by Adriana Pulley | 02.24 | Freight Tech, News
Santosh Sankar is a venture capitalist who has a wealth of experience investing in the supply chain space. He is a co-founder and director at Dynamo Ventures, a Chattanooga-based logistics and transportation-focused venture capital firm that invests in seed-stage and series A startups. In a recent interview with FreightCaviar, Santosh discussed how his firm values startups and his team’s approach to investing in the industry.
Before starting Dynamo Ventures, Santosh had two entrepreneurial stints, one in IT support and the other in media. Later, Santosh ended up working in a big investment bank, but five years in, he realized that entrepreneurship was his true calling.
“Part of my last role was to engage with private companies and VC backers. During this time, I realized I wanted to become a venture capitalist. I wanted to work with bold, visionary individuals who were smarter and more capable than me. I wanted to be a good partner and bring my strengths to the table,” he said.
The Beginnings of Dynamo
Santosh shares his journey to becoming a venture capitalist and how he and his team approach investing in the industry. Santosh and his team began their journey after meeting his partner Jon Bradford. Jon was the one who defined the idea of Dynamo Ventures. After spending months talking with tons of experts in the supply chain and logistics space, the two laid the foundation for Dynamo’s success.
Some Names in Dynamo’s Portfolio
- Steam Logistics (Chattanooga, TN)
- Stord (Atlanta, GA)
- Senndr Technologies (Berlin, DE)
- Raft (Southwark, GB)
- Gatik AI (Palo Alto, CA)
So how did a freight brokerage like Steam get into Dynamo’s portfolio?
Santosh explains more about Steam Logistics: Steam doesn’t look like your traditional freight forwarding service because it relies on technology to automate everything. They can use technology to deliver better service. Steam has aligned the three parts of the supply chain, including international drayage and domestic brokerage, to create a unique value proposition that few people can truly deliver at scale. This is how they have become a venture-scale business.
The bottleneck in the Venture Space is time, not money.
Time is a precious resource for venture capitalists, as it cannot be scaled. While firms have scaled from tens of millions to billions over the past few years, partner capacity remains a bottleneck.
- Partners have limited capacity to work with founders, but it’s their responsibility to provide stewardship.
- In the first 12 weeks after investing, partners spend 30 minutes weekly with the business to build trust and align goals.
- Venture cycles usually take 18 to 24 months, focusing on what unlocks the next growth capital stage.
- Partners may also spend more time reviewing sales decks, helping build models, and creating board decks.
- Most businesses require growth capital to take market share, grow, and build margin.
Upsides and Downsides of Being a Venture Capitalist
“I have a lot of fun. I get to spend my life meeting interesting people pushing and pulling on the status quo. It’s those situations that catch fire and build the next big thing. But it’s also a lot of hard work.”
Santosh explained how they engage with thousands of companies every year but only invest in a handful.
“Delivering bad news is probably what every VC hates. We say ‘no’ more than we say ‘yes’. But we have to stay confident in our process and perspective. If we make the wrong call, we have to have the humility to revisit it and make changes. We have a saying: strong opinions, loosely held.”
Has Dynamo ever been burned by a company misusing funds?
No, not really. Being the first investor in a business gives them a unique bond and trust with the founding team.
Even as businesses grow to over $100 million, they call on Dynamo for personal and business advice. Because of this, Dynamo tends to have close relationships with its invested companies. They’re able to constructively push back on spending and fund allocation if they ever see anything going in the wrong direction.
Evaluating a Startup’s Potential
According to Santosh, ownership and the amount raised are the two main factors when valuing a startup in the seed stage. Pre-seed and seed-stage valuations are generally driven by these factors, with the founder’s ownership being a key consideration, as it is often diluted. For pre-seed startups, founders usually give away 15-25% of their business, which may be even higher for deep-tech startups. At the seed stage, founders typically give up around 20-25% of their business. The level of dilution at series A is similar to that of the seed stage.
- Seed rounds are typically valued at around $3 to $4 million, resulting in valuations ranging from $12 to $15 million or higher, depending on the dilution.
- The investor’s goal is to assess whether, based on what the startup has done so far, they can provide the necessary milestones in 18 to 24 months to raise the next round of capital. This may range from $8 to $12 million for successful startups.
