Global trade is a market worth trillions of dollars—yet up until this point, it's been managed primarily with spreadsheets and emails. This week on In Visible Capital, we talk about the state of the supply chain and how disruptions in the early days of COVID-19 created more space for modernization and innovation industry-wide. To cover these topics, we are joined by Ironspring Managing Partner Ty Findley, CEO of FLEXE Karl Siebrecht and Founder of Playground Global Bruce Leak.
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TranscriptLee Gibbs: Welcome to "In Visible Capital," I'm your host, Lee Gibbs. This season, we're diving deep into emerging technologies and how they're shaping the way we live amid the pandemic and beyond.
Ty Findley: Global trade is over an $11 trillion market that is still, unfortunately, managed primarily by email and spreadsheets.
Bruce Leak: Historically, logistics providers, they're not strangers to surges in demand, right? I mean, Christmas happens every year. Black Friday happens. But unfortunately, COVID-19 has been different from all previous types of surges.
Ty: There is a lot of cultural inertia that, hey, if it ain't broke, don't fix it.
Lee: In this episode, we're turning our attention to an industry that touches all of the industries we've discussed so far this season: supply chain. Disruptions in the supply chain due to COVID-19 have been well-publicized. And while the most acute problems have relatively smoothed since the early days of the pandemic, there is no doubt that these disruptions have highlighted the need for technologies that can help ensure business continuity and help drive more efficiency and transparency throughout the supply chain. Of course, we could spend an entire season discussing this sprawling nature of the global supply chain infrastructure, so for the context of this episode, we're honing in on supply chain logistics specifically.
Ty: So if I was to just think about logistics, technology is a big part of this conversation.
Lee: Ty Findley is a managing partner at the investment firm Ironspring Ventures, which focuses on investing in digital industrial applications.
Ty: We want to back founders that are going to solve some of those really critical challenges that oftentimes have a supply chain orientation to them. You've got the venture community investing in trends such as digital freight brokerages, or some call them DFMs—digital freight matching. You've got multiple pure-visibility solutions. You've got warehousing automation where either give me my warehouse on demand in a more temporary, on-demand fashion or even the robotic systems that are moving things and picking things within a warehouse more efficiently because we don't have the human labor force to actually do all of those jobs. Document automation with optical character recognition and natural language processing to take bill of lading and other documents that are now being digitized to help transfer all of that data we talked about earlier, or even financial products so that some of these skilled laborers are getting paid faster. And we're not holding up payment processes because of outdated paperwork going over a Microsoft Excel sheet. So I think that all of these different trends have really accelerated the opportunity again, for when you use the word supply chain, it again all comes back to data and connectivity. Now that all of this is being brought online, people can make faster decisions. They can take data, analyze it, make predictive decisions on what they should or should not be doing with their supply chain, and ultimately squeezing out more efficiently how we should move our goods around the world.
Lee: Only, achieving that efficiency is a fairly tall order in an industry that is just beginning to widely adopt modern technology.
Ty: Global trade is over an $11 trillion market that is still, unfortunately, managed primarily by Microsoft Office tools such as email and spreadsheets. And in the US alone, the US Census Bureau outlined that there are over 225,000 importers that account for over $2 trillion in that global trade and are in need of modernizing their digital supply chain efforts.
Lee: One company doing just that is the startup FLEXE, who provides warehousing and ecommerce fulfillment solutions for large enterprise customers. Co-founder and CEO of FLEXE Karl Siebrecht says he helped found the company out of the need for the logistics industry to adopt modern technology, as so many other industries have done so over the recent decades.
Karl Siebrecht: Logistics tech, we felt like, was the next inevitable area of innovation—largely because we as consumers have changed the way we buy products. We now, of course, buy products online. You know, logistics historically has been a very asset-intensive business. We're talking physical warehouses, trucks, planes, ships, trains. And over the last couple of decades, those physical assets have been made a little bit more productive by layering in some technology. But it is still been an asset-first business supported by technologies of different shapes, sizes and functions.
Lee: It's partially due to that asset-driven mindset that the supply chain industry has struggled to innovate as consumer buying habits have shifted. And Karl cites one household name that played a key role in accelerating ecommerce trends.
Karl: I would hold out Amazon as by far the leader in this. Amazon is a technology-based business. Logistics at Amazon is fundamentally, I would submit, a technology-driven business now that is supported by assets. There's still lots of assets—trucks, planes, buildings—but it is fundamentally a technology business that is driven by this very sophisticated and highly scaled tech platform that they've spent 20 years building that is supported by assets. And so when you compare that state to the rest of the industry in the rest of the industry is in the very, very early stages of going through that transformation.
