Slow dance
Logistics are a hot commodity now, but because the concept of online freight logistics is still relatively new, there are not yet a lot of funds that have been created specifically for the space, other than those looking for general transportation investment. As a result, many angel investors and VCs are still understandably skittish. For instance, while SmartKargo and Fontinalis are funding partners with a three-year-old functioning product, the process of financing and founding the startup took longer than expected. Fontinalis, launched by Bill Ford, of the Ford Motor Co., and an investor in the Lyft ride-sharing service, specializes in the transportation sector and has a history of backing later-stage startups. SmartKargo would have to prove itself first.
“We first heard about SmartKargo in 2013,” said Stallman of Fontinalis. “They had a lot of known individuals and were very well-connected. But we took a long period of time to get to know them. We understood the ‘asset utilization’ part, but were a little slow to embrace the technology, especially the cloud base.”
SmartKargo’s Britton said the company expected as much and relied first on a loan from the U.S. government-backed Overseas Private Investment Corp. (OPIC) to prove their concept. “The industry is always resistant to new players,” he said. “We wanted to get forwarders away from Excel spreadsheets and telephones. People are so used to seeing new software product that when someone has a superior product, they don’t know it when they see it.”
After another year of work, Stallman said SmartKargo “did a tremendous job” proving that the cloud system would improve load factors and would be well-received by airlines. “They had experience building ERP [enterprise resource planning] systems, which is incredibly difficult to do. Those folks from MIT have the right DNA for this stuff.”
In January 2015, Fontinalis and SmartKargo signed a financing deal for an undisclosed sum. In the spring, SmartKargo got even more star power when it added air cargo veteran Des Vertannes to its team as a “strategic advisor.” Then, in late June, SmartKargo announced it had signed on Hawaiian Airlines as a client.
“A lot of entrepreneurs tend to overpromise and under-deliver, but that was not the case with SmartKargo,” Stallman said. “They’re a pretty conservative bunch and know what they’re doing. They’re one of the few entrepreneurs that exceed expectations.”
Jeremy Bodenhamer, co-founder and CEO of startup firm ShipHawk, said he had similar struggles to find initial financing for his online oversize shipping service. “In 2012, seed money took awhile to find. They weren’t throwing money at something that was unproven,” he said of VCs.
After spending time in an executive services firm, Bodenhamer had to do a lot of shipping requests and got to know the business by constantly talking with integrators like UPS about shipping unwieldy objects. “In 2011, I got tired of people asking me over and over about how I can find discounts on shipping, so I decided to turn my job into another small business,” he said.
Bodenhamer launched Shiphawk in 2011, but had to wait until last fall to secure $5 million in a Series A round of funding from Silicon Valley-based Rothenberg Ventures and Karlin Ventures. “It took awhile, but this business finally became sexy over time,” he said. “The reasons this took off were guys like me who started talking about the problem openly and working on software to help clarify the pricing in this industry.”