A '21 prediction and p44 thoughts...

Welcome to the 21st edition of The LogTech Letter, a weekly look at a particular aspect of the impact technology is having on the world of global and domestic logistics. Last week, I advised logistics software consumers to be pragmatic about the integration they should expect from large software suites. This week, it’s a two-for-one: I highlight the technology area I expect to be the hottest in ‘21, and I dive deep on project44’s latest funding round.

As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.

For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@ihsmarkit.com or on Twitter at @LogTechEric.

Note: I’m taking the rest of the year off, and will be back with the next newsletter Jan. 8. Please direct all complaints here: https://twitter.com/rabois

It’s nearly Christmas and I’m in the spirit of giving, so not only do you get a pre-holiday newsletter, you get a buy one-get one free offer at that.

I want to first briefly explain what I see as the hottest area in the LogTech space in ‘21: document extraction, digitization, and contextualization. When I say hottest, I don’t mean to say these companies will receive the largest amount of venture capital funding in the market. That’s up for investors looking for rapid scale. Rather, I see companies building solutions in these disciplines gaining the most tangible traction among users.

Why? A) because there’s a need to digitize and understand all the data locked away in unconnected databases, email inboxes, and other existing systems that aren’t neatly networked with decision-making systems. Just ask a forwarder how much of its data is currently digitized in a common repository, much less in a workable format; and B) because these systems are a classic example of not disturbing the status quo.

LogTech providers are mostly realizing that the most powerful growth in logistics comes from software that plays nice with set, established workflows rather than ones that rip up those comfortable situations. API plug-ins, low- or no-code extensions, background data extraction or natural language processing. The types of things a user barely realizes other than noticing an effortless enhancement in the way a system works.

There are a ton of providers addressing this broad space, companies I’ve covered quite a bit, from Shipamax to RPA Labs to KoiReader to Vector.ai to Slync. More will join this space, either targeting it directly or tangentially, because there is simply so much to do. So there’s a prediction for you going in ‘21.

Now on to the bonus part of this week’s newsletter. On Monday, project44 announced a $100 million series D funding round. So what, you say? That’s like the 50th round in the last few weeks among freight and logistics software providers, and less than Flock Freight’s series C only a few weeks ago. Well, there are a few things that are significant about it. 

For one, I lost track of the number of people who told me over the past few months project44 was having trouble raising this round. That kind of chatter is not unusual - gossip is pretty standard in the VC and startup world. CEO Jett McCandless told me they took less than investors wanted to provide, and he also said the number of times they have raised has been a deliberate strategy to avoid dilution. Add it all up and the company has raised more than any other non-operator-based LogTech startup.

The latest round was an inside round, led by former investors like Insight Partners, 8VC, Emergence and Sapphire. Sometimes that’s not a great sign. Sometimes, it’s fine. As an investor told me, “late stage firms sometimes (double down) because they can get a better price than the market.”

project44 is six years old, McCandless is a canny entrepreneur who gets both the logistics industry (given his background at GlobalTranz and his founding of CarrierDirect) but also the VC industry after raising money six times, and this round is a good indicator of where the logistics SaaS space actually is. As I wrote a couple weeks back, we shouldn’t overestimate the size of the market, because it is composed of a massive number of modal, sectoral and geographic niches, not a monolithic mountain to be scaled by a single platform. Stripe’s series D was $150 million, so superficially it’s not that far away. But that was 2016. Are 2016 comps comparable to 2020?

In particular, project44 competes in a crowded space that some people feel is already commoditized. McCandless told me this week that there is differentiation among providers in the market, and that investors see project44’s approach of first building its network of carriers and service providers, essentially the API-based plumbing, as convincing enough for them to part with their money multiple times now. He hinted that visibility is not the be-all, end-all of project44’s ambitions, but rather the first application it has layered upon that API connectivity foundation. He also did not rule out a run at an initial public offering (IPO) within the next two years.

But let’s get back to the visibility product, because there’s another interesting wrinkle to this story: Insight Partners is not only the lead investor in project44 now, it is also a major investor in supply chain software provider E2open. Why does this matter? Well, E2open made some waves in the summer when it said it would basically stop charging per user and per transaction for visibility on its platform (I wrote about this in mid-2020). Insight bought E2open and took it private in 2015 and then sold a majority share to a special purpose acquisition company (SPAC) in October.