Lee: Which is why logistics providers were tremendously unprepared for the disruption brought about by COVID-19.
Bruce: Historically, logistics providers, they're not strangers to surges in demand, right? I mean, Christmas happens every year. Black Friday happens. But unfortunately, COVID-19 has been different from all previous types of surges.
Lee: Bruce Leak is a founder at the investment firm Playground Global.
Bruce: At Playground, we invest throughout the logistics supply chain and, you know, kind of from beginning to end. So, you know, we have investments in autonomous tractors that help farmers affordably produce organic vegetables. We have investments in trucking infrastructure to sustainably get that produce to distributors. We have investments in warehouse robotics to offload the dull and dangerous tasks that many people are faced with in those warehouse environments. And we have investments in flexible just-in-time manufacturing solutions to diversify supply chain, so you don't have a single source that can get disrupted. And investments in same-day fulfillment as a service. And finally, we have investments in driver assistance, solutions to make delivery safer and more cost-effective for the end user. From our perspective, it's interesting. Scalability and sustainability are often intertwined, more so in logistics than in some other businesses.
Lee: As a firm with multiple logistics companies in their portfolio—which we'll come back to—Playground acknowledges the challenges that COVID-19 has highlighted for the industry.
Bruce: You know, the traditional approach for logistics providers is to hire temporary workers. You flex by increasing your capacity of ability to work. But unfortunately, the traditional approach of just increasing the density of workers in the same facilities, because we can't change the facilities we have from a shock like this. That's not a safe option in many circumstances. And in many cases, it's been necessary to actually decrease worker density. So we actually need more capacity, but we have to lower the density of workers in any given space, which has created an incredible crisis. And, you know, this discontinuity and scalability has created the impetus for traditional district fighters to rethink the future of what a logistics system should be.
Lee: While the industry has mostly recovered from the severe disruptions in delivering everyday products like we saw early on in the pandemic, there are still really large problems that need solving.
Bruce: To be fair, I think the industry has really risen to the challenge. We've gotten to the point where we can reliably order groceries and have them delivered, and the toilet paper is now in stock. Huge kudos to the industry to delivering in a mission-critical, life-safety point of view. But at the same time, I think there's still ongoing impacts of the pandemic, ones that in hindsight are obvious, but have been shocking to us and some of our companies.
One of our companies manufactures a medical device in Spain, and they had a conversation with their manufacturer, who's very sophisticated, and they came in for that meeting with some really interesting piece of data—one of which was their device actually has some glass in the product. And the manufacturer said, we're not sure we can get the glass to build your product anytime soon. And I've never heard of glass being in short supply. I mean, it's made out of sand. And this is not the hardest problem. And and so they ask, "What's going on?"
And they said, "Well, it's actually very simple. All of the vaccines come in glass vials, and they're making hundreds of millions of them."
And it's a lot of glass. And it's not like people are making more glass factories overnight. And so glass is unavailable, and it's all prioritized for vaccines.
Similarly, the other thing that they were told was that air freight from Europe to the US is nonexistent. Don't plan on it. Everything's going to have to go by ship and, you know, once again, they said, "Well, explain that to me."
And the answer was, there's many fewer transatlantic flights than there traditionally would be because people aren't flying. People aren't flying cargo-only planes. And so all they have are the bellies of the planes that are flying. And every one of those going from Europe to the US is pre-booked for vaccines. And so you're not going to get on one of those planes. So funny corner cases. We thought we were through the pandemic, and now we are somewhat, maybe. And vaccines are coming, but they're stressing supply chains in completely different ways. They have never been stressed before. Who would have thought you need to stockpile glass?
Lee: Of course, stockpiling glass and other materials isn't the solution, but rather building resiliency into the supply chain to prevent these kinds of disruptions down the road.
Asad: In my mind, you can really break it down into three factors—visibility, flexibility and automation.
Lee: PitchBook's emerging tech analyst Asad Hussain, who you heard from in earlier episodes on mobility, also focuses on supply chain.
Asad: So when I say visibility, what I really mean is can I have the visibility into understanding where threats or disruption might occur in my supply chain? Can I get a better sense of my risk exposure to external shocks such as pandemics, but also things like natural disasters, geopolitical events, political disruptions. And so there's a whole host of startups that are focusing on that issue. Visibility also extends to understanding where your goods are, providing real-time updates if they're on a truck, for example, or being carried via freight, providing predictive analysis that helps you understand when your product might arrive at a shipping port, for example. And so you can better plan for that. I think all those are really key to making supply chains more transparent and visible than they've ever been and helping companies prepare and mitigate risk as a result of that.
