'Skype Mafia' Backs A.I. Startup Automating Contract Negotiations

Prominent members of Europe’s so-called “Skype Mafia,” all co-founders or early employees of the voice-over-Internet conferencing service, are backing Pactum, a startup that uses artificial intelligence to automate business contract negotiations.

Founded late last year but only emerged from stealth mode on Wednesday, Pactum uses a chatbot-like interface to conduct contract talks. The bot can offer changes to standard terms, including price, delivery conditions and days to pay, in order to reach a better deal. The company is based in Mountain View, Calif., with engineering offices in Tallinn, Estonia, where Skype’s first engineering offices were also located.

Among those investing in the small startup are Jaan Tallinn, a Skype co-founder who has become a prominent backer of A.I.-related startups and research groups, Taavet Hinrikus, an early Skype employee who went on to found international payments firm TransferWise, Ott Kaukver, another early Skype employee who is now the chief technology officer at Twilio, and Sten Tamkivi, a general manager at Skype who is now chief product officer at Topia. They have collectively put about $1.15 million in pre-seed funding into Pactum.

Kaspar Korjus, who previously helped create the Estonian government’s e-Residency program, co-founded Pactum with his brother, Kristjan Korjus, who previously headed artificial intelligence for Starship Technologies, an autonomous delivery robot company also founded and backed by Estonian Skype alumni. Kaspar is now Pactum’s chief product officer, while Kristjan is serving as its chief technology officer. A third co-founder, Martin Rand, who is now Pactum’s chief executive officer, worked at Skype as a product manager before going on to found farm management technology company VitalFields, which was acquired by Monsanto in 2016.

The idea behind Pactum, Kaspar says, it to deploy the chatbot with firms that have hundreds of thousands or millions of suppliers, which means they previously have relied on standard contracts. “We can start a conversation with 5 million suppliers and in 15 minutes, negotiate bespoke contracts for each of them, and automatically update the contract terms,” he says.

Pactum’s A.I. is also able to show, through simulations, how much more revenue a business might be able to earn by tweaking certain contract terms, he adds.

To determine what a company’s standard terms are, the startup’s machine learning algorithm analyzes its existing contracts. Then, the A.I. tries to predict, from those contracts, what the firm’s preferences are, such as the extent to which it’s willing to trade overall revenue for the cash-flow advantage of getting faster payment.

To further refine this “value function”—which the algorithm needs to have a good approximation of, in order to negotiate well on a customers’ behalf—the chatbot presents several contract variations to the business, and asks them to pick the version they prefer, Kaspar says.

Pactum has cited research showing that inefficient contracting costs businesses between 17% and 40% of the potential value of each deal they sign. Fortune Global 500 companies each have between $100 million and $500 million of value locked in standard contracts that they do not actively manage or negotiate, Rand says.

According to Kaspar, Pactum’s technology has already been used by a large European e-commerce marketplace for black car and limousine drivers. He declined to name the customer, citing a non-disclosure agreement.

Pactum is not the only firm working to automate contracting, however. For example, Synergist.io, Berlin-based A.I. startup, sells similar negotiation software. And legal technology firms use machine learning software to help businesses keep track of contracts and manage them more actively. But much of this legal software is designed to help firms standardize their contracts by quickly finding aberrant clauses, rather than helping companies create bespoke contracts for each vendor or supplier.