Supply Chain Startup: What startups bring to the party

Editor’s note: This is the first blog in a new series I’ll post every Friday, taking a look at supply chain startups bringing new technologies to the industry, the VC’s that are funding them and other related topics and news. I hope you enjoy them, and if you have ideas for future blog topics, please email me at [email protected].

Recent years have seen an explosion of supply chain technologies, ranging from robotics to artificial intelligence to the Internet of Things to predictive analytics. Looking at that landscape, companies are asking the make or buy question often asked in supply chain management: Do we commit our own time and money to develop a solution? Or do we work with one of the startups in a field of interest? The question is relevant not just to manufacturers and distributors, but also to supply chain solution providers. Take robotics, for example: The leaders aren't the name-brand materials handling automation companies but the robotics startups the automation companies are partnering with.

For the purposes of this first Supply Chain Startup blog, I had two fundamental questions: Why is venture capital interested in the supply chain, and what do startups bring to the party?

One answer to the first question is that for venture funds looking to put cash to work, “the venture markets are incredibly competitive,” says Julian Counihan, the founder of Schematic Ventures, a $20 million venture capital firm that specializes in first round, or pre-seed, investments (up to $2.0 million) in supply chain technology. “And, relatively speaking, supply chain is underfunded versus other categories.”

That presents an opportunity, notes Counihan, who adds that the space was a natural for him: In the 1980's, his family founded Fortna, the consulting firm that was itself acquired by the investment firm Thomas H. Lee Partners in 2019. Counihan worked at Fortna in the early 2000s as a software developer. He launched Schematic in 2017 because he understands the space and saw opportunity for a new venture fund focused on supply chain. “There is this unending march to e-commerce, even in a downturn, and e-commerce fulfillment needs technology,” he says.

Santosh Sankar, one of the four partners in Dynamo, a seed stage firm that focuses on “supply chain and mobility” from Chattanooga, was attracted to the space because of the changes in behavior brought about by e-commerce. “If we're going to be smart investors and good fiduciaries to our limited partners, we'd be remiss in not looking at robotics, automation and areas like last mile delivery,” says Sankar. “And, if I'm investing in real problems, then part of that is identifying the areas where there are mismatches between demand and the availability of labor.” Where's the mismatch? “Last year e-commerce labor was the fastest-growing wage area but you couldn't get workers,” he says.

Brian Laung Aoaeh, a general partner and co-founder of REFAHIONED Ventures and the co-founder of The Worldwide Supply Chain Federation and The New York Supply Chain Meetup, began investing in trucking and shipping technology startups when he realized that the problems confronting those industries are difficult and underserved by technology. “You have to rethink an entire process from the standpoint of how the mechanical and digital processes interact,” he says. “Technology can make a difference.”

The answer to what startups bring to the table that you might not find at established companies starts with talent, but talent with several nuances.

Talent: With all due respect to my friends at the large automation companies, startups attract the best and the brightest from Silicon Valley and companies like Google and Amazon. “The smartest people in robotics and AI are bringing these solutions to market,” says Schematic's Counihan, “You're seeing better tech as a result.”

Geography: There's a reason that startups often cluster in communities, much like distribution centers are found in logistics hubs: Peers and support. “There's a limited number of people in the world who can work through problems this complicated,” notes Jason Murray, a former Amazon executive turned startup founder of Shipium. “It's hard to hire those individuals and get them to move to the Midwest because they're not going to have peers or a career plan.” Too often, Murray adds, large companies hire machine learning or AI scientists and lose them because they're not valued for their skill sets. As such, startup talent congregates in communities where there are like-minded peers and career advancement opportunities.

A laser focus: Startup talent is often attracted to the kind of very difficult problems identified by Aoaeh that large companies shy away from. “When it comes to talent, there's domain expertise and there's raw technical horsepower,” notes A.K. Schultz, who has experience on both sides of the table. Prior to founding SVT Robotics, Schultz was an executive at Swisslog. “A startup has less domain expertise than an established solution provider, but they make up for it by getting these very bright folks who are committed to a moonshot. They see these very difficult problems as worthy endeavors to apply their talents.”

In next week's blog, I'll look at what it takes to work with a startup, especially in a large corporate setting.

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