The second one is flexibility. Once you've noticed that a certain disruption is happening or we're seeing more demand in a certain area or a contraction in supply in another, how do you then respond to that? And I think that's really key is if you want to be successful in a period of dynamic environments, you need to be flexible. And so I think companies that provide warehousing technologies, those are ones that can really help address this need flexible on demand.
Marketplaces such as FLEXE, STORD, Darkstore, SpaceFill provide flexible logistics solutions for asset-intensive enterprises that are struggling to place inventory. And they can help, you know, actually help these companies proactively store and stockpile inventory as needed without having to make large investments into warehousing space or retail space, which is what they would have had to do before.
And finally, the last piece of this I want to touch on is automation. That's so key to making [the] supply chain resilient. And the reason has to do with labor disruptions. And I think that's been really highlighted by this pandemic previously. I think robotics and autonomous technology within supply chain, it was largely seen as a way to reduce costs, right? If you can bring your labor costs down by augmenting your workforce with automation, it makes sense. And so that's historically been the driver of investment into that sector. But I think what the pandemic brought about is an understanding that if you're a workplace where there's a lot of people working in close proximity, that's a risk in it in itself when a pandemic comes along. And so if you can augment these workers with robots and automation tools to space them out, you can improve outcomes, you can maintain resiliency, you can make your workplace safer, and you can operate during periods of time when your workforce might be understaffed, for example, or due to safety restrictions, you might be more limited in what you can do. And so I think startups such as Fetch Robotics, which provides autonomous mobile robots to warehouses and logistics operations there in a really good position. And so I think all of these things, when you layer all these things together, visibility, flexibility and automation, these are all trends that we're going to see and I think help make supply chains much more resilient going forward.
Lee: And as these trends are ushered in, Asad sees opportunity for new entrants into the ecosystem that will improve resiliency.
Asad: I think what we've seen is a lot more interest among companies seeking to make their supply chains more visible, more resilient to external shocks, more digitized and more connected. And that's also been reflected among the investor community, recognizing these problems and recognizing that supply chain startups have provided many of the solutions that will be needed. And so we've actually seen investment in supply chain technology companies be pretty strong even during this pandemic with all the disruption that we've seen across global supply chains. And we've seen really large deals in the space as investors, you know, want to gain more exposure and they see the opportunity that's going to be ahead for some of these companies.
Lee: In 2020, VC investors funneled approximately $11.5 billion into supply chain technology startups in North America and Europe. Historically, the bulk of venture investment has gone toward middle-mile and last-mile applications. And if you aren't familiar with those terms, "middle mile" refers to the transport of goods from a port to a warehouse or distribution, and "last mile" refers to the final stop of delivering goods to end users. But that investment trend has left significant opportunity in first-mile solutions, which refers to the process of picking and prepping goods to be transported from the manufacturer. Startups in this space generally focus on solutions for specific workflows, such as increased tracking and visibility.
Lee: One company operating in this area is a first-mile platform startup called Mercado Labs. Ironspring Ventures led a $2.5 million round of seed funding for Mercado in July of 2020.
Ty: For Mercado, defining that first-mile journey is really where we think there is the last remaining white space in supply chain visibility because it is the furthest upstream process that then sets in motion all the other downstream processes because of that critical data asset called a purchase order.
Lee: Mercado's platform digitizes the entire ordering process for both suppliers and buyers to improve processes, transparency and visibility.
Ty: And I didn't even really get it until I dug in deep with who I consider one of the most impressive founders I've met, Rob Garrison, who's the CEO of Mercado Labs. And it's really focused on, for the first time, coordinating all of the varying departments and workflows involved with a shipper to conduct their important activities. And the key way you do that is by getting access to better managing the enterprise purchase order data and associated workflows that balance between not just the procurement and sourcing departments that are the first people cutting those POs, to wherever that supplier base is across the world. But there is an orchestration that needs to happen that right now is siloed with the logistics people also associated with that shipper. And so Rob's trying to bring a platform in a modern modern architecture—robust API integrations, micro services, architecture, etc.—that he can then help an organization see, yes, maybe your procurement department had purchased purchase software to help them manage their processes. And then the logistics people on the other side of the equation, some other building, they had their PO management processes. But why can't you connect all of that data together so that you can have a more efficient understanding of how goods are moving from the various earlier tier one, tier two, tier three suppliers, and then ultimately making their way across wherever the journey is to get to the end customer.
Lee: And along that journey are more opportunities for investment and innovation in various segments of logistics. Let's hear again from Asad Hussain.
