The freight industry historically hasn’t been an area ripe for venture capital investment. But that’s changing, according to Kevin Diestel, managing director for Sapphire Ventures, a venture capital (VC) fund.
“We’re seeing a maturation among this enormous, multi-trillion dollar space. And we’re seeing it on a daily basis,” said Diestel at the virtual FreightWaves FreightTech Venture summit on Wednesday.
Diestel, who was a panelist in the fireside chat “VC Perspective: How FreightTech is Different,” also said that Sapphire is meeting with startups on a weekly if not daily basis.
Historically, freight has been a more transactional space that’s a little heavier on the service and labor side, Diestel said.
But the industry has evolved in recent years amid the influx of data that’s become increasingly available within the industry.
For instance, project44 takes huge sums of data and gleans insights from it for the company’s constituents.
Meanwhile, companies that are able to acquire data from the supply side and demand side and are able to aggregate that data in some way, such as Uber and Airbnb, create liquidity and offer a better overall experience for constituents.
“Every one of our investments is based on data, data, data,” Diestel said.
Diestel’s company invests across the technology spectrum and has managed over $4 billion in assets under management. It has had its hand in over 35 merger and acquisition exits and more than 20 initial public offerings. The companies that Sapphire has been involved in range from enterprise software to consumer goods and include 23andMe, Culture Amp, Fitbit and project44.
Tech investments can be described as being vertical —within an industry — or horizontal, which is across industries but with an application aimed toward a specific business segment such as human resources.
In vertical, you want to be true experts in the space and you want to understand the constituents from top to bottom and who are the buyers, Diestel said. In horizontal, you’re looking for broadly applicable solutions that span industries, and you’re generally targeting the same buyer or champion. Sapphire invests in both, he said.
If a company is interested in FreightTech and takes a vertical approach, there are numerous revenue opportunities available, such as the traditional software-as-a-service (SaaS) model and hardware-supported SaaS to the marketplace model. Other revenue opportunities include subscriptions, recurring offerings, professional services and services offered by freight forwarders.
What matters to Sapphire is the quality of the revenue, Diestel said.
“Freight is a great example of where you can get a whole slew of revenue types and revenue streams. How we really think about it is more around the quality of that revenue. What is the value of that revenue stream?” Diestel said.
Meanwhile, each type of revenue stream can vary in its worth and purpose, with some revenue streams providing efficiency and net-dollar retention if not necessarily higher revenue.
“I don’t want to swing too far one way or another on which revenue streams are better. … There are a bunch of elements underlying those [streams] in terms of the quality and the valuation of that revenue,” Diestel said.