If you walk a transportation conference floor these days, you will be hard-pressed to identify all the companies showing their products and services. New innovations and technology solutions are infiltrating the industry like never before and following those innovations is plenty of cash. According to Pitchbook data, more than $1 billion was invested in freight-related companies in 2017.
The current trend of startups entering the freight industry is so hot these days that two separate panel discussions were held at this week’s FreightWaves’ Transparency18 conference in Atlanta on the subject, both centered around the funding aspect with top venture capitalists. TriumphPay sponsored both panels.
A startup, the audiences learned, requires funding at several levels, starting with seed funding. The first panel, “Seed – Early Stage Startups,” was moderated by Mark Goldstein, managing partner of Advisors Fund and included Thiago Olsen, managing director of Engage Ventures, Brian Aoaeh of Particle Ventures, and Jake Yarmak, a partner in Story Ventures.
The panelists offered tips on how to secure early stage funding if you are a startup as well as what they look for in a company. Three of the four on the panel have made investments in FreightWaves.
“Getting involved early means you’re going to be ahead of the crowd,” said Olsen. “But, as a smaller fund, we don’t have the deep pockets to keep this company going indefinitely, so there is a risk.”
For him, Olsen said the decision to make an investment comes down to the CEO and the team that has been built. The other panelists concurred about the importance of a comfort level with the founders, but that is not the only thing that attracts investors.
“One of the things I try to understand is the problem,” Aoaeh said. “I try to work with people who have a solution and if we think those solutions are transformative.”
Olsen agreed, saying that the solution must be relevant within seven years. “It is [really about] looking for companies that are ready to hit the rocket boosters and [scale] very quickly,” he noted.
Companies that are too singularly focused on the product, though, can be a warning sign. Relationships and partnering with the right people are also important factors, Olsen said, adding that he also looks for a pain point, whether there is a market fit and if the market is ready for the product.
Yarmak said that investors are sometimes similar to psychiatrists, helping guide the founders through the early stages of building a company. That can include helping hire the right people. Aoaeh added that seed investors can also help make the right connections.
“We see a lot of things, both in terms of researchers and academics that are thinking of [transformative solutions] and looking for a way to apply it to industry,” he said. “You may not have the time or money to find them but talking to a VC [can lead to that introduction].”
Seed funds help companies “open that next door,” Goldstein said. “I will go through 200 companies before I select one and that one only has a 50% chance [of success]. We’re not experts in your industry, but what we are is experts in patterns [because] we’ve seen change in other industries.”
Goldstein, who is based in Silicon Valley, said that the region famous for building startups into thriving businesses may have been slow to invest in the freight industry, but it is now actively engaged. “Free money is about to enter your business,” he said. “I’m in Silicon Valley and it took us a while, but we’re paying attention.”
Following the first panel, a second panel, titled “Venture Capital – Working with Startups at All Stages,” advanced the discussion. This panel included moderator Alan Taetle, general partner of Noro-Moseley Partners, Chris Stallman, partner in Fontinalis Partners (Fontinalis is an investor in FreightWaves), Lori Heino-Royer, director of business development for Daimler Trucks, Jason Story, partner in Interlock Partners, and Giordano Sordoni, co-founder of Thor Trucks.
A similar theme permeated both panels – that is building the right team. “We tell our entrepreneurs all the time, you have to have the right team, the right product, but you can’t pull the market,” explained Story.
Stallman added that investors at his stage, which is usually in the $2 million to $4 million investment area, are looking for products or solutions that are ready to take off. “There’s a lot of risk to being too early,” he said. “You want to be at the inflection point.” He went to say that if you are too early, you can “tip your hand” and invite competitors.
Heino-Royer approaches investments a little differently, as Daimler is a large organization that makes strategic investments, and sometimes, outright acquires startup companies.
“We’ve studied a lot of the technology coming into the space and we ask [ourselves] how will this be beneficial for Daimler,” she said.
An example of this is Daimler’s recent collaboration with Loadsmart to develop a custom app for moving freight within Daimler’s supply chain. Daimler looks for fit, team dynamics and whether the team is capable of working with a large organization such as Daimler, Heino-Royer said.
More startups are seeing investments from strategic partners such as Daimler, the panel said. “We see a lot of strategics now, a lot of the deals we’re seeing have a lot strategics where we are leading the round but there are a lot of customers and strategics,” Story said.
Stallman said that close to 80% of Fontinalis’ investments now include a strategic partner, and 60% of its seed investments include a strategic. “We very much like investing alongside a strategic investor,” he noted, pointing out an investment in an autonomy company that included Samsung, which helped to validate the technology. That company sold within 2 years of that investment for $465 million.
He did caution against giving away too much of the company to strategic investors. “If we’re going to take a strategic investment, we want to make sure there is strategic value to that,” he said.
As to advice for startups when seeking an investment, Stallman said they should have an outward presence for the business which includes attending events and making connections. He compared it to the dating process where the first six months of the relationship is a getting-to-know-you period of discovery “but then we’re tied to that company for four, five, six or even 10 years sometimes.” Fontinalis spends a lot of time vetting not just the products or services, but also the founders, he added.
Heino-Royer said Daimler seeks founders that are the “right people” that can work with the company in addition to having a product that benefits Daimler, and “that isn’t always what a venture capitalist is looking for.”
Story advised the startup founders to investigate the investor – what companies do they invest in and where are they in their funding cycle?
On both panels, all the investors stressed the importance of investing in the right people, not just the right product, and doing so at the right time, to maximize their investment. That includes bringing to market a product or service that can differentiate itself.
“What I heard yesterday [during Transparency18’s Demo Day presentations] was a lot of companies that are out to optimize the supply chain,” Yarmak said, noting that too many companies trying to solve the same problem can scare away an investor because of the competition. “In some way, shape or form you have to show us why it’s a good idea. When we’re really early, you have to prove it.”
Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.