Asad: I think the freight industry is really ripe for disruption.
Lee: And investment forecasts from PitchBook appear to agree. PitchBook estimates that the net revenue generated from the global freight industry totaled $4.7 trillion in 2019 and is expected to grow to $5.2 trillion by 2025. And when it comes to freight, there is no shortage of improvements to be made.
Asad: Whether it's improved load matching technology, helping match shippers and carriers and loads to drivers, whether it's self-driving trucks, helping augment the labor issues in this phase and improving safety outcomes, reducing lives lost on the road, or whether it's electric electric truck technology, whether it's battery, electric or hydrogen electric, reducing the emissions that these trucks give out. Or whether it's fleet management technology that's monitoring these trucks on an ongoing basis and proactively flagging potential failures before they occur, thereby saving thousands and thousands of dollars in potential downtime. I think all of these are coming together. These are all really important technologies that will be crucial to making our roads safer and improving the freight ecosystem, improving visibility, improving outcomes in this phase, improving service. And it's a pretty large landscape of fleet operators out there—a lot of trucks out there.
Bruce: It's extraordinary to understand that between 25% and 50% of the truck miles driven in the US are empty trucks because they've done their delivery, what they were paid for, and everybody's gotten what they expected, but now they need to drive home. And because people aren't looking at the big picture and thinking about how to manage this into the future, they can't take advantage of closing those loops and optimizing the equipment we already have in place. We can't radically change the number of trucks or the number of truck drivers anytime soon. But we can certainly guarantee that we make the most of the ones we have. And it really just comes down to the need for getting the information and building the systems and the artificial intelligence to deliver against that.
Lee: In December 2019, Playground led a $20 million Series A for Leaf Logistics, a freight contracting platform that Bruce believes will help solve this problem of empty trucks on roads.
Bruce: I think of Leaf Logistics really as an operating system for trucking. So there are many players in the industry focused on digitization of trucking, focused on creating marketplaces to enable that tens of thousands of trucking companies to compete on price for the opportunity to move a truck load from point A to point B. But unfortunately, this race to the bottom just perpetuates the fragility of this boom-to-bust cycle that we see in trucking. The power shifts from the shippers to the truckers and back and forth as the capacity increases and decreases. And this plague on the industry has made shipping costs unpredictable and the service unreliable. But by taking a completely different approach, by getting away from the zero sum game of, hey, we can empower the shippers to take advantage of the carriers and thinking about how do we make a win-win solution, how do we look at this thing holistically and reimagine a solution that works for everybody?
And this is where Leaf comes in. They're working with a consortium of the largest shippers to collectively optimize the routing and timing of trucking across the nation and minimizing the empty miles needed to deliver both predictability and profitability to carriers while lowering the costs and increasing reliability for shippers. And in the end, this just decreases the impact on the environment. Leaf has built this God's eye view of the network. And so they're able to predict what needs to move from Atlanta to Chicago every day of the year, not just tomorrow. And then they can figure out the best way to fill those trucks up on the return trips for each of those days today, you know, a given shipper can figure out, hey, do they have a load that needs to come from Chicago back to Atlanta, you know, after they deliver their other goods to Chicago?
But there's no good viable place to figure out what other shippers need to go the other way in the future. Maybe tomorrow you can figure that out on some of these marketplaces. But there's no future-looking marketplace for trucking today in the US. And that's fundamentally the way Leaf looks at it. This isn't a day-by-day problem. We know how much Pepsi is going to be produced and where it needs to go and who's going to buy it on the whole. And we need to make sure that that capacity is available and figure out how to close the loop and be efficient with all those resources.
Lee: While Leaf is helping to make the transportation of goods more efficient, storing and sorting goods before they even reach the delivery phase is another area ripe for innovation, especially in a pandemic environment that doesn't allow for the responsible use of the traditional solution to surging demand—more people.
Bruce: The core logistics providers, the warehouses, the sortation that makes all this possible have really been living off of the flexibility that they get from human labor. We've seen logistics providers just hire more and more people. And we've heard from former leaders of some of these companies that there are situations where they have 85,000 or 100,000 people where their sole job is to take boxes off the end of a conveyor belt and set them onto a pallet. And they're measured on how many of those they can do per minute, per hour. And as people demand more and more, cheaper and better ecommerce, the pressure is on how do we get those people to do that quicker and quicker? And it's just not a fair ask. As a society, we need to think about what's the right use of people in our in our workspace. And we need to consider, are these warehouses becoming the coal mines of the future? That's not the world I want to live in. I want to take advantage of the creativity and the thoughtfulness and the ingenuity of humans. And we need to look for automation to solve problems like how can I do something cheaper, faster, quicker, better.
