Supply Chain Now Episode 403
The ‘TECHquila Sunrise’ Series on Supply Chain Now shares the latest investments, acquisitions, innovations, and glorious implosions in Supply Chain Tech every week. If you are looking for a podcast about ‘so-and-so signed a contract with such and such,’ or ‘they just released version 20 of that same technology you didn’t buy last year,’ this is the wrong podcast for you. But if you are looking for real news and innovation, welcome to the Sunrise.
In this episode of ‘TECHquila Sunrise,’ Supply Chain Now Host Greg White discusses recent articles on the following topics:
· How the seismic societal disruption caused by COVID-19 has impacted technology-related employment and investment funding in 2020
· The stages of a startup from bootstrapping to growth equity, including what is required of the founder(s) at each stage of growth, and how funding decisions affect revenue potential and ownership throughout
· The uplifting story of Nigerian B2B e-Commerce startup TradeDepot, who recently received $10 million to add financial services to its supply chain for African small and medium businesses – 75% of which are woman-owned businesses.
Greg White (00:00):
This week at tequila, sunrise, where extending your learning on the stages of startups. The very first rule, the milestones expectations, valuation and investment dynamics. I’ll share more about how this seismic societal disruption in response to COVID-19 has impacted tech employment and investment funding in 2020, and also a fascinating startup in Africa sitting at top by $1 trillion industry, enabling small street side, largely women owned businesses, cool stuff, all that, and this week’s deal uptakes. So listen up, it’s time to wake up to tequila sunrise, where without the aid of tequila, somehow in toxicants of any kind or even coffee, we opened your eyes to how venture investing ticks along with the notable investments, acquisitions innovations and those inevitable implosions that are focused on supply chain tech every single week at this unholy hour of the day. If you want to know how investment is done, who’s winning who’s waning, who’s whining and who to track and supply chain tech join us every single Thursday for another winding tequila, sunrise.
Greg White (01:34):
You might’ve seen that. I took on another advisory role. I’m working now with clarity capital partners. So my good friend, Steve Keaveny along with his partners, John stain year, and Mary Roberts invited me to join him. And I felt like it was the right thing to do because they are so committed to helping small and midsize companies with mergers and acquisitions, debt and equity capital, and advising them about the appropriate sources and partners to help them meet their goals. Look, I have been there when you are running a business navigating business finance options is first of all, the last thing you want to do and can seem overwhelming and complex and distracting. So I’ve worked with Steve for years and I’ve seen him help companies maximize valuation and select the right financing options to get companies where they want to go. I’m excited to be working with this team and, and to help them get companies in position to take it to the next level or take over a market or take some chips off the table.
Greg White (02:40):
It’s really gratifying for me and for the team to help founders, executive teams and shareholders make their vision a reality. And whether you need finance, you need help. You need executive and strategy advisory. This team can help you shape your new reality. Look, if you’re considering an equity, raise debt financing, a merger, or even seeking an acquisition, consider the team at clarity. Look as always, you can talk to me first, reach out to me on LinkedIn or reach out directly to Steve at clarity, clarity, exit.com, Greg white here from supply chain. Now always happy, never satisfied, willing to acknowledge reality, but refusing to be bound by it. My goal is to inform, enlighten and inspire you in your own supply chain tech journey. So if you like this series say so, and Hey, now we’re legit. We’re on Spotify, Apple podcasts, Google podcasts, or anywhere else, you get your podcasts.
Greg White (03:42):
So now you can subscribe to tequila, sunrise. So you don’t miss a thing as always. I appreciate any feedback and I’m always trying to incorporate what folks want to hear the most. So let me know how I can make this more valuable and listen to hear your suggestions put into play. Hey, last episode, we talked about investment round alphabet soup and what evaluation means for a startup. So this time around some startup early stage and investing education, we’ll dive deep into what happens in each round of a startup. What founders should be getting done, what to expect and what a company ought to be worth. Let me share some of my startup rules to help you understand being a founder or working with founders. So I don’t remember who said this. Many people have probably said it, but this is something I’ve come to believe.
