The supply chain is a hot topic these days, making headlines in the news media and attracting billions in venture capital from around the world. At Newark Venture Partners, early-stage supply chain businesses are a thematic focus of ours. We have several LP’s with deep market experience, knowledge of pain points, and a sightline to viable innovations, as well as our own unique view of the industry from right outside our office window in Newark, New Jersey. Newark is the second-largest port in the U.S. handling north of 2 million containers per year, and three mega-ships simultaneously. It’s also home to hundreds of trucking companies, warehouses, unparalleled rail capacity, and Newark International Airport.
Our investment thesis in the supply chain vertical is founded in 4 important flows: Cargo, Information, Documents and Financial. Each of these play a role in facilitating the supply chain – or the flow of goods from origin to destination – and each requires a different set of tools to maximize efficiencies, digitize, and enhance customer experiences.
Material or cargo flow is the movement of the physical goods from the supplier all the way to the customer. This is typically one directional except in the rare situation where a good is returned. The explosion of direct to customer and last mile courier services like DoorDash and Postmates has people believing this pillar starts with a finished product and ends with the consumer. In truth, the process actually starts at the raw material level then moves its way to the manufacturer, warehouses, distribution channels, and eventually to the final customer.
This area of supply chain investments grew rapidly during COVID because of its impact on businesses and consumers alike. When shelves were bare at local supermarkets and consumers were left without next day Amazon shipping, experts looked for holes in the supply chain along the cargo flow. It created a boom of investments in companies like Stord and Shipmonk and others within fulfillment, distribution, warehousing, and trucking. NVP’s investments in OFE and FleetOps are growing businesses that address the needs of the Cargo flow but with a verticalized approach – with OFE focused dry bulk and ocean tanker cargo, and FleetOps in cargo within the trucking and logistics space.
The flow of information is critical in all supply chains. As goods travel in a variety of ways during any one journey, it’s easy to lose track of where certain information about the transport of goods is going. This information is bi-directional for the buyers and sellers. Things like quotations, purchase orders, delivery status, invoices, customer complaints and so on need to be shared with all parties and as vendors and third parties enter the process the information can become complicated.
As we’ve studied the Information flow, we’ve tracked companies like P44 and Fourkites which are growing rapidly as they create real time vistibility for the teams tracking supply chain information. Several of our NVP portfolio companies are providing similar services, such as Clockwork Logistics, which provides real time visibility and control as goods move from place to place. Optimal Dynamics uses High-Dimensional artificial intelligence to create dynamic load planning for the logistics industry, and FreightFlows recently debuted the first-ever predictive maritime platform. All of these use increased visibility of information to enable automation and increase optimization within a company’s supply chain.
To keep track of the flow of information and movement of goods in a supply chain it is critical to track and transfer the documentation. Items like Freight Bill, Bill of Lading, FOB (Free on Board) Terms of Sale, Pro Forma Invoice, Packing List, Insurance Certificate, Certificate of Origin, and Export licenses are all a few examples of documentation that are needed to move a good.
The BOL for example, is the most important shipping document in international shipping and must be included no matter the form of transportation. It is the official contract between shipper or owner of goods and the freight carrier. This document will include items such as shipping destination, goods on board, and how it should be handled.
Similar to the flow of information, as more parties are involved these documents become harder to keep track of. Using new ERPs, Supply Chain Management software, and Blockchain can help with these transfers. NVP investments in this flow include Clockwork (also mentioned above) and BackboneAI, which automates the data connecting manufacturers, distributors and suppliers with a special focus in the B2B market.
Supply Chain Finance or “Trade Finance”
When discussing Supply Chain and finance it is important to distinguish SCF or “Trade finance” vs Fintech in Supply Chain.
Trade finance is a complex and manual process that involves document heavy workflows, risk & fraud, outdated & disconnected systems, lack of transparency data, and slow approval processes. Companies like Tradeshift, Taulia, Triumph Pay and Primerevenue are all well funded business tackling this problem. However, things like process cost and inefficiencies have made lending to SMBs prohibitive for Lenders so new startups have begun to emerge. Startups like Fishtail, Drip, FinKargo, Komgo, and Sten have begun making waves to tackle other sections of the market.
If you take a step back, you will find that lending is not the only hole in the financial stack of logistics and supply chain. Silos like payments, expense management, accounting, and treasury management still have not penetrated the supply chain sectors.
We are still exploring Trade Finance opportunities, but we have invested in two companies changing the way industries handle procurement: GearFlow and Agilis. Both of these are at the intersection of our supply chain and B2B marketplaces theses, with Gearflow providing a platform for construction trades to source and purchase heavy equipment parts, amd Agilis offering chemical manufacturers a new way to purchase and track the materials they need to produce all different types of goods and plastics.
Finally, Supply Chain innovation represents a massive opportunity, across a sprawling landscape. As economic globalization continues to grow in complexity we anticipate that SaaS startups within these 4 flows will see much success in the next few years. Things like Climate Change and the evolving regulatory environment will play an important role in defining the next set of challenges, and identifying those companies most prepared to surmount them.
We are actively investing in early stage supply chain startups. If you have a business that might be a fit for us, reach out to Sean@Newark.VC.