Lee: As we know, COVID-19 has accelerated us toward a new era of ecommerce. And platforms like Amazon have used economies of scale and competition to offer cheaper and faster services. However, now we're seeing new offerings from companies that provide small to medium-size retailers. The opportunity to compete among these companies is FLEXE, who we briefly mentioned earlier on in the episode. FLEXE falls under the umbrella of supply chain as a service by using a subscription model to connect companies with unused warehouse space. These kinds of platforms can help add flexibility and scalability for small businesses, enterprises and other shipping intermediaries so that they can maintain a steady operational performance during periods of fluctuating inventory demand, all without the traditionally capital intensive route of building their own warehouse space. Digital marketplaces also increase price transparency and allow for more consumption based spend. Karl Siebrecht, the CEO of FLEXE, lays out a bit more of this context for us.
Karl: The logistics industry in the US is massive. It's massive globally, but in the US it's over $1.5 trillion, which is over 8% of our GDP. So it's this massive industry. And historically, companies have optimized their logistics networks for efficiency because it is such a massive amount of spend. The cost of that efficiency oftentimes, though, is rigidity. And so if something happens in the world that causes change, it can be very difficult to react to that change. And so newer models in logistics tend to be more flexible and emphasize flexibility. And that's certainly what what our business does as well. And of course, the main change that has happened, that has caused the need for flexibility and the need to to do things differently is ecommerce.
Traditionally in logistics, companies forecast their growth. And from that growth forecast, you can calculate how much inventory you're going to have held in any given place and how much inventory will be flowing through your network of warehouses and kind of transportation lanes. And then you go out, and on the warehouse side, you lease buildings and leases are typically written on three to five years, sometimes longer commitments. And so you forecast out three to five years. You lease the space you think you're going to need; then if the world changes, if your forecast is wrong, you have to go out and say, "Oh, I have to lease more space." And the process, the time it takes to go through that process is very typically months, sometimes quarters. And when you're talking about standing up a warehouse that's ready to process goods with all the hardware inside and the software integrated, that could take a year. When the world changes as fast as it did with COVID, that's nowhere near adequate in a business that is a fundamentally a software platform business that has assets attached to it. You're already integrated into this platform. You can spin up new capacity in a matter of days. Quite literally, the difference can be days versus months or quarters or sometimes even a year. So that's a that's a very poignant and very true example of the difference.
Lee: Services like this help customers minimize capital expenditure and focus on their core business while still enabling access to the latest technology. As economic conditions continue to challenge businesses, PitchBook expects subscription services to play a role more prominently in serving the needs of capital-constrained customers.
Karl: I think that supply chain as a service is starting to become and will be a huge part of the infrastructure of every company that operates in the ship's physical products. So the metaphor that I think is is most useful to imagine how this is going to go is thinking about cloud computing as compared to what preceded cloud computing, which is data centers. So before Amazon invented AWS, which was about 15 years ago, if companies needed computing, power storage, etc., they would build their own data center. They would lease space in a building, they would buy servers, they would get IT people to take care of those servers, instrument them, etc. So they would either build their own physical data center location. And then if they were big, they would build multiple locations, and each of those would be a fixed capital investment and each would have a term commitment to them, or they would outsource the building of these data centers, but they would still be these fixed assets and they would be relatively fixed both in space and time and in capital.
And then AWS was invented and they said, "Hey, here's a new idea. Just plug in to our physical infrastructure and there will be no fixed cost. You just pay for what you use, and there will be unlimited capacity. So if your business is growing this fast, but all of a sudden it grows twice as fast or 10 times as fast. Not a problem. We have infinite bandwidth for you. And by the way, you don't have to make fixed capital investment decisions because you just pay for what you use."
That is what's happening in supply chain in a great way to think about what I was saying earlier about it moving from an asset-intensive business or an asset-first business to a technology-first business. When a company no longer has to feel like they have to build their own special snowflake in terms of their logistics network, but they can just plug in to these scaled platform solutions that already have this functionality. It gives them very significant flexibility and lets them focus on other parts of their business. Because the other thing, the metaphor also extends. When AWS was invented, it was a very basic solution. It was storage and basic computer power. And if you can imagine one of the early salespeople walking into a bank or a hospital and saying, "Hey, here's a great idea, why don't you put all your data on my server?"
You can imagine those banks might say, "No, my data is really sensitive and special. And I've got a great tech team, and we've built our own data center. It's way better than what you could ever build. It's way more secure."