Greg White (04:40):
As I’ve been a founder, advised founders, been on boards of directors. Passion is not sufficient. Obsession is required in a startup. So let me explain that. You can do things you’re passionate about. You might be passionate about surfing or mountain biking. I am, but to make it into a business that you’re going to spend a lot of your time in and sacrifice things for obsession is absolutely required. You need the kind of energy that obsession forces you to apply to a task in order to be committed enough, to take a startup from beginning to end. Another couple things that I think are just critical in a tech startup must start with a technologically gifted founder. Someone who can do the code, someone who can understand architecture and those sorts of things, and a vision sales operations, and investor savvy founder. You need both sides of that coin.
Greg White (05:44):
And rarely is that found in a single person. And frankly, even if it is that’s way too much work for one person leadership of marketing, finance, and other specialty roles can be handled fractionally as necessary. So maybe you want more founders, but at the very least it requires two. Don’t go it alone. All right, having established the basics. And if you’re still interested in learning more attempting your own startup, I put together a startup matrix to help describe the various stages of a startup from bootstrapping to growth equity. I’ll go through this pretty quickly to give you some insight. The caveat here is that there are a lot of differing opinions on approach and a lot of details that could prompt discussion, not going to go into excruciating detail. And I want you to understand this is not gospel my findings combined with some other people, and it’s meant to be a fundamental baseline to start your education or research.
Greg White (06:47):
So some quick learnings, it’s important to understand that the timeframe of the stages I’m going to describe will vary and sometimes vary widely, mostly based on the growth rate and or the burn rate or the amount of cashew burned by spending more than comes into the business each month of the business for sanity sake. Do you want any investment to, to last 18 months to three years, as fundraising is unbelievably strenuous and distracting to founders and key execs, especially in early stages, time spent on obtaining funding for the business is not spent advancing the sales, marketing, product development and operations of the business. So you want to limit the amount of time that you need to do that. You’ll fund frequently in a tech startup, but you want to do so prudently so that you can get back to the business of building the business.
Greg White (07:50):
All right, let’s get to it. If you miss anything rewind or hit me up on LinkedIn, Greg white at supply chain now, and I’ll send you the matrix in a spreadsheet form for you to modify or review or adapt based on your experience and findings or whatever you might want to use it for. So I’m going to go through the stages of funding that we discussed. In episode three, we talked about seed stage bootstrapping a rounds, all of those types of funding stages. So I’m going to go into, uh, where the company is in terms of maturity, the investment stage itself, any key milestones, what the fundraise amount would be in that stage, who invests in that stage, what your revenue and valuation could be in that stage. So buckle up kid. So if you think about the company at its vision concept, pre-product stage, that’s typically, well, he called pre-seed or bootstrap stage the milestones being first to build that founding team that we talked about before.
Greg White (09:06):
So that team of at least two folks, and then in that stage, you will likely be somewhere in the neighborhood of as little as maybe $20,000 or up to $500,000 in fundraising to cover startup expenses, infrastructure, research, those sorts of things that you need to know to understand whether you have a good product, whether you have a good market, frankly, first, and then how to adapt a product to that marketplace, the type of investor is going to be you, Y O U your personal funds or friends and family, or both. I would put my personal funds in before I went to my father in law, by the way, maybe angels, uh, your revenue level is going to be completely zero. And your valuation is going to be anywhere from zero to maybe two point $5 million. If you take external angel money, your valuation will matter.
Greg White (10:03):
If you don’t take external money, it’s likely not as important. So the next stage then would be taken that company from the pre-product stage, the vision stage to somewhere prior to market fit. So you’re still researching you’re in that seed stage. You’re still trying to build now a, a product, but maybe a minimum viable product MVP. And you may even approach or have some friendly customers that are going to help you get off the ground. If you have a ready, made market for this, that’s the ideal situation. So your fundraise amount is going to be in the neighborhood of somewhere under $2 million for the purpose of funding, research and development proof of concept, a team expansion. Note that in these first two fundraisers, I haven’t said anything about salaries. You can expect to get paid. Absolutely nothing for somewhere in the neighborhood of 18 to 36 months.
