COVID-19 Enterprise Transportation & Logistics Venture

COVID-19 Puts Supply Tech Under The Spotlight

Illustration of delivery boxes outside a door. [Li Anne Dias]

The COVID-19 pandemic has moved supply chain and logistics technologies to the public eye like few times before, as shortages at grocery stores and the distribution of a possible vaccine highlight the importance of moving goods and essentials.

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However, just as the industry has taken on added importance, investment funding seems to have hit a low ebb.

So far through 2020, investment dollars in supply chain tech have lagged behind previous years, according to Crunchbase data. In 2018, global supply chain investment exploded, hitting $21.8 billion, up from $5.6 billion in 2017, then dipped to $15.6 billion in 2019.

Thus far this year, the sector has seen only $11.4 billion invested. In addition, one of the six $1.5 billion-plus investment rounds that occurred this year was when Chinese truck-hailing firm Manbang Group raised $1.7 billion from investors that included SoftBank Group and CapitalG just last month.

Falling dollars

Others in logistics and supply chain tech such as Ryaen Holding, a Singaporean company with holdings in many different sectors, and Gojek also have been able to secure investments of more than $1 billion this year, but those deals aside, money has not rolled into startups in the sector this year as in the past.

That could be due to the lack of results, said Oren Zaslansky, founder and CEO of logistics provider Flock Freight.

“There really has not been a lot of winners yet,” said Zaslansky, whose company recently secured $113.5 million in a round led by Softbank. “Not a ton have excelled.”

Zaslansky estimates only about half of top-tier venture capital firms have made bets in the space, as many startups have struggled to produce significant revenue numbers and margins for their investors.

“It is a space not well understood by VCs,” said Mahesh Veerina, CEO and president of Milpitas, California-based Cloudleaf, a platform developer for supply chain visibility in pharmaceuticals and other industries.

COVID-19 impacts

However, the current pandemic only brought more attention to a sector that already has been transforming itself over the last several years due to floods, fires and trade wars—putting a focus on visibility into the supply chain instead of optimization and price.

The pandemic has only accelerated that change and put the entire sector under a hotter spotlight.

“There’s no doubt about its impact,” said Flexport founder and CEO Ryan Petersen, whose company offers freight forwarding services tightly integrated with a supply chain visibility platform.

Petersen founded Flexport in 2014. The San Francisco-based company raised a $1 billion Series D last year at a $3.2 billion valuation, and interest in the industry has steadily increased, he said.

Petersen said COVID-19 certainly has made more people take note of the supply chain sector, especially with weekly U.S. imports up 10 percent to 15 percent year-over-year and dramatic shifts in overall consumer buying.

It also has illustrated how difficult logistics can be when a variable—like a pandemic—enters into the equation.

“There was a 10 times to 20 times increase in PPE (personal protection equipment),” said Petersen. “That kind of increase doesn’t just happen overnight in the industry. You see how hard it can be to scale.”

Moving things ahead

Investment in supply chain tech could well pick up as logistics will remain in the public’s eye—and under pressure—with the introduction of new COVID-19 vaccines.

Veerina estimated that vaccine shipping alone should increase in the U.S. 4 times to 5 times due to the expected COVID-19 vaccines.

The good news may be that the drug supply chain was digitized recently when laws were enacted in the U.S. in 2015 to cut down on counterfeit drugs, said TraceLink CEO Shabbir Dahod, whose company helps with tracking and compliance in the pharmaceutical and health care industry.

That digitization has brought more visibility into the movement of drugs and other goods, said Tyson Baber, lead investor at the firm Georgian and a member of the board of directors at TraceLink. The industry as a whole has shifted from optimization to visibility over the years, and that shift eventually will lead to the next phase in the industry of gaining actual insights from that visibility, he added.

Interest high

That digitization and visibility could lead the next wave of investment, is something many see as happening in only a matter of time.

“The market is very active right now,” said Veerina, adding that he has been contacted by a dozen private equity firms this year looking to offer growth funding. “I’ve never seen so much inbound interest.”

While autonomous vehicles and drones may be a bit further into the future for the logistics sector, technologies around improving the connectivity layer that helps keep the supply chain together, as well as artificial intelligence and machine learning, all should continue to see investment, Petersen said. Others pointed to increased spend on IoT technologies like sensors and 5G.

There were examples of that increased interest just last month when Coupa Software acquired Ann Arbor, Michigan-based LLamasoft, an AI-enhanced supply chain design and planning software developer, for about $1.5 billion. Private equity firm Thomas H. Lee Partners also announced last month’s close of the new $900 million THL Automation Fund, which will back automation companies in sectors including logistics.

New players in the market

The changing landscape of the supply chain and new technologies could entice strategics from outside the more traditional logistics space to eye the sector for investment or dealmaking, both investors and executives said.

Large enterprise resource planning companies such as Oracle and SAP could view the supply chain as a natural expansion of their platforms, Petersen said.

Cloud providers like Microsoft and Amazon also could be interested in the sector as more supply chain data flows through and is dependent on their infrastructure, Veerina said.

More traditional logistic giants, DHL and C.H. Robinson, also have shown continued interest in advancing tech in the sector. DHL has invested in a handful of startups, while late last year C.H. Robinson announced it would invest $1 billion in technology over the next five years.

“There is no doubt COVID accelerated innovation out of necessity,” said Tim Gagnon, head of Robinson Labs at C.H. Robinson. “It would be surprising to me if we don’t continue that acceleration.”

Illustration: Li-Anne Dias.

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