So Insight is investing in a company that potentially wants to go public by charging people for visibility while being invested in another company for which visibility is essentially a through-in. It’s an interesting hedge, and not the first time that an logistics-focused equity group has backed multiple paths to the same outcome (8VC, for example, invested in trucking telematics providers Platform Science and KeepTruckin concurrently). 

Another mini-wrinkle: McCandless is an investor in Tive, the Boston-based IoT-based visibility provider that announced a $12 million round of its own this month. Side note: read the linked press release, where you’ll see Tive investor Raju Rishi, general partner at RRE Ventures, call shipping a $20 trillion industry. That’s double the size of the what the market apparently was in the summer. The growth is almost...unbelievable (you can’t see my eyes rolling).

Will project44’s fundraising strategy ultimately work out? You can compare it to the far larger fundraises and valuations of operators like Flexport and Convoy, especially if all three end up IPOing. From sources, I’ve learned that project44’s average deal size is in the mid-$20,000s annually. How does that square with what public markets are looking for? I genuinely don’t know.

The investor I referenced earlier said project44 will need to show the market subscription revenue, not just transactional, to get the valuation McCandless likely seeks. “Transactional models get slaughtered in IPO,” he said, alluding to enterprise software (consumer-facing software, as DoorDash’s and Airbnb’s public bonanzas showed, are not so impacted).

The other way to look at this is that project44’s valuation and amount raised thus far - whether by design or circumstance - look pretty pragmatic. In other words, the array of options open to them are broader than a company that’s raised at a $3 billion valuation. Inside round or not, McCandless noted that the company has managed to avoid the dreaded down round. Couple that with measured dilution, and it might not take a big valuation - via IPO or acquisition - for he and his founding team to be in a good place.

I first wrote about project44 five years ago, ahead of most publications, because I thought their API-led approach was fascinating. As it turns out, they were not only prescient in predicting the logistics industry would eventually gravitate to APIs, they helped lead that migration. Project44 now has 400 customers, many of them brand name, huge gross revenue firms. It has a ton of big name partnerships with fellow software providers and it powers a bunch of freight brokers in North America and now Europe. But a great idea and even great execution don’t necessarily guarantee a multi-billion dollar company. Needless to say, I’ll be watching to see where this goes next.

Here’s a roundup of pieces on JOC.com the past two weeks from my colleagues and myself (note: there is a paywall):

• Speaking of APIs, Freightos has long been pushing the idea that global logistics just needs to be easier. That’s especially true for smaller shippers with limited experience and resources to manage international freight. The company earlier this week essentially rolled its freight marketplace into a bundle of APIs that can plug directly into e-commerce marketplaces. It developed this approach with Alibaba and is now connected to Tradeling in UAE. I think every e-commerce platform needs to have such a plug-in soon.

• And speaking of Freightos, I spoke with Philip Blumenthal, a veteran of Freightos (and before that DB Schenker and Dachser) about technology proliferation in the LCL market. His contention is that third party technology providers have largely stayed clear of LCL because it’s a niche market within ocean freight (which already is a niche), but also because it’s more complicated than full containerloads.

• I wrote about AscendTMS partnering with Convoy last week, and this week AscendTMS is back in the news, partnering with DAT Solutions to embed the latter’s RateView predictive pricing tool. No one has more real time, accurate truckload data than DAT, which collects completed freight transaction data on 65,000 contract and spot lanes.

And here are some recent discussions, reports, and analysis I found interesting:

• A nice recap on the startup landscape from forwarding software provider Quotiss here.

• GoFreight, another forwarding technology provider, identifies its top four trends for ‘21.

• Two of the best in the business, Eytan at Freightos and Santosh at Dynamo have a chat about the industry here. 

🚨 TPM21 registration is live, and so is the agenda. We’ll have two days of #LogTech focused programming Feb 25-26, ahead of the main program, which kicks off March 1. Each week until TPM, I’ll be highlighting a tech-focused session we’ll be hosting. 

This week, I’m shining a light on a session about digital quoting in the ocean freight industry. I’m eager to see what the industry - and shippers, in particular - make of this discussion because, I feel the development of the tools is outpacing shipper interest in it...for now. We have an awesome panel, with: Liezel Du Toit, who heads the Maersk Spot product; Laura Finbow of the rate management software provider Catapult; and Vivian Chiang, of BlueX Trade, which has built digital quoting platforms for Evergreen and Yang Ming. Don’t miss this one.

Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.