Fifteen years have passed since then, and in those 15 years, Amazon, Google, Microsoft and others have hired literally tens of thousands of engineers that have been innovating on these platforms, and now they're not just basic storage, they're very sophisticated. And the security, as an example, in these platforms is way better than most companies can build on their own. So it started out as this very basic kind of variable cost versus fixed cost play. But it then has adopted the characteristics of all great platforms, which is the rate of innovation is just faster when you can hire some of the world's best engineers and put them to work on a set of software that all customers can plug into and use. And so companies now plug into, whether it's a Google or Azure, they still may have some data centers, it may be a hybrid model. But but frankly, now they're plugging into this this this platform that's excellent and continues to innovate. And now they can again, as I said earlier, go focus on other parts of the business. This is exactly what's happening in logistics. It's just a very, very early stages of this. But when you when we look up 10 years from now, it'll be very common. In fact, I'll put it this way. It'll be very uncommon that a company will have still built their own system and are not plugging into any of these platforms.
Asad: We're seeing a lot of enthusiasm for supply chain as a service proliferating across the market. We think it makes a lot of sense because it helps middle-market companies that might not have the capital budgets to invest heavily into sort of large amounts of automation necessarily to gain access to these services on an ongoing basis. And so we expect subscription services to play a more prominent role in serving the needs of these capital-constrained customers. And we're seeing providers of industrial and warehouse autonomous robots like Locus, Mobile Industrial Robots and Righthand Robotics increasingly pivot to offering more subscription-based, full-service solutions to serve these companies' needs.
Lee: The final segment we want to highlight is last-mile delivery, an area that has seen tremendous growth as consumers have leaned on delivery throughout the epidemic. And we continue to see investment opportunity for improving proximity and automation in this area. PitchBook estimates global revenue from last-mile delivery services in 2019 reached $347 billion and forecasts this number to grow to $578 billion by 2025. Seeing this potential in 2019, Playground participated in a $110 million Series B for Fabric logistics. Fabric's technology combines local distribution with economics of automated fulfillment, enabling retailers to offer faster delivery and scale on demand fulfillment.
Bruce: One of our companies is a company called Fabric. They fundamentally started in groceries. Their mission is to reimagine the whole system of delivering same-day fulfillment as a service. But they notice that groceries is the hardest spot, right? You've got the perishable nature of goods. They have to be delivered quickly. They can't sit around or they will spoil. And you're in a corner of the market where the margins are incredibly thin and it's super competitive. You can always go to a different grocer if you know, if your current one isn't solving your needs. And so what we've seen with with Fabric is they recognize the opportunity to use robotics to flexibly scale online groceries and to turn them from a loss leader into a profit center for grocers. And when you do that now, the grocers can think about completely differently. They want to push you to online. They actually can make more money on online sales than they do of having you come into the store. And once they do that, they need less store space. But the interesting thing is they need less store space for consumers. They still need the real estate to be close to the consumers in order to be able to make a promise of one- or two-hour delivery. And so now that real estate asset actually becomes a benefit on the delivery side that, you know, online-only competitors don't have. They're not that close to the consumer. They can't deliver one-hour value proposition where your local grocer can, and they've already paid for that real estate. Now they just need to take some of it and move it into the back office instead of the front office and put a robotic vending machine in there. Think of it as a robotic Instacart vending machine. Ecommerce orders come in one side, packages come out the other in five minutes, give you plenty of time to do a one-hour delivery because you're already in the neighborhood of your customers.
Lee: Solutions like this will undoubtedly help businesses meet the rising demands of delivery and improve customer satisfaction. But beyond the traditional modes of delivery that we're all familiar with, Asad is paying close attention to future trends as well.
Asad: We see opportunity in the urban air mobility space, which is seeing a lot of interest from investors. We're seeing, you know, Blade urban air mobility is going public through a SPAC. We just saw reports that both Lilium and Joby Aviation are planning to go public through reverse mergers with SPACs. I think those companies are leveraging some of the investor enthusiasm that we've seen across the electric vehicle industry from the public markets, but also the investor enthusiasm around the delivery industry with the debuts of Doordash and Instacart. It's almost the perfect intersection of both of those trends, electric, autonomous last-mile delivery through flying air taxes. And so, you know, those have the potential to really, really reshape things, especially as we think about drones and companies like Ehang, for example, shipping medical supplies, essential medical workers using their their urban air mobility vehicles. So we see a lot of opportunity for disruption on that front. And we think that's going to be a key part of the sort of next generation of supply chains and delivery.
