Monday, September 2, 2019

“The FreightTech venture cycle is here to stay. Ignore at your own peril. - FreightWaves” plus 1 more

“The FreightTech venture cycle is here to stay. Ignore at your own peril. - FreightWaves” plus 1 more


The FreightTech venture cycle is here to stay. Ignore at your own peril. - FreightWaves

Posted: 01 Sep 2019 11:10 AM PDT

FreightTech venture investing is super hot, but most of these startups continue to lose money. Is this a fad or something else? 

Last year, FreightWaves created a FreightTech Venture Index to track the venture capital (VC) investing in FreightTech startups. The term FreightTech is defined loosely as software companies and other technologies that aid in the movement of freight or management of supply chains through logistics. 

In prior studies, we eliminated companies that were involved in on-demand mobility (Uber for instance), because much of the investment was targeted towards personal mobility and not freight movement. 

Recently, mobility and e-commerce companies have started to play a much bigger role in the freight innovation map, with significant resources deployed to expand their on-demand mobility networks and experience into the logistics sector. With companies like Uber, Amazon, JD.com, Alibaba and others building out freight networks and looking more like logistics powerhouses, the lines between personal mobility and freight movement are starting to blur. 

Going forward, we will include venture funded on-demand mobility companies in our studies, as long as they include freight logistics as a core product offering. These firms have been some of the biggest freight innovators of all and dismissing them because they do other types of mobility businesses leaves total investment under represented.


The logistics sector (defined as the movement or management of freight) is a $9.6 trillion sector, globally. In the U.S. alone, logistics represents $1.6 trillion, or approximately 8 percent of domestic GDP. Compared to financial services revenues, logistics is bigger, with financial services generating $1.5 trillion, or 7.4 percent of domestic GDP. 

FinTech has been one of the hottest venture sectors for the past decade, while FreightTech has only recently become a core focus of Silicon Valley investors. FinTech describes the software services and other technology used to support or enable banking and financial services. Payments, money movement, capital markets or insurance technologies are sub-segments of the FinTech industry. 

In 2018, FinTech received $40.5 billion in VC investment, while FreightTech received $10.4 billion. More remarkably, however, FreightTech saw an explosion of interest from VC, growing by more than 400 percent, from $2.3 billion in 2017. FinTech doubled between 2017 and 2018. Since 2014, FinTech has grown by almost 500 percent, while FreightTech has grown by almost 1,000 percent, according to an analysis by FreightWaves using Pitchbook data.

FreightTech Venture Capital investing measured by total VC dollar investments:

So far in 2019, FreightTech startups have raised $5.6 billion of venture capital, while FinTech startups have raised $19.1 billion of venture capital. 

Venture investing momentum in FreightTech is unlikely to slow down anytime soon. VCs tend to be momentum-driven investors, following their peers, but also looking at broader market trends. With companies around the world making significant investments in delivery and logistics networks to remain competitive, VCs will want an outsized share of the upside. 

Over the next decade, companies that fail to invest in their logistics networks will find themselves disinter-mediated by companies that do. Consumers and companies alike will want real-time visibility, custody tracking and sourcing information, combined with near instant on-demand fulfillment. 

Restaurants, retailers, distributors and manufacturers that fail to adapt to these demands will be as endangered as a niche media outlet that generates a large percent of its contribution margins from paywall subscriptions

 There is only one thing stronger than all the armies of the world: and that is an idea whose time has come. -Victor Hugo

Existing incumbents that have maintained their go-to-market strategies for years or decades with little value add to their clients will be displaced by venture-backed startups.

Incumbents that have a dated understanding of established business cycles and go-to-market strategies will be forced to adapt to a new way of thinking. Simply blowing off venture startups and their founders as idealistic, impractical and cocky is foolish and demonstrates historical ignorance or context. 

Blockbuster versus Netflix is perhaps the greatest example of a market leader that pretended that a scrappy VC-backed company couldn't displace them. Blockbuster had the chance to buy Netflix on multiple occasions (for as low as $50 million), but miscalculated where the market was headed and underestimated the advantages of Netflix's business model and tech team. 

