Issue 49 | "White Glove Love", Daimler, Amazon/Baylo, Geospock
|Jan 14||Public post|| 1|
Dynamo Dispatch. Weekly update from Dynamo covering the latest and greatest in supply chain, mobility, and building venture-scale businesses.
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Weekly Commentary 💭
The NY Times circulated a piece this past week discussing a trend of founders declining venture capital. I thought it's worth cutting through the noise to address venture funding as it relates to supply chain startups, specifically. To start, not all businesses are created equally and more importantly, each founding team have their own dynamic as it relates to ambition and growth capability. These attributes ultimately impact a company's financing strategy.
As Josh Kopelman at First Round puts it, venture capital is "jet fuel" and a very specific set of companies fit the criteria to take it. Peeling back the onion, not all venture funds and specifically, seed funds are created equally — smaller funds have smaller exit value needs vs their larger counterparts. The driving factors ultimately boil down to check size, ownership, and reserves. To detail, more a fund owns per dollar deployed and the better they can maintain that ownership, the greater tolerance for “smaller exits.” This requires a fund to “go big, later" or "go early and lock down ownership” - not easy in the reality of things. A simplified example: $10M with no expenses, 25 portfolio companies, $400k for 5% ownership, no reserves so assume 50% dilution before exit, oversimplification of the return distribution, not taking a preference stack into account. Most GPs target 3x returns over a 10 year fund life. So what does that mean? That means that the fund needs $400M exit value to return $10M and a $1.2B exit value for $30M. Turns out dilution is nobody's friend. So what does this mean for founders in the space?
The diversity of functions, problems/solutions, and business models make almost the entire spectrum of financing options viable in supply chain. The industry is typified by fragmentation, service-first thinking, physical goods, and short time to revenue but long time to critical mass (and scale). This generally means that venture capital is ill-suited for most businesses due to product, go-to-market, revenue model, and timing issues. Simply put, VC is good for businesses that have 1) a large addressable market/a market that's fast growing, 2) a founding team that gets the demands of VC, and 3) an opportunity that can reasonably generate a healthy return for the investor (assume 3x minimum in 10 years). Other factors tend to include: large product investment requirements, path to product/market fit, and scalable go-to-market (the latter two are usual not evident/fully clear at seed). It's great that more financing options are becoming available. VC as the status quo, go-to for funding is incorrect. So what are the other options?
Money comes from many sources and full of nuance: bootstrap/self-funded, high net worth investors, private equity (majority investors), bank financing, specialty lending, grants, revenue, and VC. Bootstrapping is great for businesses that have relatively fast time to revenue and for founders who want to own most or all of their business. I see many who are fortunate to have friends/family with the means, take some dilution or a loan to juice their progress without being beholden to a certain return profile. Freight brokerage, mid-market SaaS solutions are a great example of businesses that could grow this way. High net worth investors (usually angels or family offices) are great sources of capital that tend to be less sensitive to returns. Asset-based businesses or those that require manufacturing can be a fit for this group. It’s worth noting that neither of these aforementioned sources preclude one from raising venture and they aren’t exclusive to venture backed companies despite being associated with them. Private equity has long played in supply chain. They tend to seek tenured operators, majority positions with control rights, and write large checks up front in the hopes of 7-10 year gains — smaller firms tend to be more open to minority investments. We've seen freight forwarders, brokerages, and increasingly, SaaS businesses attract PE. Bank financing and speciality lending is debt — an obligation on a company balance sheet that can also include minimum cash payments, and performance covenants. It's usually harder to come-by for startups but can be a fit for asset heavy industries, manufacturing, and where factoring (fronting cash for receivables) is advantageous. I would note specialty lending can be highly bespoke so can be driven off revenue or growth metrics. Grants are usually great for really early, high-tech products but requires a special approach to earn. We do see this as a precursor to venture capital or other funding in the case of — robotics, energy, applied ML solutions.
While not an exhaustive perspective, it should be clear that VC fits a minority of businesses in this sector and the spectrum away from VC. "VC raised" is an ego metric and not all business need VC to grow to a critical mass. Furthermore, founders that raise VC are not any more special vs those who have the self awareness and realization that they're/their business are ill-suited for it. The easiest way to attract outside capital ultimately is your customer's dollar. Revenue is the best source of capital and if you're earning it consistently and acquiring it efficiently, that generally brings investors of all types to your door.
