4 Supply Chain Themes for 2021
By: Rick Zullo and Chelsea Zhang
By: Rick Zullo and Chelsea Zhang
We believe 2021 will represent a transformational year for supply chain technology and we are keen to find solutions that enhance transparency, connectivity, and autonomy across the entire ecosystem.
The media believes that investor sentiment will sustain with Freight Waves claiming “2020 will be the biggest year on record … early stage investors….see supply chain and freight tech as a sure thing for placing their sector bets.” Pitchbook echoes this narrative, “we anticipate VC funding toward the [supply chain technology] space to increase as investors deploy capital into last-mile delivery, warehousing tech, and other supply chain sectors with pandemic-induced tailwinds.” With ample problems to solve and capital for investment, Equal Ventures is confident that 2021 will be yet another record year for supply chain investing.
Like many of the industries we operate in, we believe it’s essential to develop (what we call) a “Prepared Mind” — a core tenet of our value system and the bedrock of our value-add to founders. With that, there are a few specific areas that we have a particular interest in for the year ahead.
1. Enablement of the “Masses”
We were early believers in the transformation of the trucking industry and see continued opportunity in enabling the long-tail of the industry. The carrier landscape remains deeply fragmented — more than 90% of trucking companies have fewer than six truckers, half of those are owner-operators. ELD mandates are driving telematics adoption among small carriers and there is a huge opportunity in leveraging technology to enable them to better compete for contracts and freight. We are fortunate to be backers of the leading platform for independent truckers, Smarthop, which experienced historic growth in 2020. This is part of a larger trend toward the “masses” (not just large scale enterprises) adopting data-driven supply chain software solutions that can bring inventory management, supply chain orchestration, transportation management and full-blown ERP capabilities to all players across the supply chain. We are intrigued by startups providing shippers, brokers, and supply chain planners with easy-to-access tools that democratize supply chain services.
2. FBA Sellers Go Multi-Channel
The rise in FBA sellers has broadened this audience to unprecedented levels. More than half of Amazon’s 2019 $280B revenue came from third party sellers and third-party sellers services (incld. commissions, fulfillment and shipping fees) grew 53% yoy to $20B in Q3 of 2020. These merchants are increasingly demanding multi-channel logistics solutions and this is most acutely felt with the explosion of D2C brands that have outgrown their 3PLs and need to internalize components of their logistics infrastructure. A particularly intriguing approach is the asset-less 3PL model that merges customer acquisition, demand planning, orchestration, international compliance and fulfillment to provide FBA-level service to brands across multiple digital and brick & mortar channels. Legacy services like Pattern.com and Fortress Brand Group bring comparable services to larger brands, however, generating automation / self-service capabilities to bring these capabilities to smaller sellers (where the vast majority of the market exists) can generate a tremendous amount of economic leverage.
3. Embedded Trade Finance
SMBs and the mid-market will continue to seek much-needed working capital. Despite an uneven rollout, the overwhelming demand for PPP loans highlights how underserved this market segment remains, more than a decade after the Great Recession decimated small business lending. Startups solving critical pain points for businesses may be able to embed themselves within the supply chain stack, particularly if they are able to offer more palatable price points compared to enterprise offerings like SAP and Coupa. These upstarts often offer software services as a subsidy to gain access to the customer and their data for underwriting financial services. By establishing captivity of the customer, these services are able to gain access to information that is either unavailable or expensive to acquire for traditional financial institutions, while generally seeing higher retention of customers. We’re seeing these SaaS-enabled financial services tackling all aspects of the trade finance spectrum from business lending to invoice financing, factoring, and more.
4. Open Supply Chain
We continue to believe that business model innovation will be instrumental in driving adoption of new technologies — we are particularly interested in open supply chain models that enable interoperability across the supply chain. COVID-19 supply and demand shocks exposed the many points of disconnections within the current system. Manufacturers, distributors, and retailers are now laser-focused on improving supply chain resiliency with a Gartner survey of CEOs indicating that ~60% of CEOs are planning to redevelop their supply chains. Interoperability, the ability of different systems to “talk” to each other, is critical to achieving visibility and real-time data — both crucial components of supply chain connectivity. Companies like Project44* have ushered in a new wave of supply chain visibility, however, interoperability of solutions outside of the freight markets is still a tremendous challenge. The market is flush with point solutions as start-ups attempt to unbundle monolithic ERP systems, but the glue needs to be developed to tie these point solutions together (much the way that Salesforce has done for sales and marketing). Companies taking an API-first approach to generating “decentralized ERP” creates an opportunity to leverage the amazing utility and user experience of these new point solutions, while ensuring that data systems tie together for real-time visibility and data integrity.
While these are a few of the areas we are interested in, we’re continually humbled by the visionary founders we meet on a daily basis and look forward to meeting many more who will transform the world’s supply chain in the years to come. If you are a company looking to transform the supply chain in the years ahead, please reach out to Rick Zullo or Chelsea Zhang to tell us more about what you are working on!
* Disclosure: Equal Ventures is an investor in SmartHop. Equal Ventures co-founder & general partner Rick Zullo is a personal investor in Project44.