Incumbent company execs interpret VC fundraising success as grandstanding for follow-on venture funding, without understanding how or why these same startups attract investment to begin with. They dismiss their business models as "unsustainable" or "ill-conceived", assuming that the founder is clueless, arrogant, or living in a fantasy world. 

In the early days of a startup's funding cycle, Seed or Series A, a company doesn't have to generate revenue. Often times, a good idea, charismatic entrepreneur, and a large total addressable market (TAM) size is all you need in the earliest days of startup. For FreightTech companies, the enormous size of the total logistics market ($9.6 trillion) is so massive, even in specialized areas, that investors know if the company has early traction in the market, it can grow to a big enough size for a large exit.

The amount of investment is often small in these early days (a few million dollars), just enough to get the company to a stage where the first couple of paying customers will buy the product. 

Later stage companies that raise larger rounds (Series B and beyond) require product market fit, which means they need paying customers and high revenue growth. The biggest risk to a startup is running out of money, and tech-enabled startups that have high revenue growth and favorable unit economics almost never run out of willing investors to support the company. 

Startups that are not growing fast (40+ percent year-over-year) face pressure by investors for a premature exit, often to a larger company, where the startup becomes a bolt-on product or feature of the acquirer's core business. Lack of revenue growth is death for a startup, lack of profit is not. 

In order for a startup to generate revenue, it must deliver real value to customers. The assumption that startups only play for venture capitalists and not for customers is usually held by the existing incumbents that are confused by the new entrants' business model and go-to-market strategy. The tactics of the disrupter are usually drastically different than the incumbents, so the legacy companies write the new player off as a flash in the pan or assume the startup is given market credit that is neither deserved nor earned ("hype"). 

Paying customers will have a different perspective, however. 

Fast revenue growth is a sign of an under served client need identified by the new entrant. If the incumbents were serving the client's needs, the startup wouldn't have an opportunity to gain a foothold in the market and wouldn't make it past a Series A funding. 

In what is considered by many to be the most important book in Silicon Valley, Innovator's Dilemma, incumbents misinterpret the opportunity, often dismissing it as a small and uninteresting niche. This allows the startup to establish a beachhead without any push back from the establishment.

As is described in Wired:

"New entrants (often founded by frustrated ex-employees of the incumbents) with little or nothing to lose when they enter the market. Initially these small upstarts don't pose a threat — the new entrants find new markets to apply these technologies largely by trial and error, at low margins. Their nimbleness and low cost structures allow them to operate sustainably where incumbents could not.

However, the error in valuing these technologies comes from what happens next. By finding the right application use and market, the upstarts advance rapidly and hit the steep part of the classic "S" curve, eventually entering the more mature markets of the incumbents and disrupting them.

In essence, the smaller markets are the guinea-pigs and test labs that help the technologies advance enough to play in the big boys league. In many cases the entry-point markets are left behind as the new technologies move into higher margin upmarket territory disrupting due to their superior performance."

In order for the startup to grow, it must continue to add new revenue and client satisfaction throughout the engagement. The startup doesn't enjoy the longer history or distribution of incumbents and must innovate to gain customers. Simply using a playbook of much larger and entrenched incumbents just means competitors will run the same playbook with a lot more resources than the startup. 

As the company scales, client satisfaction is paramount. Usually this means that the startup is solving a major issue that the prior incumbents were ignoring. In later stage companies, venture investors want to see product market fit (real customer traction), high revenue growth and high paying customer satisfaction (usually tracked through NPS scores). 

Venture investors are not concerned about profits if the startup is growing revenues quickly. This confuses a lot of people that don't understand the venture investment model. Many of the most successful technology companies burn millions of dollars each year while they are growing fast. The biggest venture exits are usually companies that have high recurring (or reocurring) revenue growth, but with substantial losses. VC investors have a great deal of experience in seeing these companies become the dominant leaders of the next generation.

