Industry experience, an ability to market a product and a total addressable market are the main requirements for a successful FreightTech launch, John Larkin, senior partner at Venture 53, said Wednesday at FreightWaves’ F3: Future of Freight Festival.
Larkin said an early stage company’s ability to scale quickly is key to success, and that is usually only realistic if the potential market is large enough. He said it’s also preferable that a new company is working on a problem that no one else is trying to solve.
“Early stage folks come in a lot of sizes, shapes and forms,” Larkin said at the Chattanooga, Tennessee, event.
He said single-entrepreneur companies tend to struggle. He advises startups to have someone with experience in the freight industry in addition to a tech visionary.
“If you’re thinking about starting up a business, and you’re sort of a tech-oriented person, make sure you partner with somebody who’s really engrained in the freight business.”
He prefers working with entrepreneurs on their second or third idea as they have been through the process and have likely learned from past mistakes.
“It’s very difficult for the smartest guy in the world to come in out of left field into this industry … and have an immediate impact,” Larkin said. “It’s very complicated and there’s a lot of nuance and there’s a lot of segmentation.”
Larkin said FreightTech valuations are still too high in some instances.
He recalled his days in “the wild west of finance” following deregulation when trucking companies were able to go public with a $60 million post-money market cap. He said only really large companies can go public now, referencing temperature-controlled real estate investment trust Lineage’s recent initial public offering, which took in $5.1 billion in gross proceeds.
He said the reason today’s largest trucking companies have been able to succeed is directly tied to their ability to access capital and invest in the future. “Companies that haven’t changed with the times have struggled quite a bit.”
Larkin advised that choosing the right venture capital partner is integral for early stage companies. In addition to needing a “flair for marketing,” entrepreneurs need to align with someone that can open the right doors and build relationships.
He also said a firm with industry veterans can usually sort through the winners and losers.
“[Limited partners] can help you source deals, vet deals and actually coach the entrepreneurs. … That goes a long way toward avoiding sure losers.”