- For example, a $10 million Series A in the normalized venture environment we’re operating in, you could be looking at valuations of $40 to $50 million dollars – that’s where the world used to be before COVID.
Dynamo aims to lead seed rounds, taking anywhere from half to three-quarters of the round. They aim to own 12% to 15% of the company and take down $1.5 million to $2 million of the round.
Santosh emphasizes the importance of a strong team in a startup’s success.
“If it’s like autonomy, electrification, hydrogen, can we bring subject matter experts there?’ So, we are equally open to, ‘Hey, let’s bring these types of participants and thoughtfully because the pie will grow if they’re involved.’ And ultimately, if we grow the pie, I should still be better off even if I have a smaller piece at the end. That’s what venture is really all about.”
What are some of the changes that have taken place in the venture capital world lately?
- The rise of alternative sources of funding, such as crowdfunding and ICOs.
- The increasing importance of diversity and inclusion in venture capital, both in terms of the founders receiving funding and the investors themselves.
- The growing interest in impact investing focuses on supporting businesses that have a positive social or environmental impact.
- The shift towards remote work and virtual dealmaking has been accelerated by the COVID-19 pandemic.
- The increasing emphasis on data and analytics in the investment process, as well as machine learning and AI use to help make investment decisions.
The venture capital world is constantly evolving, and Santosh says staying up-to-date with these changes is vital for investors and entrepreneurs. “It’s always a great time to start a business in an environment identified as being adverse or difficult. If you can get through those environments, by and large, you’ll succeed when things go well.”
If you wish to connect with Santosh Sankar, reach him on LinkedIn or by email at santosh@dynamo.vc.
by Adriana Pulley | 02.22 | Freight Tech
Broker factoring, chasing down shippers, and the journey from load board to fintech platform: On the latest episode of The FreightCaviar Podcast, we sit down with Steve Kochan, the CEO of ComFreight.
Steve shares the story behind ComFreight’s evolution, including why he made the pivot to factoring for freight brokerages. He also provides advice on how he would build a resilient trucking company in the face of financial downturns. Plus, we dive into the earnings potential of freight brokerages and what it takes to make it in this competitive industry.
How did ComFreight begin?
In 2012, Steve Kochan founded ComFreight after facing the harsh reality of the inefficient and cumbersome load board systems used by small freight forwarders in Los Angeles. Having experienced the luxury of better technology and resources when he worked as an account manager and executive at C.H. Robinson, Steve recognized the challenges smaller companies faced. He took matters into his own hands and set out to create a more transparent, user-friendly load board. His goal was to build a website that simplified the overall bidding process.
“We really focused on our website, so it didn’t force a reverse auction, which prevented a race to the bottom. Instead, you could counterbid and communicate directly with others through the website’s messaging system.”
It took years of bootstrapping and learning how to start a real business before receiving any interest from investors. However, in 2017, the first investment came through, propelling the company from Steve’s apartment into real success.
With those funds, the company expanded into factoring before pivoting again into payments and full-fledged fintech. Yet, despite the growth and evolution of the business, ComFreight kept some of the original features, such as the ability to message within the website, which illustrates their commitment to making the bidding process transparent and user-friendly.
A Timeline: ComFreight’s Pivot to Broker Factoring
2012: Gets the idea for the load board project and designs the logo.
2013: Registers the ComFreight name and officially becomes a business.
2015: ComFreight’s load board website gainst attention after Steve experiments with press releases, and people start noticing the platform. He’s approached with an offer from some folks in Canada, which he ends up turning down.
2016: Convoy and CargoMatic raise significant funding around this time, and digital freight brokering becomes a more venture-backable project. This calls attention to freight tech as a whole. Around this time, ComFreight has a couple of thousand paying subscribers and was bringing in a revenue of about 30,000 per month.
2016 – early 2017: Gathers feedback from users about them feeling forced to work with old-school factoring companies due to a lack of options, Steve decides to address the credit and payments challenges.
2017: ComFreight raises venture funding from angel investors to develop their factoring service and become a hub for financial decisions and payment processing solutions for the mid-market of the industry.
2018 – 2019: ComFreight keeps the load board while developing the factoring service. Eventually, the factoring revenue exceeds the subscription revenue. They end a partnership with a third-party factoring company and begin doing it all on their own.
2020: They open up more load board features for free and later move into broker factoring pretty heavily.
What sets ComFreight apart in the Factoring Industry?