Even public companies can have big losses, so long as their revenues are growing. For software-enabled tech companies, investors have created the "Rule of 40," which means that a healthy company should have a combined profit margin and growth rate in excess of 40 percent. Under this guidance, companies can lose 100 percent, but grow by 140 percent and still be considered "healthy." '


Venture-backed startups are encouraged to sacrifice short-term profits, if the pursuit of profits sacrifices growth. The logic behind this is actually quite simple: fast growing revenue companies are far more valuable than slow growth, but profitable companies.

In Grow Fast or Die Slow, McKinsey studied 3,000 tech-companies between 1980 and 2012. Their conclusions were something that venture capitalists instinctively already knew, but defied conventional wisdom held by traditional business model thinkers, reporters and executives. Since the freight space has never seen the level of tech disruption that is going on currently, it is understandable that there would be a reluctance to accept it. 


In the report, the management consulting firm stated:

Three pieces of evidence attest to the paramount importance of growth. First, growth yields greater returns. High-growth companies offer a return to shareholders five times greater than medium-growth companies. Second, growth predicts long-term success. "Supergrowers"—companies whose growth was greater than 60 percent when they reached $100 million in revenues—were eight times more likely to reach $1 billion in revenues than those growing less than 20 percent. Additionally, growth matters more than margin or cost structure. Increases in revenue growth rates drive twice as much market-capitalization gain as margin improvements for companies with less than $4 billion in revenues. Further, we observed no correlation between cost structure and growth rates.

VCs also have defined exit time horizons; their investment will only be in the startup for a few years. If the startup chooses to make a profit, it isn't investing as much in marketing, product features or market expansion. With tech-enabled businesses valued at a multiple of revenues, venture investors want revenue growth above all to maximize their returns. 

Customers are usually the winners when venture startups join the market. Often, startups build their businesses with more favorable unit economics for buyers, more flexible terms, better features and service. 

Plus, with a focus on customer retention above all, client satisfaction and success is built into the startup's DNA. Existing legacy companies that are measured on quarterly profits alone are more challenged to compete and will struggle to fend off the eventual pressure of the new FreightTech startups. 

If a startup demonstrates an ability to raise multiple rounds of funding from reputable venture investors with solid track records, that signal alone is usually a sign of product market fit and high revenue growth. 

For executives where their core business is under siege, it is a difficult place to be, especially if you are apart of an enterprise where innovation funding is not readily available. The instinct is to lash out and assume the startups will either flame out or lack long term sustainable business models. In other words, when surrounded, they just shoot everyone. 

But for the freight executives that understand the current investment trend is just getting started, the best chance for survival is to take the startups very credible, assume that customers are as well, innovate internally,  find ways to partner, or acquire.

Sitting angry, defiant, and idle is death- just ask Blockbuster. And venture investing in the freight space is just getting started. 

Interested in this topic?

We will dive into innovation and technology strategy at FreightWaves LIVE in Chicago, the only conference entirely dedicated to innovation and market trends in global transportation and logistics. 

We are also looking for the most innovative companies in FreightTech in our second annual FreightTech 100 awards. If you know a company that you think is doing innovation correctly, nominate them here. 

10 fintech startups to watch out in 2019 and beyond - EU-Startups

Posted: 02 Sep 2019 05:10 AM PDT

Fintech has been exploding in recent years, disrupting the financial sector and attracting billions in investment globally. Over €2.7 billion was invested in European fintech across 104 rounds in just the first quarter of this year, and so we can expect that 2019 will be another year in which the fintech sector steals the attention of both media and investors.

Here are 10 recently founded startups using technology to simplify our finances to keep your eye on this year:

Bita – Frankfurt-based Bita is the first professional index and data provider in the digital asset space. The startup has developed software for financial indexation and systematic investing for institutions operating in the investment space. A graduate of Startupbootcamp Amsterdam, Bita was founded in 2018 and a year later, they secured €1.25 million from a group of local and international investors and are already counting some of the largest trading platforms in the world as clients.

