The universe of venture capital-backed freight tech startups has matured since 2015, when the space was still in its infancy. In 2019, average late-stage valuations reached $158 million, 430 deals were closed and $11.8 billion was invested in freight tech startups.
Freight tech has evolved as new themes have emerged. First, digital freight-matching companies were aggressively funded, which touched off a new wave of technology innovation across the third-party logistics industry. Then visibility solution and autonomous vehicle startups sprung up, grew quickly and accelerated the pace of technological adoption. Now the attention is on warehouse automation, facility operations and problems in short-haul urban delivery.
Pitchbook’s Q2 2020 Supply Chain Tech update, released in June, covers investment trends across the sectors. It also analyzes the behavior of the venture capitalists themselves, identifying the most significant investors in the space and in which deals they were involved.
8VC, a San Francisco-based venture capital firm that invests broadly in disruptive technology companies, took the top spot of Pitchbook’s most active investor list, closing 14 deals from 2018 through June 30. 8VC, which invested in FreightWaves, operates under the belief that “emerging platforms will replace the decades-old technology infrastructure behind many industries, promoting greater innovation and global prosperity.”
The size and centrality of the transportation and logistics industry, the capital inflows from VCs and the success of some prominent startups has enabled a new class of investors to emerge who focus on the sector. But 8VC’s strategy is different. It’s a large fund with $3.5 billion in assets under management that, while focusing on broad investments, has gone very deep on a few key areas such as bio-IT, health care, and logistics. FreightWaves spoke to Jake Medwell, founding partner of 8VC, who leads its logistics and transportation focus. Medwell has been investing in freight tech companies since 8VC’s 2015 vintage fund.
8VC’s freight tech portfolio companies include Baton, Beacon, Deliverr, Flexport, HDVI, Joby Aviation, KeepTruckin, Outrider, Platform Science, The Boring Company, Trackonomy, project44 and Vector.
“We’ve developed really close relationships with many of the large players and strategics in the space,” Medwell said. “It has enabled us to understand the industry on a different level than what most people have access to. A lot of firms just have a few investments in the space; we’ve gone really deep. I spend all my time in it.”
YRC Chief Customer Officer Justin Hall joined 8VC as a full-time executive-in-residence to work with Medwell and 8VC’s portfolio companies, and Schneider’s CIO and EVP Shaleen Devgun was brought on in an advisory role. Former UPS EVP and chief commercial officer Alan Gershenhorn, who ran the acquisition of Coyote Logistics, is also an 8VC advisor.
8VC has become known for its exclusive, invite-only annual logistics summit in Napa Valley. Executives from across the industry — not just portfolio companies — congregate to discuss ideas and do business. At last year’s event, Jeff Silver, Andrew Clarke and Dan Lewis held a spirited debate about the future of tech-enabled freight brokerage. Some commercial vehicle OEMs have even showcased unreleased technology for the first time.
Medwell said that as freight tech has matured, investors expect well-developed ideas that respect the complexity of transportation and logistics and prefer to back founding teams with deep industry knowledge.
“A lot of VCs have been chasing the space without really understanding it,” Medwell explained. “We’re seeing companies get funded that are features rather than platforms that can scale. These are typically being built by nonexperts who don’t understand the intricacies of freight and logistics. If you look at the companies in our portfolio, you see people like Jack Kennedy at Platform Science — he ran Omnitracs and is one of the longest-tenured CEOs in the space. Take someone like Jett at project44, who worked his way up from a dispatcher at YRC to being one of the top people at GlobalTranz. [FreightWaves founder] Craig [Fuller] practically grew up in a truck. We back very well-versed founders who really know the ins and outs of the space versus two computer programmers from XYZ university who see a big, total addressable market.”
Now freight tech has matured to the point where proven entrepreneurs are coming back to start companies again, Medwell explained. Investors want to see startups built by industry experts who have partnered with top technologists.
“We’re seeing the makeup of the teams really start to change,” Medwell said. “Executives and leaders from some of the largest companies are leaving to join high-growth startups.”
Just as freight tech has started maturing, Medwell’s own approach to deal flow has matured. In the first few years, he said, “it was all hustle” as he worked the conference circuit, becoming a regular at FreightWaves and BGSA Holdings events. As he built a reputation for immersing himself in the space, embodying a “founder-first” mentality and being what he calls “long-term greedy,” the founders he has invested in passed a lot of deals his way.
“It is a nonstop hustle and always will be, but more often than not our best deals come from the founders in our portfolio,” Medwell said. “We have a family mentality at 8VC and are very proud of it.”
Medwell said that specializing in transportation and logistics has allowed him to develop deep relationships with incumbent companies that often become transformative customers for 8VC’s portfolio companies.
”Logistics spend at large companies is mind-blowing,” Medwell explained. “If an emerging company gets the chance early on to work with a UPS, Schneider or Prologis, it will change the trajectory of the company entirely. All of a sudden you have a customer in hand that can help you reach scale.”
Venture capital dealmaking slowed down in the first quarter of 2020 as investors reassessed valuation strategies and put a new emphasis on gross margin and unit economics in the wake of WeWork’s canceled IPO. The COVID-19 pandemic initially made capital more risk-averse, and movement restrictions made it harder to get deals done.
But as time passed, it became clear that the coronavirus was opening up new opportunities for tech startups — not just remote work but also freight tech. Now venture capital is pouring back into the space and bidding up early-stage companies, Medwell said.
“Later-stage funds that typically aren’t playing at Series B are creeping downstream,” Medwell said. “This causes more traditional venture funds to rethink strategy. While we are stage agnostic, it’s causing me to look at earlier stage deals and focus more on our 8VC Build Program. We launched Baton last year in partnership with Prologis, and it’s doing very well.”
Medwell said that he’s spent most of his time during the pandemic on internal work, going deep with 8VC’s portfolio companies to make sure they’re positioned to seize a historic opportunity.
“Customers are sprinting to get deals done as supply chain scrutiny has increased due to COVID-19,” Medwell said. “The logistics business is booming right now and there is more opportunity than ever. Remote work has made it easier to get in front of decision makers and drive deal processes.”