plans to expand its Fortune 500 client base.

By Kit Gillet in Bucharest

Credit: Pactum cofounders Kristjan Korjus, Martin Rand and Kaspar Korjus

Wouldn’t it be nice to let a robot negotiate all your contracts for you? That future might not be as far off as it sounds — at least according to Pactum, an Estonia-founded startup that has just announced its latest round of funding.

The early stage company, which was launched in 2019, has seen rapid growth, and its successes to date could highlight major untapped opportunities in the automation of contract negotiations.

“We have created a new industry, and this industry is huge,” Kristjan Korjus, Pactum’s chief technology officer and one of its three cofounders, tells Sifted.

Powerful backers

Pactum has been on Sifted’s radar since it first secured $1.15m in pre-seed funding in September 2019, a month after its founding, in order to build a chatbot that could negotiate a contract in 15 minutes while getting more value for both sides. 

The company now has 30 employees, has raised a total of $15m and is already collaborating with five Fortune 500 companies. It’s also in discussions with 40 more — with offices in Estonian capital Tallinn and Silicon Valley.

The latest round saw $11m in Series A funding and was led by Atomico — a VC firm with a strong track record of investing in ambitious tech founders at Series A and beyond. It also saw the participation of many of the leading Estonian tech luminaries,  including Jaan Tallinn, cofounder of Skype (now at Metaplanet), Taavet Hinrikus, cofounder of TransferWise, Ott Kaukver, now chief technology officer at Checkout.com and Sten Tamkivi, an early executive at Skype and cofounder of Teleport.

“From all the work we’ve done looking at who’s doing what in this market, the Pactum team are far and away both the thought leaders and the technology leaders,” says Ben Blume, a partner at Atomico who is set to join Pactum’s board. 

Negotiation as a service

Pactum’s rapid rise points to a new emerging enterprise software space, namely negotiation-as-a-service (NaaS).

According to Blume, negotiation-as-a-service has historically meant using an outsource centre. “People would be getting on the phone and running through negotiation scripts,” he says. “We didn’t see a deep competitive landscape of companies that were doing some of the same things [as Pactum].”

While software-as-a-service takes care of operational inefficiencies, NaaS aims to take care of contract negotiations. The savings can be significant: Pactum claims to have been able to unlock working capital of $1.5m a month from a single department at a Fortune 500 company.

Fortune 500 and beyond 

Korjus points out that contracts — whether it’s rental contracts, insurance contracts, mortgages, employment contracts and even contracts between governments and between countries — are the underlying agreements for nearly all value creation in the world.

Yet, he says, “there is a huge amount of inefficiency, meaning that if there will be more time and more rational discussion about contracts it’s possible to agree on a contract or renegotiate a contract such that it’s better for both parties.” 

According to KPMG research, up to 40% of the value of vendor deals is lost due to inefficiencies in the contract negotiation process. 

Pactum’s platform aims to generate win-win deals for both the enterprise and vendor by responding to the priorities of both parties, integrating relevant data and objectives ahead of time. This allows it to proactively renegotiate contracts in as little as 15 minutes, spotting changes in variables such as input prices or delivery terms.

“The nice thing about the technologies is that it’s not disruptive for enterprise processes,” says Korjus. “The question of whether a human is doing it or a machine is doing it doesn’t change any of their production, or any of their processes.” 

Go big or go home

Pactum’s founders have shown strong ambitions. In fact, Blume says that he often advises early stage startups to get their products into the hands of low risk customers who are smaller, friendly and that you can develop with. 

“In Pactum’s case they decided to start with Walmart,” he says. “They started big and ambitious on who they were going to start working with, and that has set them up incredibly well. They’ve learned a lot of the lessons of dealing with a large and sophisticated organisation early on and really battle hardened the technology very fast.”

Blume believes that if the company continues to scale up and prove its worth, others will quickly jump into the space. “If they don’t, there’s probably something fundamentally wrong with the judgment call that we made.”

The founders plans to use this latest fundraise to expand the company’s reach, scale up the deployment of their AI automated negotiation platform, as well as increase the size of the team.

At the same time, Korjus says that more than half of their leads now contact them, with the main challenge overcoming their initial skepticism. “We start with small pilot projects and when they see the results they are amazed,” he says. 

He adds: “We are focusing on Fortune 500 companies and their partner negotiations, suppliers, vendors and so on, at first, but the sky’s the limit.”

Kit Gillet is Sifted’s eastern Europe correspondent. He tweets from @KitGillet

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