Cleo – If you have ever been in that situation when you don't know how much money is left in your bank account and you are craving for a coffee, now you can ask Cleo if you can afford it. Cleo is an AI-powered chatbot, which connects to your bank accounts and credit cards, gives you insights into your spending and answers questions through FB Messenger. You can also set up a Cleo wallet and start saving or donate money to charity. Founded in 2016, Cleo has so far raised $13 million to become everyone's virtual financial assistant. 

Combine – Dubbed as Google Now for personal mobile banking, Combine was founded in 2016 by Irakli Agladze and Denis Moskalets to develop a mobile financial assistant that helps people control all their finances across accounts and countries. Based in Barcelona, this Startupbootcamp alumni enables secure connection of all your accounts, and then provides statistics, expense and income reports, payments, and even customer support over chat.

Curve – London-based Curve has developed an Over-The-Top Banking Platform that provides a better banking experience, by connecting the world of money into one place, by combining all your accounts and cards into one smart platform with a smart Curve Mastercard, thus completely replacing your wallet. Over 500,000 people have signed up to its smart card and app since it launched in 2018. Curve raised €49 million in July, and now the startup is even offering its customers to become part of the ownership structure, by launching a Crowdcube campaign in September 2019.

Goin – Targeted at millennials, the Spanish startup Goin has developed an app that helps them save and invest money automatically, without prior investment experience. The app is based on a simple system that first understands the user's profile and habits through questions and answers, and then offers automatic ways and methods to save money effortlessly. Once enough money is saved, the app provides options for investments, including through crowdlending and cryptocurrencies. The award-winning startup was founded in 2017, and has so far raised €2.2 million to help you make your dreams a reality.

Lunar Way is a Danish banking app founded in 2015 offering its users a basic account, money transfers, bill payment, and budgeting tools. But that's not all, you can create personalized goals and save on what you want, choose credit lines depending on your needs, and in case you have a question, there is live chat available. The startup has raised an impressive $53 million so far and is currently operational in Denmark, Norway and Sweden, with plans to further expand in the Nordics after recently raising €26 million and obtaining a European banking license in August.

Penta – Berlin-based Penta offers a digital financial services platform for businesses, helping them save time and money. Penta's banking experience offers real-time spending overview, low foreign transfer rates, Mastercards for the employees, with custom rules and permissions per card/employee and even some accounting features. In April 2019 Penta was acquired by finleap, a fintech company builder, which simplified their entry into the German market and helped them raise €8 million in August 2019 in an investment round led by HV Holtzbrinck Ventures.

Trussle offers a mortgage monitoring service. It helps customers to save time and money when securing a mortgage online, and then continues to monitor their mortgage for free and helps them switch to a better deal, if possible. Customers simply need to make a Trussle profile, indicating their specific needs and Trussle will go through 12,000 deals to find the right one, providing customers with a mortgage experience which is straightforward, accessible, and fee-free. Launched in 2016 in London, Trussle has raised so far £19.3 million to become the first online mortgage broker. 

TrueLayer – Founded in 2016 by Francesco Simoneschi and Luca Martinetti, TrueLayer has built a developer platform which allows third parties such as fintech and retail companies to access bank APIs and consumer data, enabling companies to capitalize on new Open Banking initiatives in the UK. In June 2019, the London-based startup raised $35 million in funding in a round led by Chinese financial giant Tencent and Singaporean sovereign wealth fund Temasek to expand into Asia.

Wagestream – With the aim of closing the gap between income and consumption needs, Wagestream has introduced a 'Get-Paid-As-You-Go' service, which allows employees to draw down a percentage of their earned wages on any day of the month for a flat fee of £1.75. The London-based fintech startup backed by Jeff Bezos and Mark Zuckerberg was launched in 2018 and has raised an impressive amount of funding so far: £44.5 million. Founded by Peter Briffett and Portman Wills, the app is providing greater financial security and encouraging broader financial wellness.

By the way: If you're a corporate or investor looking for exciting startups in a specific market for a potential investment or acquisition, check out our Startup Sourcing Service!

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.