Category Archives: Investing

FreightTech investment: With the cheap money gone, what happens now?

How do innovations get to logistics and supply chain firms? Here is the current state of the situation.

We went through a period of high venture capitalist (VC) interest in Supply Chain and Logistics startups. but now with some contraction and with high interest rates, the money is drying up. How will firms get money to develop innovations?

As so often in tech, the big question is, hardware or software? Years ago in Silicon Valley that was the intro line used at parties!

Hardware products require more involvement with the actual situation where they will be made or used– a use test bed. They need to be developed near users’ sites. Software products, like scheduling software or logistics management software, can be built anywhere and tested via the internet. They require much less physical user involvement.

And hardware products require immediate feedback from the users as they are being developed. They need to fit, to match the required form factors, and to be able to handle the situations encountered in the location of use. So customers are consulted as you go along, and serviceability is built in as the design progresses. In fact, often the design is the service that is actually being sold. Serviceability is built into the first viable product.

With software, on the other hand, customer service capability is pushed off down the road. It doesn’t become a burden on the firm creating and offering it till there’s a large customer base. And that’s the moment of truth for software-based firms– when they have a large customer base, and the engineers can no longer handle the problems themselves. Normally this occurs more than five years after the first viable product is produced.

This distinction between hardware and software in serviceability makes a substantial difference to VC investors. They normally want to see their investment returns within 5 years, via a public offering or a SPAC or acquisition. With software, they are more likely to be able to cash out before the difficulty occurs. With hardware, the whole development and service framework must be devised before the innovation firm can cash out.

So VCs strongly prefer software investments.

Hardware investments, on the other hand, are often developed as partnerships with user firms, and they have continued oversight as they go along, along with investments. The concerns are going to include how the product is maintained and what service needs it has. And the investments are more likely to come from logistics or material handling firms that have the ability to provide testing sites and engineering oversight for the project. So the investments are more likely to not come from VCs, but from potential clients or users of the hardware.

It’s just the way of the world. The graph here shows all the red software investment dominates in most years since 2017. The data is the market valuation of unicorns, firms with over a billion-dollar market valuation, identified by Crunchbase, a firm that tracks startups and innovators and the investors that choose them. Market valuation will give a good idea of the money that can be returned to investors.

Source: Graph by author from Crunchbase Unicorns data.

Notice also the industries favored (the red bars). Supply Chain investments, and Auto and Transportation, are way down the list. The large valuations are in soft industries like Fintech, Internet software, Cybersecurity, and Artificial Intelligence.

VCs know where they can get the returns. Don’t expect them to jump up and support your new electric forklift or container mover.

Grace Sharkey Friday, June 17, 2022

FreightTech investment: With the cheap money gone, what happens now? – FreightWaves
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Maersk invest in ZigZag Returns

It’s clear that Maersk is making bets as a venture capitalist on young firms with unique value propositions. They have made an investment, via Maersk Growth, in ZigZag, a London-based firm.

I had never heard of ZigZag before.  They offer a SaaS (Software as a service) that allows manufacturers and retailers to manage returns in a one-stop manner.  Their services include hard logistics assets like access to warehouses and sortation centers and access to carriers, as well as just the software.

The story indicates some of what they do.  We all know that returns are a unique type of operation, whose nature differs with the type of industry.  HP has been doing it for many years in the printer division.  But I was interested to find out that there is a lot of interest among clothing manufacturers or retailers.

Apparently people buy clothes, use them for a while, and then return them, even for no refund.  There is also a temptation for retailers to get rid of stale inventory by simply throwing it in a landfill, a sustainability issue.  Easy returns offers an opportunity for a firm that can handle these problems efficiently and in a sustainable manner. (I presume there might be an incentive to cheat; but certainly a specialist could do a better job because it’s their core business).

I doubt that ZigZag will be merged with Maersk.  However, the bet makes sense when you understand that a lot of what Maersk carries is clothing manufactures from the Far East.  If ZigZag can help these clients it could make a difference in the clients’ bottom line, and Maersk would be able to say they helped with the supply chain problems.

Reach ZigZag here: https://www.zigzag.global/

screenshot-Zigzag 2019-11-06

via Maersk invest in ZigZag Returns – Press Release

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Most business incentives don’t work.

We’ve already seen and heard of many instances where business incentives granted by governments to firms moving in have not produced results the politicians wanted.  Why is this?  Which incentives work?  Finally there’s a study that sheds light on this. It’s important advice for local and regional leaders.  One should always take economic research with a grain of salt; but if even a few awful cases could be prevented the benefits for local economies would be great.

Tim Bartik and John C. Austin November 4, 2019

screenshot-www-brookings-edu-2016-10-19-08-47-331

via Most business incentives don’t work. Here’s how to fix them.

Here’s the PDF of the study by Bartik:

Bartik 2019 – Making Sense of Incentives_ Taming Business Incentives to Promote