Freight Tech VC on Track to Top 2018’s Record $3.6 billion

April 29, 2019 by Cyndia Zwahlen

Trucking and freight technology companies raised a record $3.6 billion in venture capital funds last year, double what they collected in 2017, according to CB Insights, a venture capital data firm.

The number of deals set a record of 78 worldwide, an 18 percent gain.

This year could be even bigger if the current fast pace of fundraising continues.

graphic VC investments in trucking tech

Graphic: CB Insights

Just as they have with other hidebound industries such as financial services and commercial real estate, venture capitalists are betting on technology that can address the opaque and inefficient nature of traditional freight trucking.

CLUNKY TECH

It’s an industry that is fragmented among companies that, if they are not still working with actual paper-based systems and relying on phone calls to communicate, are often tied to clunky legacy technology systems that don’t always work well with the mobile phone-based software applications created by trucking tech startups.

“The margins in trucking are just so low that any technology that can help fleet owners minimize costs really stands to help the industry pretty substantially,” said Rachel Binder, senior mobility analyst at CB Insights.

The funding is going to companies such as Flexport, a digital freight company based in San Francisco, which attracted a $1 billion investment in February from SoftBank’s Vision Fund. Another is Next Trucking Inc. It raised $97 million in venture capital financing in January in a deal led by Brookfield Ventures, its third round of venture capital investment.

The Lynwood, Calif.-based freight-technology company, which has developed a software application to efficiently connect truck drivers and shippers, plans to use the money to more than double its workforce, to about 260 employees, and triple its revenue.

“We want to really utilize the funding to expand to new markets,” said Lidia Yan, chief executive and co-founder of Next Trucking. The company is focused on drayage services for the Port of Los Angeles and local and regional trucking. “We are looking at Oakland.”

GLOBAL LOGISTICS MARKET

Venture capital also is drawn to the huge potential of the fast-growing global logistics market being driven by the worldwide e-commerce explosion. That boom also is putting more pressure on freight company profit margins as consumers demand faster and cheaper delivery of goods of all sizes.

And it’s not just pure venture capital companies that are putting up millions in investments. Before Silicon Valley took much notice, strategic investors from the ranks of technology companies such as Nokia and Baidu and the transportation sector, including Volvo Group Venture Capital and Omnitracs, invested. The trucking sector also has existing freight companies investing in or partnering with startups to innovate faster.

graphic: investors in trucking tech companies

Graphic: CB Insights

But traditional VC investors are catching up. Last year, they accounted for 51 percent of trucking-tech deals, according to CB Insights, up from 36 percent in 2017. Corporations and corporate venture capital funds made 13 percent of trucking tech investments last year, down from 22 percent in 2017.

CB Insights counts trucking-tech startups as “companies developing technology-enabled services and products focused on freight trucking (such as trucking-oriented marketplace platforms), fleet-management solutions, onboard monitoring and tracking systems and trucking-focused (enterprise resource planning) systems, among others,” Binder said. Warehousing solutions and robots are not included. Companies working on last-mile logistics and on vehicle electrification are treated separately.

If trucking technology can save freight companies and their shipper customers money, consumers could enjoy lower prices for shipping and for the online goods they can’t get enough of.

OVERCOMING TRADITION

Of course, despite potentially groundbreaking technology and venture capitalists on their boards, trucking tech startups don’t always face a smooth road to success. It can be a challenge to get tradition-bound trucking industry players to adopt new technology. That includes independent truck drivers, motor carriers and shippers.

Traditional venture capitalists aren’t typically savvy about the logistics market. Yan said she often provides a Trucking 101 talk as part of the pitch to potential investors.

That was not the case with Brookfield Ventures, the new venture capital arm of global property firm Brookfield Asset Management of Toronto. Brookfield owns more than 27 ports globally and is the Port of Los Angeles’ first fully automated terminal operator, Yan said.

“We went with Brookfield because they understand the logistics industry really well because they own warehouses, they own terminals, so they own the supply chain, and they asked the right questions,” Yan said.

NEXT TRUCKING

Next Trucking offers what it calls a trucker-centric freight-matching platform. Independent drivers or even small motor carriers can set the type of loads they want to move, what times they prefer to work, and where they prefer to travel. The company’s algorithms match that info with shipper requests for freight services.

And, like a consumer app, Next Trucking’s business-to-business app allows the parties on its platform to review each other. The company uses that data to weed out unwanted players.

Next, which focuses on local and regional trucking as well as drayage services, largely from the Los Angeles and Long Beach port complex, uses dynamic pricing to help ensure open loads are covered and covered profitably.

The company also has a small fleet of company drivers to help cover loads and help reassure independent truck drivers that the company is legitimate. About 16,000 truck drivers have the company’s app, Yan said.

The company also owns truck yards, which it will use for its Relay drayage service, which is moving out of test mode.

Next Trucking, which has raised money around the end of each of the past three years, may not have to do that again this year, Yan said. “I don’t want to because it seems like we can be profitable this year; it’s something we will have to decide later.”

In its previous fundraising round, Next Trucking was approached by around 25 venture capital companies, she said. “We didn’t expect that, so we know that it is definitely a hot space right now.”

That was not the case 10 years ago, when Yan first asked venture capitalists to invest. None were interested.

“Logistics just wasn’t sexy enough; it wasn’t tech enough.” Yan said.

Times have changed.

Trucks.com March 11, 2019
With an economic slowdown expected, trucking companies should take some steps to ensure they survive, and possibly even thrive.

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