Transfix’s decade-long journey from freight desk to software pioneer

“They were like, wow, that’s a really cool idea. Where’s your prototype?” McElroy recalled. “And I’d say, no, no, that’s why I’m here. You give me the money, and I’ll build the prototype. And they’re like, oh, that’s not how this works.”

The breakthrough came through what McElroy calls an “arranged marriage.” A mutual contact connected him with Jonathan Salama, a French engineer with technical chops but who lacked a logistics background. In the venture capital world, they often like to play matchmaker, pairing a software- or hardware-focused person with another who can get the people to buy it.

“We were introduced on a cold email from somebody we both knew through the venture capital network,” McElroy said. “We literally got an email one night, and it was like, Drew, you should meet Jonathan. He’s got a hell of an idea but no ability to execute it. And Jonathan, you should meet Drew because he is unbelievable at building product but really bad at coming up with his own ideas. So you guys would make a heck of a team.”

Over beers at a Brooklyn bar, Salama heard McElroy’s pitch and committed immediately.

“I’m telling him about it, and he’s like, okay, I’m in,” McElroy recalled. “And I was like, wait, bro—we’d literally just met. Give me a day or two. Let me think about this and we’ll talk.”

Salama’s response stuck with McElroy: “You go home and do all the thinking that you need. I’m going to go home and start building the platform. You tell me if I should stop.”

Six months later, they had raised a little over $2 million in seed capital. It was 2014, and Transfix was born.

Educating Generalist Investors

Early freight tech companies faced a unique challenge: teaching venture capitalists about trucking’s peculiarities. Most of Transfix’s seed funding came from B2B-focused New York City funds staffed by brilliant generalists who knew nothing about supply chain.

“With full candor, I think most of them would tell you they did not know very much about supply chain,” McElroy said. “That was a very interesting thing for us because it’s like a blessing and a curse. You have these folks who are incredibly talented and brilliant and have perspective that transcends industries. They have great insights they can help you bring to bear from other best-in-class businesses. But then you also have to educate them on our business, and there are lots of idiosyncrasies within the world of freight that were a bit challenging to explain.”

Explaining cyclicality proved particularly difficult. McElroy described instances where Transfix would grow significantly with a shipper — capturing more of their freight share — only to report flat revenue because overall volumes and rates had dropped.

“There were times where, just as an example, from one quarter to the next we would grow substantially with a given customer, a given shipper,” McElroy said. “But if you look at it quantitatively, revenue is flat. And it’s like, well, you just told us you grew with this customer. Yes — as a percentage of their freight spend and a percentage of their shipments, we grew significantly. The problem is their volume this quarter versus last is down 25 percent, and the rate per mile is down 10 percent.”

The disconnect frustrated founders who understood freight but struggled to explain it to tech investors.

“Anybody who’s a freight operator instinctually understands: okay, you’re just taking more share, and when the cycle comes back, the growth will be reflected in the numbers,” McElroy said. “But trying to explain that to a generalist technology investor is not necessarily an easy thing.”

When Transfix began raising capital, there were no supply chain-focused investors. No Dynamo. The landscape was barren for founders pitching logistics technology.

One early pitch left a lasting impression. In 2012, at the height of clean-tech investing, McElroy framed Transfix as an efficiency play — eliminating waste in the freight network through better technology. The premise seemed logical: use tech to drive utilization of trucks and drivers, removing inefficiency from the system.

“To me, that is at the core of it a clean-tech kind of story,” McElroy said. “You’re driving efficiency, removing waste, etcetera. So I’m like, oh, these clean-tech investors are going to be perfect.”

A clean-tech investor cut him off eight minutes into the presentation.

“He just looked at me: it’s a trucking business you’re telling me about?” McElroy recalled. “I’m like, well, it’s not trucking. It’s a logistics network efficiency play. He’s like, bro, I’m a clean-tech investor. I don’t invest in trucking. That’s dirty. I’m looking for battery technology.”

That moment crystallized a broader lesson about venture capital.

“I realized then people are in their lanes,” McElroy said. “This guy had a mandate, and what clean tech meant to him was what it meant, and he wasn’t taking alternative opinions on that. Part of the journey is just finding the right lanes and finding the right partners.”

The Brokerage as a Laboratory

What separates Transfix from other transportation management system (TMS) providers, according to McElroy, is a decade spent operating as a broker before pivoting to software.

“The brokerage was a lab to build this TMS,” McElroy said. “We talk to these brokers and they’ll literally sit there and give us the side-eye: you sound like a broker. Well, that’s because we are. Yes, we’re here to give you technology, but we built this not in a lab, not with a bunch of MBAs and masters in engineering on a whiteboard going, what should the freight people do?”

The difference, McElroy argued, shows in the product.

“We had the freight people sitting with the engineers, sitting with the product team, and building it together,” he said. “It’s reflected in what we’ve put out. There’s no doubt in my mind about that.”

Transfix took the approach to an extreme. Every engineer in the company has covered a load before writing code.

“You don’t get to go and write code unless you can actually articulate what these people are trying to do,” McElroy said. “That direct experience and realness matters. Freight is big and complex and nuanced and occasionally weird. If you just try to do it in a purely academic way, it’s not going to work. You’re going to get not such great technology.”

What It Means for Brokerages

The stakes for brokerage owners considering their technology future are significant, McElroy warned. The gap between technologically advanced operations and analog competitors is widening.

“I would suggest increasingly that is not going to be the case,” McElroy said of historical parity in unit economics between large and small brokers. “The difference between a properly technologized brokerage and an analog brokerage — the gap in the P&L and the actual unit economics and profitability — is going to continue to widen.”

The math is stark. McElroy pointed to variable cost per load as the critical metric.

“If you’ve got costs of $100 per load and I’ve got costs of $25 per load, that’s $75 that I can play with to either make four times as much as you or lower my cost so that you can compete,” he said. “That’s a real problem, and the velocity of that I think is only increasing.”

For McElroy, the urgency is personal. His father started a brokerage. He knows what these businesses mean to families in rural communities.

“Too many families have their whole lives tied up in brokerage,” McElroy said. “I’ve been around it my whole life. I know what this means to these people, and their teams are small and loyal and often in more rural communities. That business goes down — that’s going to hurt a lot of people. I don’t think it has to be that way.”