ComFreight expanded into offering broker factoring in 2020. Having brokers as clients gives them a unique perspective. They can see who their shippers are and what they pay.
“It’s kind of an interesting place to be because when you do have that insight, you can actually almost be de-risking the business even more because you know who the broker’s end customer is now, not just how that broker is representing themselves to be,” Steve explains.
So are brokers really making insane profit margins? “Brokers are not doing a fifty percent profit margin. I can say that we have not seen anybody do that. But here’s one other thing: some brokers also take it on the nose to keep the customer happy. We account for that in our software.”
ComFreight is a technology company and has never been a freight brokerage or a carrier, and they take data and objectivity seriously. As a financial partner, ComFreight is not competing with its clients. This is important to note since some companies are owned by carriers that compete with their clients while financing them and getting access to a lot of data.
“It’s good to be conscious of what kind of business they’re running and what data rights they may have or that you may have signed off on,” Steve warns.
“We take our broker clients’ privacy seriously and even in our software, down to the exact way they want us to bill and how much they want to be involved in billing, all that’s built into the system. Including how private we are with any data they provide into the system.”
Chasing Down the Money from Shippers
Working with shippers can be challenging when it comes to payments. But, as Steve explains, his company has developed a proprietary process for invoicing shippers that has been fine-tuned over the years. This process involves digital invoicing and email reminders managed through their own software. The software can set special rules and terms, even down to specific shipper accounts, to help automate the invoicing process and make it as efficient as possible. This helps to minimize delays and reduce the company’s days to pay, which is critical for maintaining profitability.
Sure, some shippers may delay payment or make excuses. Steve and his team have found ways to code these issues into their software. That way, the invoicing process is as close to the way the shipper desires. By leveraging their software, they can also manage the credit risk associated with each shipper. This is critical for mitigating potential losses.
Shippers may sometimes need to extend payment terms beyond what is typical, such as 120 days. Steve’s company has experimented with ways to still finance these transactions at a slightly different rate. This allows them to be more flexible while still pricing their risk and making a little money on the extended payment period.
Overall, the goal is to scale the business while still maintaining profitability. This means being flexible with payment terms while managing risk and ensuring timely payments. Need cash flow faster? They can switch the toggle on that transaction or set of transactions, and ComFreight will advance their margin in one day. This flexibility level helps brokers manage their cash flow needs while maintaining a profitable business for Steve’s company.
Is Broker Factoring Risky Business?
ComFreight offers non-recourse factoring, which means they take on the risk of a shipper’s credit. So they won’t come after their customers if a shipper goes belly up or has credit issues. Sounds like a win-win, right? But they’re not fools. ComFreight relies on its proprietary software to assess a shipper’s creditworthiness to avoid too much danger. And they’re quick to let their customers know if there are any changes to a shipper’s credit status. No hidden fees or extra interest to worry about here. And don’t worry, their loss rates from bad debt are way better than traditional lending companies.
“I think the big takeaway for our customers is once you hit the button on the transaction, if the money has left their account, it’s your money.”
how does ComFreight avoid getting burned By Shippers?
Well, they check the credit scores of shippers from various business credit agencies and transportation-related platforms. They also look into lean filings and audit and financial statements from customers, especially when working with new brokers or shippers. Like bigger and more sophisticated 3PLs, ComFreight gives enough credit to shippers to prove they’re worth it without risking everything they’ve got.
So what if a shipper doesn’t pay? This is pretty rare, Steve says. “We have such good relationships with our brokers. We’ve had some offers to go ride by the shipper saying, ‘I’ll help you guys get that money,’” he jokes.
In most cases, they are able to resolve any issues with payments through their accounts receivable and collection process. However, in some rare cases, particularly with smaller or more obscure shippers, they may need to hand off collections to a specialty law firm. While these law firms will take a share of any collected funds, they have been successful in collecting payments that Steve thought were write-offs.
Many finance and factoring companies factor in a certain loss rate as part of running their business. While ComFreight’s threshold for loss is a bit lower, they still evaluate creditworthiness thoroughly. They encourage shippers and brokers to get pre-approved for credit lines before making any decisions. They work with brokers to send all their existing and potential customers for pre-approval. So, they may eat some of the cost, but it allows for better limits and approval percentages, and eliminates the worry of chargebacks.