Lee: Well, certainly. I mean, if Star Wars taught us anything Asad, it's that robots come in many shapes and sizes, and they're built for many different purposes. So you could certainly see a world where purpose-built autonomous robots are delivering all shapes and sizes of packages.
Asad: Absolutely. And it sounds like science fiction, but the problems they're solving are very real.
Lee: Throughout the supply chain journey, we've covered a lot of technologies that aim to refine and modernize existing processes, but what's an emerging technology discussion without some truly disruptive ideas? In February of 2020, Ironspring Fast Radius in a Series B. Fast Radius is a digital manufacturing platform that could turn companies physical inventory into virtual inventory—better addressing consumers need for on-demand shopping.
Ty: Historically, we've we've always had our goods delivered by three modalities, land, air and sea. But in the future, to meet that new "I want it now" reality (again, thank you, Amazon), we are moving toward what I think the fourth modality of distribution, which we call virtual inventory, that is stored in the cloud with a digital part file or of some sort or another. And what I mean by that is Fast Radius is building out a global network of on-demand additive and traditional manufacturing capabilities spread out all over the place so that they're all geographically diversified, but they're all tied together by one integrated software platform to help producers design, manufacture and distribute their goods more on-demand wherever in the world that specific need is simply by storing their file in the cloud to be used whenever and wherever that order comes from. Let's not build 40 warehouses—name your pick of who builds them—all around one area. Let's actually reduce inventory levels and build on demand. And so I think this virtual inventory future is a big trend that's coming. And if you think about it, it can make a massive efficiency and sustainability impact on society as you have less warehousing required, therefore, less infrastructure, less trains, planes, automobiles, moving things around to go sit on shelves somewhere as inventory and ultimately less production waste. So in my opinion, that future innovation in the supply chain is what really is getting me most excited right now, because it really draws upon all of those very technologies that we've talked about being brought together for one big vision of how you could evolve the supply chain beyond just the status quo and beyond, just connecting a bunch of data assets together to optimize it.
Lee: To put this in layman's terms, Ty uses this as an example. Fast Radius has a partnership with a 3D printing company called Carbon. Adidas is partnered with Carbon. Let's say Ty's 4-year-old daughter wants a new pair of shoes in her favorite color. In the future, a Carbon printer within a Fast Radius facility in Ty's hometown of Austin, Texas will be able to create the specified shoes in his daughter's favorite color, of course, on demand and put them on a truck to be delivered within a matter of hours.
Ty: And so what's not happening, though, is there's not this massive production run happening in another country that then gets put on a train, plane, automobile, cycle to then again go sit in a warehouse and wait for someone to hopefully click for that specific piece of inventory. Not only is that now optimized for all the reasons we talked about efficiency and sustainability, but now my daughter is also able to get very granular about what she wants. And that doesn't affect any of Nike or Adidas production outlook because there's now a new way of of hosting their own supply chain capability. So that's what Fast Radius is trying to bring to market, is that network of opportunity to digitally manufacture parts as they are on demand per person request.
Lee: While we still have a ways to go before reaching the future state, that Ty just described, there's no question that the current pandemic has played a crucial role in accelerating supply chain logistics into the future by several years.
Bruce: I think just on the numbers, it's between five and 10 years. But I think from a mindset point of view, it's at least 10 years.
Lee: And considering the industry has struggled to move into the 21st century by way of technology, that's a fairly massive shift in a very short amount of time. But while we're finally seeing these optimized digital solutions enter the market, some may be resistant to change.
Karl: There is still some attachment to the old way of doing things. You know, one way to characterize the old way of doing things is every company has built their own logistics network. They either build it in-house, they sort of decide where they want warehouses in our world. They lease them, they decide how many they need. They decide which types of transportation companies they want to partner with, whether that's UPS or FedEx, or nowadays even some of the more innovative services like a DoorDash or an Instacart that are delivering products. And the reality is, as technology becomes more and more critical, piece of the foundation technology platforms that are built for the whole market can start to surpass these bespoke solutions in terms of the rate of innovation. But oftentimes, you know, the customers who are again used to doing it the old way can be slow to adopt these new these new solutions. And that can be a challenge.
Ty: A lot of it's cultural. It really is. I mean, technology is one part of the equation, but there is a lot of cultural inertia that, hey, if it ain't broke, don't fix it. And I know how to work with my certain tools of trade. And I certainly know how to communicate with the people that I communicate with. Why would I want to implement a new software solution archetype all of my data? And basically then, you know that enterprise is going to have to move toward its own call it infrastructure that has a data like that that's modeled in a way that everyone's going to agree to it. Integrations becomes a more open ecosystem. When you say open ecosystem to a lot of companies in this ecosystem, that's not the way they've always seen the world. And I think that in a digital-oriented world, you can't do it all. You can't solve all the problems. And so you have to find a way to to work with others and to open up those APIs and start letting the information flow a lot faster.
