FreightWaves features Market Voices – a forum for voices with unique knowledge of numerous transportation/logistics/supply chain sectors, as well as other critical expertise.
I’ve read a great deal recently about the amount of money being poured into Logistics Tech right now. Whether it’s venture capital (VC), private equity (PE), growth equity or initial public offering (IPO) funding – the markets are ALL in love with LogisticsTech at the moment. The reason is simple; e-commerce has forever blurred the lines between transportation and technology. That trend is fueling tremendous growth and innovation in the supply chain and logistics world.
Even with the tailwind of fresh capital and investor interest, many entrepreneurs struggle to secure the capital they need to execute their vision. Fundraising is a sales process just like recruiting, direct sales and even dating. Fundraising can be exciting, daunting, humbling and uplifting – all in the same meeting! With that being said, the most important part of an entrepreneur/investor discussion is rarely what the entrepreneur says, rather, it’s the knowledge and focus of the investor. Just like the processes listed above, chemistry is an important component of the entrepreneur/investor relationship and there are a few things you can focus on to make sure you’re starting discussions with the right investors.
Figure out where you belong
When you decide to pursue capital as an entrepreneur, the first and perhaps most important step is identifying a list of potential investors. Just like your company, investment companies have specific areas of focus and expertise. You’ll need to determine which type of investor or fund will make the most sense for your company at its current stage.
If you are pre-revenue or just getting going, an angel investor or seed stage fund would be best suited for you to talk to. Remember, investors need to find deals in order to invest. If you’re approaching seed stage venture capital firms, be sure to do your research and find some firms that have raised funds with the specific investment thesis of writing checks into your space. No matter how well a first discussion goes, the BioTech Fund will NOT write you a check if you’re not a biotech company. In many cases, VCs will take meetings with non-interesting companies to further their learning in a particular space. Since logistics touches so many industries, some VCs will take first, and even second meetings, with logistics start-ups to try to learn more about the way supply chains and transportation work.
Early stage companies ($1 million to 10 million in revenue) looking for a small amount of money (less than $1 million) should focus on Seed and Series A stage venture capital firms along with strategic investors. J.B. Hunt, Prologis, UPS and Brookfield have all gotten heavily involved in the Logistics Tech investment ecosystem. These companies bring more than just a check with them to a relationship. Along with cash, strategic investors bring experience, connections and recognition. Often times when a top-tier firm like UPS Ventures backs a company, it sends a message to the industry that the company has significant potential and is likely to be a player as it matures.
Late stage and growth-stage companies have more options now than ever before. In addition to meaningful operations and profits, these companies have years of history and more predictability of their potential into the future. These mature businesses bring the assurance of future revenues that institutional investors are looking for. If you’re looking to acquire an existing business or to obtain capital to grow your company, you should be targeting private equity companies that have raised tons of money specifically to invest in logistics companies. With the recent success of Worldwide Express, Nolan Transportation, Unishippers, Globaltranz and several others, many PE firms are looking to “roll up” multiple companies into one, larger firm. This brings the economies of scale and purchasing power needed to compete in the enterprise shipper world. Entrepreneurs looking to grow through mergers and acquisitions or growth equity investment should do the work it takes to find companies that are actively looking for investment in their space. This isn’t typically hard and all it takes is an aggressive approach and a willingness to reach out to potentially qualified investors and start a dialogue on what your goals are and how you are looking to execute your plan. PE is very much a partnership between investors and entrepreneurs and neither party will find success without the other.
Target investors that know a lot about what you do
Focusing on the right investors for your company is one of the most important things you can do as an entrepreneur to increase your odds of getting funded. Even five or six years ago, many institutional investors had not yet spent much time thinking about supply chain or logistics in general, let alone as potential investments. That makes sense because historically logistics companies were capital expenditure-heavy, low-margin businesses like warehouses or trucking firms. With the growth of higher margin brokerage companies and logistics technology businesses coming to market, investors have many opportunities to make great returns in our space today. With that being said, some investors have spent significantly more time researching the logistics space and that means those few investors are much more likely to get to a “yes” on giving you some of their fund’s money. Julian Counihan of Schematic Ventures in New York City invests exclusively in the supply chain and logistics space. He said, “I started as a software developer in the industry 15 years ago. My family came from supply chain and still works in it today.” That connection to our industry helps Julian make faster and smarter decisions when evaluating potential LogisticsTech investments. He also explained, “Generalist funds are often drawn to supply chain investments given the large markets and opportunities for technology to make a difference.” Over time, as your business grows larger, more generalized funds may take an interest in your LogisticsTech company but initially, your best bet will be angels and small funds that write a lot of checks to supply chain-focused businesses. While finding investors that like our space is important, you don’t want to spend too much time on investors that have already invested in a similar (or identical) concept. If you’re a digital freight broker looking to disrupt the multi-trillion trucking market, try to speak with investors that are interested in logistics but haven’t already backed another freight broker. Those firms may meet with you, but it will most likely be in an effort to find out what you’re doing and size you up as potential competition to their portfolio company.
Once you’ve done your research and have built a solid list of targets, it’s time to hustle and get your name out there! There’s no better way to meet investors than warm introductions from other founders, hopefully of companies the investor is already involved with. You’re not friends with Ryan Petersen or Dan Lewis? Don’t worry, a well-written cold email or LinkedIn message to a prospective investor can still go a long way. No matter how you get the attention of these investors, you’ve got to make it happen. One founder, Troy Lester of Covet Shipping told me recently he’s targeting 50 investor meetings to close his $1.5 million to $3 million seed round this fall. In order to get to that meeting count, Troy is targeting over 120 potential investors. While those numbers can sound overwhelming, remember you don’t have to complete this process in a week or a month. Successful fundraising rounds can take significantly longer than that, and that’s okay!
Have a solid plan and an engaging story to tell
If you’re looking for any type of investment for your company, the first thing to do is get your plan together *in writing* and build a solid presentation and financial model. From there, you’ll be well positioned to start conversations with the right type of investor to secure your future. Do not over think this step or underestimate the momentum you’ll create by simply putting pen to paper and designing your dream in 15 slides or less. It’s incredibly focusing to have to distill your vision down to a limited number of slides. If you don’t get it right on the first go-round, don’t worry, no one does. Start with something and take the early feedback to heart. Any concern an investor is kind enough to share with you in your initial meetings, make sure you address those concerns in your slide deck. If the investor is concerned about your total addressable market size (TAM) as an example, go deep on your potential market size in your deck for the next investor presentation. Spending some money on industry reports can be incredibly useful in framing the market potential for your startup. Regardless of what concerns that investors share with you, be sure to take those concerns to heart. Many potential investors won’t be as willing to share their honest thoughts, so take all the feedback you can get. Whatever spooks one investor will spook every investor, so fix the slide in your deck that created the concern – and fix it fast.
When you get the opportunity to introduce yourself, be sure to include your relevant background and how you came to be aware of the problem you’re looking to solve. A great origin story can serve as the basis of your fundraising messaging which can also be included in your sales and recruitment messaging as well.
I once had a manager that reminded our team quite often that you can’t eat a whale all at once. You have to take it one bite at a time. Fundraising is similar in that you can’t build a deck, write a story, memorize it, find potential investors, build relationships with them, negotiate terms and close your round all at the same time. Fundraising is a process and can be a long one. You can start somewhere though and I hope the steps above are helpful in some way to you on your entrepreneurial journey!