We Are Dynamo,
Supply Chain 📦
DHL Robotics Investments Provide 25% Productivity Boost. We noted that industry payroll numbers showed a slowdown in hiring on the part of parcel carriers. This can largely be attributed to an improved ability to cope with "surge" — industry-speak for spikes in volume — without costs escalating in lockstep. Automation investments are starting to show their worth by empowering existing talent and seasonal hires to cope with more volume.
📊 US Holiday Parcel Delivery Benchmarking. Shipmatrix analyzed parcel carrier data through the holiday and it turns out that USPS Parcel Select led the industry with 98.8% on-time delivery. UPS came in second at 98.3% and FedEx at 97.6%.
Profile of Wisetech Founder, Richard White. White leads Wisetech, one of the most acquisitive players in supply chain technology. Their strategy has been to serve as an "app store" by aggregating products that customers can use across geographies and functions. Also loved this statement — "Technology convergence is also going to take a big share of the logistics spend and turn it into a technology spend. This means technology could account for 10% of the industry's revenue in a decades time."
🌟 eCommerce Driving "White Glove Love". As people continue to gain comfort around the purchase of beds, furniture, appliances, the demand for white glove, last mile services will increase. Many incumbent carriers have growth their exposure to this offering. This week, JB Hunt paid $100M for a NJ-based company that specializes in large deliveries.
JD Ready to Offer "Fulfillment Tech as a Service". The Chinese eCommerce behemoth is ready to offer it's retail fulfillment platform to retailers in North America (the existing network in China is highly automated and can offer same-day and next-day delivery to 99%+ of the country). It looks like they are going head-to-head with Amazon FBA that focuses on SMBs, primarily. The question is if large retailers will use JD's services — perhaps if they gain comfort that the JD/Google effort won't cannibalize sales?
Brokers Move Aggressively to Undercut Carriers on 2019 Contract Freight. It seems that the sentiment is that the trucking market feels a bit more "normal" after a hot 2018. Spot rates are sitting below contract rates and tender rejections (when a carrier rejects a load) are also relatively low — that underpins sentiment that the market is "loose" with ample capacity. Turns out that brokers feel like they can lock in freight and play the spot market for capacity.
📊 Asia Air Cargo Volumes Down. A leading indicator of trade trends is down 2.3% y/y in November 2018 and the first time in over two years. One can't discount the ongoing trade tension between the US and China as a cause.
🎙 DoorDash's Last Mile Delivery Ambitions. It goes beyond food to empowering main street business with delivery for things like clothing, sundry items, and more. It might be that the operational model actually improves with higher-value, albiet more infrequent orders of t-shirts, notebooks, and more.
Walmart Adds Udelv to Autonomous Delivery Pilots. Walmart adds Udelv's autonomous cargo vans to it's delivery pilot. Last mile is large enough for multiple winners and requires a lot of regional intelligence and understand. I don't think the market opportunity is encumbered with multiple startups working with Walmart. I suspect our friends in Bentonville will pilot as many carriers as possible, select the best performing, and allocate different providers in different regions.
Amazon Piloting Garage Delivery. Following up on the previously announced in-home delivery option is an option for garage delivery. While the look and feel of a garage might be akin to a warehouse, privacy concerns are still high.
Daimler Abandons Platooning for Full Autonomous Push. It looks like Daimler is abandoning platooning for the time-being as it plans to begin testing Level 4 vehicles later this year with a plan to roll-out fully autonomous vehicles in the next 10 years. The current Level 2 vehicles are being marketed clearly as an assistance system that requires drivers to remain alert and aware.
📊 Auto OEMs Plow $300B into EV. Great breakdown by OEM with VW leading the majority of the investment ($91B). Interesting to note that in the EV revolution, China seems to be the winner, garnering $136B of investment with a majority going towards manufacturing at scale.
Hyundai's Holographic HUD Navigation. The product will show route information and warnings from ADAS overlaid on the road for the driver to see without wearing a headset. While we've seen startups come-and-go in the HUD market, this seems promising (and cool).
2019 Mobility Startup Pitch Finalists at AutoMobili-D. Ted Serbinski of Techstars announces the 17 mobility startups selected for the 2019 AutoMobili-D Startup Pitch Competition at the North American International Auto Show.