Asad: Along with that, I think there's a degree of skepticism toward Silicon Valley, toward new technology companies with people from tech backgrounds coming in and saying, "Hey, we have a product that can really change how things are done and do things a lot better," but they might not necessarily be from the industry. So I think those are things that present a bit of an uphill challenge for early-stage startups in the space. But what we're seeing is that the pandemic has really brought about a paradigm shift in terms of highlighting the importance and the need for digitization and connectivity tools and is really changing a lot of people's minds and waking people up to the fact that the way that we've done things so far has a lot of disadvantages, especially during dynamic supply-chain environments like those that we've experienced currently.
Lee: Overall, our guests have a lot of reason to feel optimistic about what the future will hold.
Bruce: Logistics and supply chain is definitely a competitive space. There are a lot of players. There's room for lots of innovation. I think different solutions, you know, will come forward. I don't think it's going to be winner-take-all. But I do think that there is a better-together network effect that everybody can benefit from that will come to the front supply chain for the fact that we went through 2020 and everyone had what they needed, for the most part, very innovative companies.
Ty: And I'm very proud of how our supply chain here domestically operated. I just think now we're moving into a a new phase where digital orientation around integrations and new data pipes is going to be bringing online new capabilities to help even further accelerate all of that.
Lee: Join us next week for our season finale as we hold a conversation with PitchBook head of emerging technology research, Paul Condra. We'll get his insights on additional trends he's seeing across emerging technologies amidst the pandemic.
In this episode
Founding Partner at Playground Global
Founding Partner at Playground Global
With a master's degree in electrical engineering from Stanford, Leak spent two summer internships at Microsoft. There, he tested an early prototype of Microsoft Word for the original IBM PC and later worked on the first versions of Microsoft's Macintosh applications. His first full-time role was with Apple's System Software team, where he led the company's efforts on 32-bit Color Quickdraw. Leak spent five years at Apple expanding the QuickTime team, shipping several versions of the product and speaking at developer conferences.
Leak was later recruited by Steve Perlman to General Magic, and in 1993, Leak joined forces with Peter Barrett and Steve Blank to form Rocket Science Games, where he hired many members of the QuickTime team, supported developers and built the gaming platform. His next venture was WebTV, which he founded with two General Magic alumni, Steve Perlman and Phil Goldman. WebTV was acquired by Microsoft and the company went on to ship the first DVR products for Echostar and DirectTV.
After founding several startups selling technology and services to mobile phone operators and automotive OEMs and traveling the world, Leak co-founded Playground Global—the venture capital firm he wished existed when he was building his own company. From robotics to quantum computing to groundbreaking medical advancements, Playground's true north is leaving a lasting impact for generations to come.
Leak lives in Palo Alto and can still be found adventuring outdoors by kayak and by land. He is passionate about wildlife conservation, preserving natural habitats and supporting animal sanctuaries.
Managing Partner at Ironspring Ventures
Managing Partner at Ironspring Ventures
Ty Findley is a managing partner for digital industrial venture capital fund, Ironspring Ventures, where he is responsible for end-to-end deal execution through sourcing investments, leading diligence efforts and leveraging Ironspring's broad industrial network to support founders. As both an operator and investor, he brings a decade of digital industrial experience from his time at Boeing, GE Ventures and Pritzker Group Venture Capital supporting innovative companies, including Augmentir, DesktopMetal, Fast Radius, Freightwaves, Mercado Labs, Plus One Robotics, Project44 and Xometry. He is also a member of the Kauffman Fellows venture capital fellowship.
Findley graduated from Baylor University with a B.S. in mechanical engineering, where he was also a letterman member of the football team and a senior captain. He earned his MBA. from the Kellogg School of Management at Northwestern University.
CEO and Co-founder at FLEXE
CEO and Co-founder at FLEXE
Karl Siebrecht is a seasoned tech executive with experience at both startups and large global corporations. With FLEXE, Karl is building the world's largest open network of collaborative warehousing. Before co-founding FLEXE he served as CEO of AdReady, Seattle-based ad tech company, and was President of Atlas at aQuantive prior to its $6B acquisition by Microsoft.
Emerging Technology Analyst at PitchBook
Emerging Technology Analyst at PitchBook
Prior to joining PitchBook, Hussain was an equity research associate at Westwood Holdings, where he supported the coverage of 100+ publicly listed US companies within the technology and industrial sectors.
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