The key to creating value in FreightTech is to not just know tech but to know freight. That goes for founders as well as the venture capital (VC) funds that back them.
Prologis Ventures Managing Partner Will O’Donnell discussed the various aspects of this issue with Assembly Ventures co-founder and partner Jessica Robinson during FreightWaves’ FreightTech Venture Summit on Wednesday.
From the VC perspective, the freight industry “is complicated so it requires an understanding of the nuances,” said O’Donnell. “There are good reasons for the way the business works. But there are also ways to disrupt and improve it. Unless you really have a deep understanding of the economics and the businesses processes, it’s really hard to invest in this space.”
The same goes from the startup perspective. “What I love to see more than anything is that the team knows this space and they understand the pain points,” said Robinson. “It doesn’t mean everyone on the team has to come from this industry. But I want to see you solving something you know really well.”
O’Donnell agreed. “The key is having those who really understand the industry truly solving the pain points with technology. As opposed to someone saying, ‘Hey, I have a new technology. Let’s just throw blockchain at everything and it’s magically going to fix the world.’
“There have been plenty of instances where a great technology comes along and runs around trying to find a pain point,” he continued. A better path is to “start by really understanding where the industry has deficiencies.”
Heavy on the assets
For FreightTech, some of the biggest complications — and opportunities — arise from the asset-heavy nature of the freight industry.
“This is a very asset-heavy business,” explained O’Donnell. “You’re not moving digits. You’re moving atoms. So you have to have warehouses. You have to have trucks. You have to have ships. You’re moving physical items and trying to use technology to facilitate and augment the decisions we make but also accelerate how goods can be moved faster.”
The physical nature of the industry underscores, yet again, the value of knowledge of the freight business among startups and their backers.
O’Donnell emphasized the need “to understand the constraints that are there — which ones can be removed and which ones are related to the laws of physics. Such as: It takes a certain amount of time for a truck to drive from A to B.”
Rising customer expectations
The need for technology that can work within assets’ constraints has never been greater, because customer expectations have never been higher.
“The evolution of customer expectations is one of the biggest changes,” he explained.
“Five or 10 years ago, it was fine to deliver things in three to five days. Now we all believe it’s our God-given right to get things delivered the next day if not the same day.
“That’s a massively complex problem. It gets into mobility. It gets into location. It gets into data science. You have to predict that I will need that item and when I’m going to need it. One of the reasons I’m excited about FreightTech is opportunities like that.”
Robinson also highlighted the opportunity for technology to speed deliveries in light of heightened customer expectations.
“There are a ton of opportunities still in predictive [technology],” she affirmed, noting that FreightTech is being driven by the need for efficiency and the need to provide customer satisfaction.
“Efficiency and time really matter. Whether it’s in the yard or the DC [distribution center] or getting goods to your customers, minutes and sectors are everything now.”