To hear more about the journey of ComFreight and get valuable advice for brokers and carriers alike, check out the full episode on FreightCaviar’s Youtube or Spotify channels. Keep following the FreightCaviar blog for the latest updates.
by Adriana Pulley | 02.06 | Freight Tech, News
Daimler Truck North America (DTNA) has caused a stir in the freight tech world with its latest innovation – the Freightliner SuperTruck II. The company unveiled the vehicle at the Manifest Conference in Las Vegas last week. This high-efficiency tractor-trailer combination concept focuses on reduced emissions and practical application. Developed as part of the SuperTruck program co-funded by the U.S. Department of Energy, the SuperTruck II showcases the future potential of road freight transport.
In this article, we will take a closer look at the key areas of focus that make the SuperTruck II stand out from its predecessor and the competition.
Improved Aerodynamics
One of the primary goals of the SuperTruck II project was improving aerodynamics. The company writes, “We have our own wind tunnel and spent hundreds and hundreds of hours testing new shapes, sizes, and surfaces to build our most aerodynamic truck ever.” The truck boasts a 12% reduction in tractor aerodynamic drag over the SuperTruck I.
Automatic side extenders and a roof spoiler close the gap between the tractor and trailer at highway speeds. Also, the dynamic ride height decreases drag by automatically lowering the truck. Since this feature requires no effort from the driver, it’s a convenient and effective solution for reducing drag and improving aerodynamics.
Lower Tire Rolling Resistance
The SuperTruck II also features significantly lower tire rolling resistance, thanks to a partnership with Michelin. This collaboration resulted in new tire compounds, treads, and technologies that reduced rolling resistance by 12%.
It’s noted that integrated adaptive tandem axles automatically shift from 6×4 to 6×2 at highway speeds.
Finally, the dynamic load shifting feature also engages at highway speeds, allowing the tag axle with less rolling resistance to do most of the driving, extending the life of the tires.
Maximizing Powertrain Efficiencies
The SuperTruck II has a more efficient 13-liter engine with twin turbo and interstage cooling. So the truck gets more efficient air compression.
An EcoSail feature allows the engine to shut off automatically on downhills. Additionally, the 13-speed overdrive transmission provides higher fuel savings with lower down-speeding.
Power and Safety
The SuperTruck II features a new electrical system that can fully run the hoteling feature without the engine running, using the 48-volt electrical system. The 48-volt power steering system also uses much less power, adjusting demand only as needed, from low to highway speeds.
The mirrorless cameras are aerodynamic and out of the driver’s line of sight. The cameras perform well in low light, improving driver visibility and safety.
Daimler’s SuperTruck II is designed to deliver the best performance, power, and safety for the freight transportation industry. With its cutting-edge technologies and innovative solutions, the SuperTruck II is a must-watch for any freight tech enthusiast.
by Adriana Pulley | 01.24 | Freight Tech, News
Exciting things are happening for warehouse technology. We’re seeing everything from physical robots to augmented and virtual realities.
Recently, Worlds Enterprises, Inc., a company that specializes in creating 4D digital twins of warehouses and factories for training and operations improvement, completed a successful $21.2 million Series A1 funding round per an announcement from Business Wire.
What’s a digital twin, and why is it worth such an investment?
A digital twin is a virtual model of a physical object or system. It can simulate and analyze the object or system’s behavior, performance, and interactions with its environment. In simple terms, it’s a virtual version of something that exists in the real world. For example, a digital twin of a car engine can be used to test and optimize its performance before the build, or a digital twin of a warehouse can be used to plan and optimize its operations and logistics. The digital twin can monitor the real-world object or system and use it for training, simulation, and optimization.
The data gathered from a digital twin can provide valuable insights and a responsive testing environment. As Worlds explains, “We show the critical variations that cause inefficiency, lower production, or create unsafe environments – in real-time. As a result, it empowers clients to reimagine and automate their processes in ways that unlock massive unrealized value.”
Amazing things are happening outside of training environments, too.
Firstly, we’ve got to talk about these warehouse robots. Such as these SqUID robots from BionicHive climbing shelves to retrieve and place inventory. Now, look at how Amazon’s robots automate multiple processes at its warehouses. And we certainly can’t forget Locus Robotics, which FreightCaviar reported on last year. Overall, robots are helping warehouses become more efficient, accurate, and safer than ever.
