Rolling on the Logistics River
Welcome to the 73rd edition of The LogTech Letter, and the first of 2022. TLL is a weekly look at the impact technology is having on the world of global and domestic logistics. Last week, I opined that the choice between resiliency and efficiency was not a real choice at all. This week, I’m digging into the emergence of rolling funds in venture capital, and what it means to the world of logistics.
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.
My good friends Brian Laung Aoaeh and Lisa Morales-Hellebo are venture capitalists. They started their fund, Redfashioned, in mid-2021 with a fundraising strategy designed to accelerate their ability to fund early-stage companies. How? By moving toward a rolling fund model. What’s a rolling fund? Here’s a really good primer from Natasha Mascarenhas at TechCrunch.
Simply put, rolling funds allow fund managers to fundraise on an ongoing basis (typically quarterly), and not as part of one big bang. There are upsides and downsides to the approach. The upsides: you can attract a bigger pool of potential investors, especially those unable or not inclined to invest a large amount in one go. The downside: you’re pretty much always fundraising, which was probably true anyway, but now is more all-encompassing because there’s the threat of an LP (the entity that invests in the investors) literally leaving four times a year.
To wit, Refashiond is raising a traditional fund alongside its rolling fund. In other words, rolling funds are helpful but not the total answer for every fund. Now that I’ve spent some time on the investor side of this phenomenon, let’s tackle the more pertinent issue, as it relates to this newsletter: what the emergence of rolling funds means to logistics technology founders.
Does it mean anything at all? If you view the market as a whole as being flush with capital, whether from VCs, private equity growth funds, corporate venture, hedge funds, family offices, etc., one question is whether another type of fund even moves the needle. Especially one where the LPs are going to be on the lower end of the contribution scale, potentially. I think it is impactful to logistics founders, for this reason: rolling funds make investing in early stage startups more accessible to a larger group of investors. So that broadens the pool of capital available. But, and this is the more granular dynamic, there’s an interesting alignment between a vehicle that links overlooked investors with overlooked founders.
Logistics is hot, and valuations among some of the brand-name, growth-stage companies to emerge the past decade are regularly breaking into the three comma club…
But logistics has still not reached the orbit of the fintech or database software markets, where multiples are truly nuts. It is still a market that’s misunderstood and under-appreciated by private and public investors alike.
It’s still a market with a plethora of founders who aren’t great at fundraising and have trouble building the narrative to link their niche product to an investor that needs the prologue of supply chain explained to them. That’s where I think rolling funds can potentially be incredibly valuable to the ecosystem as an addition, not a replacement, for more traditional early-stage funds. A fund manager that is adept at cobbling together a coalition of small (and often unknown) investors with bigger angels and LPs is theoretically the right person to also target the founders who have trouble moving the needle on narrative, but that have a product and a drive that’s potentially worth taking an early bet on.
Rolling funds, to me, seem an especially good fit for the outliers, the companies that don’t fit neatly into larger fund theses, but whose founders want something more robust than a single angel investment. In logistics, the opportunities seem to be multiplying exponentially. And the pool of players with SaaS experience keeps growing.
Brian told me that “the plan ultimately is for the rolling fund to be a side-car vehicle to the institutional fund; same investment thesis, same investment strategy, same team, same investments. Only difference is that the rolling fund is for individual investors, and the traditional fund for institutional investors.” They believe this approach “will harnesses the enthusiasm of community with institutional capital to aid early-stage supply chain technology startups as they navigate towards product-market-fit.”
To be clear, the use of rolling funds across sectors is about more than just finding an efficient way to group individual investors and easing the big-bang burden of fundraising. It’s also about more than pursuing a niche investing strategy in any one industry. But I think it may find a very good purpose in linking niche logistics startups to investors that may have more rational expectations about the size of return they get than institutional investors expecting a 10X return from the fund they back.
Here’s a roundup of recent pieces on JOC.com from my colleagues and myself (note: there is a paywall):
Speaking of the three comma club, project44 made some more news this week, raising a round which translated to a $2.2 billion valuation (the biggest I can think of for a pure SaaS provider in logistics that’s emerged in the past decade). The company has raised three big rounds in 13 months, acquired three companies in that time, and there’s an IPO seemingly in its future. More broadly, p44 has become the reference point for logistics SaaS, with Flexport more the reference point for digitally-enabled intermediaries.
On the other side of the pond, Transporeon has been as active as anyone, making two acquisitions this week, including the TMS vendor SupplyStack. That’s five additions in 15 months that lift its visibility, machine learning, and execution capabilities for shippers and its network of connected carriers.
And here are some recent discussions, reports, and analysis I found interesting:
Pete Mento of Wayfair discussed the roiling waters of ocean freight with Matt Priest and Andy Polk at FRDA. I mean, you pretty much have to listen to this one.
Another must listen: Vizion’s Kyle Henderson rapping with Charley Dehoney, new VP for ZE BOX, the French accelerator, incubator and investor.
Interesting commentary from Bertrand Chen, CEO of the Global Shipping Business Network, on how the shipping industry can digitally come of age.
I spoke to Chris Jolly, the Freight Coach, for his podcast. This one was a lot of fun and not many punches were pulled.
TPMTech Session in Focus:
From now until TPMTech in late February, I’ll be spotlighting a different session at our upcoming event, to be held Feb 24-25 in Long Beach, Calif. Ports are, of course, in the news all the time these days, for all the wrong reasons. In the shadow of massive congestion that is unlikely to be unwound by the time TPMTech convenes, I’ll be chatting with Peter Creeden, and a consultant and liner carrier veteran, about how ports can recast themselves as digital hubs to improve, not constrain, the flow of containerized goods.
Some upcoming events I’ll be involved in:
On Jan. 26 in Las Vegas, I’ve got a fireside chat with E2open CEO Michael Farkelas at the Manifest conference, which should be a great warmup for his kickoff keynote and discussion with me at TPMTech a month later.
Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.
