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The changing landscape of venture capital (with video)

Kunal Mehta and Earnest Sweat reveal at FreightTech Venture Summit how pandemic is affecting startup funding

A lot has happened over the past year since Kunal Mehta, a principal with Hearst Ventures, published “Finding Genius,” a book that documents the financing and startup stories behind companies such as Pinterest (NYSE: PINS), Uber (NYSE: UBER), Airbnb, Twitter (NYSE: TWTR), Tesla (NASDAQ: TSLA), and Space-X.

“Before the book was published [in October 2019], I think many of the VCs were saying that there’s a reckoning coming, there’s too much money out there, and there’s too many people starting companies right now,” Mehta said during a fireside chat Wednesday with fellow venture capitalist Earnest Sweat at the FreightTech Venture Summit.

“But it seems like COVID has probably kept some founders on the sidelines from wanting to start companies. One of the themes that kept coming up [in the book] is that [startup] founders that have staying power or conviction during down times are the ones that people want to fund. So I imagine those founders that have risen above the stack are now saying that even during this pandemic they’re going to try to make our company last on limited cash and resources and figure out ways to get customers.”
Click on arrow above to watch fireside chat with Kunal Mehta (left) and Earnest Sweat.

Sweat, associate partner at GreatPoint Ventures, which focuses on companies specializing in retail, supply chain, real estate and manufacturing, said the other change over the past year in how venture capital works is how VCs conduct due diligence on the companies they’re considering investing in. “You have to do it digitally — like we’re doing with this fireside chat,” he said. “We thought initially this would last two months, but that’s just not the case.”

Sweat also noted that because of the amount of money on the sidelines and with so many venture firms looking to participate in the market, “if you wait for the typical cycle of — hear about a company, they start raising funds and in six weeks they’re thinking about closing — you’re not going to get many deals done, especially great deals.”

Taking on supply chains

Supply chain startups are a common background for the two venture capitalists. FreightWaves was Hearst Ventures’ entry investment into the freight space. “They have become a prominent media brand within the space — a very interesting information hub that has given them an edge with which to build new products,” Mehta said.

Maven Machines, a Pittsburgh-based company that builds dispatch and fleet management software for the trucking and transportation industry, is another Hearst Ventures investment. “We’re continuing to look at opportunities within transportation management systems and the broader freight ecosystem, whether its marine freight or air freight, and the opportunities there,” Mehta confirmed.

Sweat was a founding team member at Prologis Ventures, the venture arm of the world’s largest industrial real estate owners, before coming to GreatPoint.

“The thesis around how to optimize transportation within different links of the supply chain is something I was doing at Prologis and continue to look for,” Sweat said. Case in point: An investment earlier this year by GreatPoint in KlearNow, an AI-driven platform billed as “the first customs clearance and document management platform built for importers, freight forwarders and customs brokers.”

He explained that clearing customs has typically been a time-consuming process that relies on humans to find the relevant information within unstructured data like bills of lading and faxes associated with every shipping container and transmit them to U.S. Customs and Border Protection.

“KlearNow extracts all that data and makes a process that once took up to two hours down to 10-15 minutes. I saw that process as one of the first dominoes causing delays within the supply chain, so I continue to look for things that optimize significant points along the chain.”

Deals outlook

Sweat plans to be speaking with other venture capitalists over the next nine to 12 months about what areas they’ve been successful in, what other companies are emerging, and “how do you get in front of those companies earlier rather than later when some very large, well-branded firms can simply just give them a $100 million dollar pre-money valuation.”

Mehta agreed, noting that “the VCs we interviewed were all talking about the future [startup] makers and how they can predict what’s going to happen five or six years from now. A VC needs to be able to sit across the table and see that as well and believe in it.”

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John Gallagher

Based in Washington, D.C., John specializes in regulation and legislation affecting all sectors of freight transportation. He has covered rail, trucking and maritime issues since 1993 for a variety of publications based in the U.S. and the U.K. John began business reporting in 1993 at Broadcasting & Cable Magazine. He graduated from Florida State University majoring in English and business.