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8VC bringing logistics expertise to industry wary of venture approach

A select group of venture capital (VC) firms are responding to skepticism in the logistics industry of the value technology startups provide by tapping logistics veterans’ expertise and marrying that with the ability to help young companies grow to meet customer demand.

Part of that skepticism is to do with the VC model being so counter to the experience most logistics companies face in a fragmented, low-margin business. But some of it has to do with the belief that most startups don’t have the operational experience to truly understand a shipper’s or logistics provider’s needs and what compels them to buy a specific piece of software.

San Francisco-based 8VC is one of a small number of VC groups looking to quiet that skepticism by taking an industry-informed approach to investing in startups, essentially applying the knowledge of logistics veterans to the firm’s understanding of which products offer the most promise and then connecting those startups with customer opportunities at large enterprises.

Conversations with 8VC’s partners, strategic advisors, and investors (called limited partners, or LPs) in recent months have made it clear that the company is aiming to use institutional knowledge and industry connections to increase the success rate of the investments it makes in logistics startups. As with any VC, not all investments will be successful, but incorporating such an industry-focused network is designed to reduce the number of investments that don’t pan out.

Advisors to 8VC include former Walmart logistics executive Chris Sultemeier, retired UPS chief commercial officer Alan Gershenhorn, and Shaleen Devgun, chief information officer at the truckload carrier Schneider National as well as Daimler and Koch Disruptive Technologies (KDT), an arm of Koch Industries.

The firm’s portfolio includes investments in trucking telematics software company Platform Science, TMS enhancement platform Vector, multimodal freight visibility provider project44, breakbulk and oversize shipment management platform E2Log, and freight futures marketplace Freightwaves. It also was an early investor in the freight forwarder Flexport and the electronic logging device (ELD) and freight marketplace provider KeepTruckin.

Breaking the traditional VC mode

As shippers struggle with parsing the wide variety of software and technology-focused third-party logistics providers (3PLs) currently on the market, one factor to consider is the nature of the VC that invests in a particular technology company. While myriad VCs have added logistics-oriented startups to their portfolios, not all of them can claim to be specialist investors, much less have a defined focus on logistics, as 8VC and a handful of other venture or seed stage groups do.

Relationships with logistics executives bring a level of credibility and operational relevance to startups in a VC’s portfolio that didn’t exist even five years ago, when the nascent nature of the logistics technology ecosystem was more pronounced.

Founded in 2012, 8VC has all the markings of a prototypical VC firm, including a prestigious address on San Francisco’s Embarcadero. But in recent years it has aspired, behind 30-year-old partner Jake Medwell, to build a network of logistics practitioners to underpin its investments in the industry.

The firm is not the only VC to position itself on the forefront of logistics technology. Others include Chattanooga-based Dynamo and New York-based Schematic Ventures, as well as venture funds developed by shipping lines and global integrators. But 8VC is emblematic of an evolution toward being seen as more than just drive-by investors.

8VC recently began investing in startups out of its fourth “fund” — i.e., the fourth time it has raised money from its backers to distribute to companies it believes have transformational value. The firm has $2.7 billion under management (money provided to it by its backers) and focuses on what Jin-Young Kim, a partner that leads 8VC’s fundraising efforts, calls “smart enterprise technology.”

The problem, according to Kim, is that enterprises in “old world industries” struggle with existing IT infrastructure and need technology that “allows workers to make decisions with data, without having to code.”

“Logistics has become one of the key verticals within smart enterprise,” she said. “Logistics is an area we’ve gone very deep. Out of 40-45 investments, 10 companies are related to logistics, so it’s a meaningful part.”

Kim added that 8VC is “obsessed with product-market fit. We won’t invest if it’s just a good idea.” Although startups often develop products that appear to be useful, many fail due to the inability to adequately move the market. VCs are, to a large extent, judged on their ability to determine which are good ideas and which will gain traction.

Building a virtuous investment-advisor circle

Behind this refined approach to logistics investment is Medwell, who before co-founding 8VC co-founded Solé Bicycles, a Southern California-based manufacturer that gave him an early grounding in making, importing, and selling consumer goods.

Once at 8VC, Medwell went on a three-year foray into learning all he could about the logistics industry, primarily through seeking out and listening to veterans on the shipper, carrier, and logistics service provider (LSP) sides of the equation. That network not only helped inform Medwell’s and 8VC’s investment decisions, but also allowed Medwell to connect promising startups with experts that had deep operational experience in a specific freight transportation process.

“As one of the largest industrial companies in the world, Koch has a keen interest around transforming our logistics and supply chain capabilities to bring differentiated value to our customers and suppliers,” Chase Koch, president of KDT, told JOC.com in an email. “8VC is a key partner for Koch Disruptive Technologies as we look to partner and invest with entrepreneurs who are disrupting and transforming the space.”