Amazon Echo Auto in High Demand. It turns out that 1M+ people want Alexa in their car.
Strategic Developments, Fundraises, M&A 💸
Amazon/Balyo Announce Partnership for Self-Driving Forklifts. As part of a commercial agreement, Amazon gets cash-less warrants representing 29% of Balyo's stock if they order up to €300M of Balyo product.
Uber's Path to a $90B IPO. The Information looks at previously undisclosed documents to understand Uber's financial performance. Turns out the company expected EBITDA of $1.5B in 2020, foreign investments are worth $12B alone, and on-going investments into product lines like Eats are driving up losses. Management still seems optimistic that it now can control it's destiny and drive cash flow at-will.
Ford's Rough Week: European Downsizing & 🌟 Chariot to Close By March. As the industry copes with slowing demand, emission mandates, and a changing mobility landscape, Ford appears to be trying to cut it's losses in a region where it's continually underperformed. It will lay off "thousands" of European employees and shutter factories, rationalize product offerings, and joint ventures. On the Chariot front, it's interesting to see that in NYC vans were averaging 9 riders/day. It might be that such a format in small, dense urban environments is less effective with the rise of micro-mobility form factors.
AV Software Maker, Aurora Expected to Clinch $500M Investment Led by Sequoia. The yet-to-close round will value Aurora at $2B+ making this Sequoia's single largest commitment to date. Aurora is building software for AVs.
Geospock Raises €11M to Scale Data Offering. The company provides time and space - specific analytics, insights, and predictions for mobility applications. Cambridge Innovation Capital led the round.
Flytrex Closes $7.5M Series B. Flytrex will use the funds to scale existing drone delivery operations in Iceland, North Dakota, and to scale the FAA-sanctioned service in North Carolina. The round was led by Benhamou Global Ventures.
Scape Technologies Raises $8M Seed. The company applies computer vision to determine location accuracy — a "visual positioning service." Local Globe led the round.
Postmates Raises $100M Series F. The round came at a valuation of $1.85B (up from $1.2B in September) led by BlackRock.
Bird to Raise $300M. While Bird did not comment on the news, Fidelity is expected to lead the round at a flat valuation of $2B. It's suspected that takeover talks by Uber might have also fizzled.
TemperPack Raises $22.5M led by Revolution Growth. TemperPack makes and sells recyclable packaging materials.
Humatics Raises $28M To Ramp Microlocation Offering. Tenfore Holdings led the Series A.
DB Schenker and Magento Partner on SMB 3PL Offering. The extension on Magento Marketplace will provide an easy and cost-efficient warehousing service for eCommerce vendors. Benefits will include pick/pack and delivery along with visibility.
Company Building 🛠️
🌟🎙 Vinod Khosla on Building the Future. Khosla provides some great perspectives on building large companies. A few things that stuck with me — "you’re obstinate about your vision, but you’re flexible about tactics as things change"; "the single hardest decision you’ll make is whose advice to trust on what topic"; "Entrepreneurship is a funny thing because the vision is impractical. If you’re reasonable, you won’t do unreasonable things. It’s just by definition."
Capital Efficiency vs Equity Efficiency. An Equity Efficient company is a business that doesn’t rely on a lot of equity capital to be invested for it to grow quickly. It may require a lot of capital, but not necessarily equity capital. Top of mind given the NYT article on VC and Tweetstorm I got pulled into.
OpenView on Product Led Growth. The interconnectivity of supply chain makes it conducive to implementing PLG concepts — where the value prop results in the product being a part daily workflows and over-time, a key part of the business. I see this dynamic in many of our investments — Slope, ODYN, Stord, Tenderd, and Skydrop to name a few.
Creating a Data Roadmap. While other aspects of company building have formalized around planning, data science and engineering best practices are maturing. A roadmap is a great way to get feedback and communicate the data organization's priorities.
Who's Hiring? 👩💻
Customer Success at LogisticsExchange in New York, NY.
Senior DevOps Engineer at SKUPOS in Denver, CO.
Full Stack Developer at VectorAI in London, England.
Check out other jobs at Dynamo portfolio companies.
🗞️ If you were forwarded this and found it interesting or helpful, please sign up.
🎙 Check out Dynamo's podcast series, The Future of Supply Chain.