New AR Warehouse Technology Merges the digital and physical worlds.
Augmented reality (AR) is a technology that overlays digital information on top of the real world. In other words, it enhances the user’s perception of the physical world by adding virtual elements. AR warehouse technology makes it easy for workers to move around, access information, and more.
For example, companies like Vuzix Corporations and TeamViewer create smart glasses workers can wear to provide instant access to information in front of their eyes.
- Inventory Management: Displays information about the location, quantity, and status of inventory items.
- Task Instructions: Overlays instructions or diagrams on top of physical objects, helping workers to understand how to perform tasks correctly and efficiently.
- Safety: Reveals safety information and alerts to keep workers aware of potential hazards and reduce the risk of accidents.
It will be exciting to see how companies in the industrial and warehousing sectors will continue to utilize these tools to improve their operations and drive success. One question to ponder is: How can your company benefit from new industrial and warehouse technology?
Image by Freepik
by Adriana Pulley | 12.09 | Freight Tech, News
Convoy, J.B. Hunt, and Uber Freight want API standards in freight tech. The three have formed the Scheduling Standards Consortium (SSC) to call for standardization in transportation appointment scheduling via a report from FreightWaves.
What’s the problem In Freight Tech?
Despite being a common task, appointment scheduling is still one of the freight industry’s most analog and disjointed processes. Freight tech companies have tried to tackle this issue but haven’t had insight into one another’s data. Going in without that open exchange doesn’t help fix fragmented supply chains.
The SSC wants to combine the work of logistics providers, warehouse management solutions, and transportation management systems to push toward industry standards in scheduling practices.
Standards Consortium started with an organic conversation…
…between three representatives from each company during a FreightWaves Future of Supply Chain conference back in May. It was there that Dan Lewis, CEO of Convoy, spoke with Stuart Scott, executive vice president and chief information officer at J.B. Hunt, and the co-founder and head of operations at Uber Freight, Bill Driegert. The three felt that as early technology adopters, they could lead the way to more efficient scheduling practices.
They say that the goal of SSC is not to create another commercial product but to pull multiple parts of the industry together “to design a common application programming interface for sharing scheduling data,” Lewis and Scott explained to FreightWaves.
Lewis adds, “By setting these API standards, it allows for more innovation in the future.”
What’s the response?
There’s already a website up and running. Scott says current contributors showed an overwhelmingly positive response to the goal of industry-wide API standards. But they still need to get more key players on board with sharing information. The goal is that seeing leaders like J.B. Hunt involved will convince others to join the consortium.
The SSC plans to roll out standards for full-truckload freight by Q1 2023.
by Adriana Pulley | 12.09 | Freight Tech, News
Kodiak Robotics, an autonomous truck startup out of California, will get $49.9 million from the US Army to work with the Robotic Combat Vehicle program, per The Verge. They’ll use the funds to help develop self-driving vehicles for the military in reconnaissance, surveillance, and other “high-risk” missions.
What kind of autonomous military vehicles can we expect from Kodiak?
The 24-month US Department of Defense agreement allows Kodiak to build on its commercial autonomous truck software for national security. Press releases revealed few details about the potential vehicles.
“Kodiak will develop autonomous vehicle technology for the Army to navigate complex terrain, diverse operational conditions, and GPS-challenged environments while also providing the Army the ability to remotely operate vehicles when necessary,” the company says.
Last month, Kodiak displayed the capabilities of its self-driving software under a high-pressure situation. We shared the video of the autonomous truck maintaining precise control during a tire blowout, never leaving its lane.
That type of display may have been why they were initially the only autonomous vehicle company selected out of 33 submissions for this DoD Defense Innovation Unit award.
What about Kodiak’s commercial autonomous trucks?
Kodiak mentions that this reward and project will not derail its core commercial autonomous trucks business. They see the military contract as a way to extend and propel its innovations forward.
“As we progress our commercial product over the next 24 months and beyond, we will provide that increased functionality and performance to the army…Our military work will help us progress Kodiak’s trucking stack and core commercial offering.” CEO and founder of Kodiak, Don Burnette, writes.
That’s usually how things go when a company partners with the military. We’re likely to see advancements from the collaboration. We’re curious to know how the military-industrial complex’s focus on autonomous vehicles will help shape the future of US roads.
