Why does venture capital love logistics startups?

venture capitalLONG BEACH, California — Why is venture capital flooding into the transportation and logistics industry faster than ever before? Because the industry needs it, former venture capitalists and now logistics industry insiders told the2016 TPM Conference here on Tuesday.

“There has been a very entrenched way of doing things. It’s a very old industry. It’s a very storied industry,” said Renee Diresta, a former venture capitalist and now vice president of business development at Haven, developer of an automated freight procurement platform.

Logistics is a fundamental and lucrative field, but the cogs in the machine are antiquated, Diresta said. It’s ripe for disruption and venture capitalists know that.

What’s also attracted venture capitalists is the lower cost of investing in the current market, said John Golob, himself, an ex-venture capitalist and now CEO and cofounder of Lanetix, a firm that offers apps for the commercial operations teams at ocean carriers, third-party logistics providers and freight forwarders.

What used to take more than $40 million to turn an idea into a product now takes less than $4 million — thanks to the advent of such things as open-source software.

The amount of funding for transportation-focused ventures quadrupled in 2014 to $7 billion and doubled to $14 billion in 2015, according to Volvo Group Venture Capital.

The bulk of that is flowing to markets that will increase efficiency, collaboration and liquidity; services to lower fuel costs, increase safety and diagnose issues remotely; and analytics services that utilize data from different sources within fleets to enable better decision-making.

In other words, technology.

Every venture capitalist is looking to invest in the next Uber, that standard-bearer for marketplace disruption, said Golob.

Companies in the transportation and logistics field may not always recognize the opportunity for investment and innovation because too often companies see new and disruptive technology as serving their end customer, and for many today that’s the Millennial generation. But, technology is also part and parcel of the internal operations at companies across the logistics industry. And who staffs those internal operations now? Millennials, Golob said.

“We’ve all been talking about the Millennials right?” Golob said. But the industry needs to focus on Millennials as a customers just as much as “the different expectations they have in their work environment.”

“People who use iPhones in their daily lives don’t want to be on the phone calling people and typing numbers into a spreadsheet,” Diresta added. “These are guys in their 20s looking to book freight through this arcane process.”

Diresta and Golob acknowledged there remains a reluctance in the logistics field when it comes to innovative investment. It may take a cultural revolution in the industry to adapt to a more Silicon Valley frame of mind.

It is an enterprise where risk is a given, Diresta said. “The assumption in the Valley is that you will fail fast.”

She, once again, turned to Uber to illustrate her point. The company, which started seven years ago in San Francisco with $200,000 in seed funding and a fleet of Uber “black cars” is today an international company with an estimated worth of $62.5 billion.

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