“For a small company to get a pilot with Walmart or Koch, that’s an outcome-changing thing,” Medwell said. “We also have executives in the space who have spent time with people like myself, who are helpful and have in essence done some of the diligence for them. That’s kind of our secret sauce. I spend a ton of my time with shippers and carriers, and I challenge you to find other VCs who have spent so much time in Green Bay and Chattanooga.”

Sultemeier spent nearly 30 years in logistics with Walmart, the last few running a shared service division that supported all retail formats.

“We had massive scale — more than 200 facilities and a big private fleet,” he told JOC.com. “With that scale, you find yourself running the business versus the time needed looking out to the future. That’s the nature of retail. You’re constantly challenged to be innovative, but you spend a lot of time on the day-to-day.”

In his last six months at Walmart, Sultemeier spent a lot of time in the San Francisco Bay Area, “looking at what innovation was actually getting traction.”

“When I first walked into [Sunnyvale-based early stage investor] Plug and Play, suddenly for me, the light bulb went off. Oh my gosh, there are three or four companies I saw that day we could leverage immediately. Give them capital, the resources to get to the scale we need. And if we invested money in them, we could get a great return on investment. Pour gasoline on the fire.”

Soon after, Sultemeier retired from Walmart and joined Plug and Play’s advisory board. He connected with Medwell at a conference organized by the Prologis Venture Fund, the investment arm of the industrial real estate giant. Prologis has an understandably strong vested interest in promoting technologies that will underpin the future of logistics.

Prologis’ corporate offices, including those of the venture fund, are a short skip from 8VC’s, a symbol of how close — geographically and metaphorically — like-minded VCs are to one another. Most are clustered in the Bay Area, New York, and to a lesser extent, Los Angeles and Chicago, although the seed stage environment is becoming more diffuse geographically.

Sultemeier’s introduction to Medwell led to an introduction to Jack Kennedy, a long-time media executive who for a short time led the team at trucking telematics hardware maker OmniTracs (formerly Qualcomm). Kennedy founded his own startup in 2015, an Internet of Things (IoT)-based approach to telematics called Platform Science. Sultemeier said he “was convinced this was the future of trucking.” He now serves as Platform Science’s chairman, while 8VC, among other funds, is an early investor.

Schneider in 2018 invested $2.5 million in Platform Science, where it is also serving as a strategic partner during development of the product, contributing intellectual property to the venture, and piloting the service with its US West Coast fleet.

“We’ve always been willing to disrupt ourselves,” Schneider’s Devgun told JOC.com “With this investment, we saw a transformational opportunity in the telematics space to move from being hardware-centric to software-centric. To move off hardware where we’re tied to one vendor, to a marketplace.”

Devgun’s involvement with Medwell and 8VC has flourished, he said, “because of their ability to listen. We’ve had opportunities to work with others in that space, but we find there are a lot of preconceived notions about understanding the industry. Radical change in this industry is starting to happen. It will be driven by leaders like Schneider, partnering with entities like 8VC.”

With load-matching technology, for example, some technology providers initially looked at the problem of marrying unused capacity with available loads, but Devgun said industry veterans know the issue is more nuanced.

“The long tail of shippers and carriers is important, but it’s not a match game, it’s a recommendation game,” he said. “There’s a lot of talk about disruption, but it won’t happen with someone coming in from the outside. Yes, you need the investment to amplify a small business, but you also need the ability to understand what this industry is.”

Matthias Krust, a spokesperson for Daimler, said the German automaker has worked with 8VC the past three years as a co-investor because their expertise is complementary, and fostering entrepreneurship might eventually benefit the company’s supply chain.

“8VC helps us to identify early trends and interesting companies while we can support them with industry or technical know-how for due diligence,” he said. “This can end up in co-investing opportunities, collaboration projects with portfolio or other companies, or M&A [merger and acquisition] activity. We need a clear view on progress in logistics technology in order to be able to benchmark our own developments, integrate new offerings in our products, or adjust our offerings to changed business models.”

Gershenhorn’s involvement in the 8VC network brings yet another layer of credibility. Medwell drafted Gershenhorn as an advisor after Sultemeier invited him to an 8VC event, where he was impressed by the level of interplay between the 8VC portfolio companies and senior logistics executives. He now provides guidance to 8VC startups, having spent his whole career at UPS, where he oversaw global strategy, M&A, marketing, and sales, as well as being part of the executive leadership team that led investment in the integrator’s technology until his retirement in 2018.

Gershenhorn said the logistics companies that 8VC invested in “looked for opportunities where there were scalable solutions for them to connect back to shippers and LSPs. In the end, they’re all B2B [business-to-business] companies, so you still have to go out and make the B2B sale. But there are also opportunities to sign up online for the service. Established LSPs and shippers are searching for new ways to know where the puck is going.”

https://www.joc.com/technology/8vc-bringing-logistics-expertise-industry-wary-venture-approach_20190522.html