Greg White (11:14):
It could be less, it could be longer, but it just, just depends on how much time it takes to discover market fit, or at least the initial market fit, and to develop a product, to take it to market, and then to start getting paid by customers often at these early stages, you will give the customer what is essentially a free trial to be the first customer of the, of the company, the kind of investor that gets involved in this stage. Uh, also angels occasionally, um, micro funds or seed funds. So micro are simply smaller seeds, funds, and seed funds typically will invest anywhere from 200 to $500,000 at a time, your revenue who is going to be less than that, a million dollars probably still near zero for at least a portion of the 18 months or so that you will be running through this investment stage.
Greg White (12:17):
And your valuation is going to be in the neighborhood of two, between two and 10. Let me reinforce that these are vague numbers and they may vary based on the precise industry that you’re in, even the precise type of technology that you’re building. And also, so even the part of the country that you’re in valuations are China, or have been historically much higher in the Valley in Boston, in San Diego than they are in say, Austin or Atlanta or Chicago. So that can very pretty dramatically. And again, it all very dependent, the investors that you bring in at any particular stage as well. So your next stage is going to be some level of seed. You might have one or two actual seed rounds, investment. Think of this as early commercial adoption of the product. So you’ve built an MVP. You may be, have even matured the product slightly matured.
Greg White (13:20):
Your implementation processes is early adopting commercial customers are coming in at this stage. You’re going to raise somewhere in the neighborhood of between two and $5 million and the type of investors. Again, going to be a seed fund. It could be a small venture capital from, and sometimes firms will call themselves a CEO fund when they’re actually a small VC or vice versa. So don’t get too hung up on the names, but these are the areas of focus that these funds will be involved in. Your revenue is going to be South of three, 3 million ARR. Did I say ARR before annually recurring revenue? And that’s a key, newly recurring revenue is a key to your valuation. That way you don’t have to start over every year at zero revenue and keep going. So that’s why you see these big valuations of companies in the marketplace is because once they’ve signed you up to a subscription, I’m sure everyone knows what a subscription is by now.
Greg White (14:27):
Once they’ve signed you up to a subscription that subscription just continually renews, and there’s not a lot of costs, there’s a lot of dependability of that, uh, revenue and the company then creates a lot more value for investors. So at this early commercial adoption stage, your valuation is going to be in the neighborhood of eight to 25 million. And then the next stage is we’re to get to series a it’s hard to believe. It seems like we’ve been talking about this forever, but we’re starting to get to series a. So you’ve established a product market fit you’re in that series a where a full fledged venture capital fund will invest in you. It could be series B or C. You know, we talked about that in the last episode, there are in, there is an incredible alphabet soup of series of venture capital that you can acquire, but let’s just say it’s ABC.
Greg White (15:24):
Something like that, probably a or multiple B rounds is how it typically tends to run. You’ve established product market fit. You’re maturing your sales, your marketing, your implementation organizations and models you’re approaching. And this is an important milestone you’re approaching or at cashflow neutral. So today you have been burning cash. That description I gave you before, meaning much more cash going out the door than coming in the door. And so that’s why you will have multiple rounds of investment. People will see the potential in the business, but recognize that it is expensive to build technology. And they know that they’re going to have to continue to put capital into it the sooner, you know, how much capital that is. And the more of those milestones of fundraising you’re aware of the better that gives confidence to investors. It gives confidence to you and your team to know, Hey, we just raised $3 million.
Greg White (16:28):
That’s going to last us 18 months in another six months, we need to start another fundraising exercise. So those will be venture capital firms. You’ll probably be looking at an investment in the neighborhood of five to $10 million. Plus your revenue should be in the five to say 25 million annually recurring revenue range. And your valuation will be in an a or a B round anywhere. And this is a broad, broad range anywhere from 25 million to a hundred million plus in valuation, it could be much, much higher, depending again, on your revenue growth and the size of the market that you’re approaching. So the next stage is market acceleration, expansion acquisitions. You’ve got a fairly mature company. This is called the growth equity stage. This stage is a good milestone for founders and you know, may come in two years and may come in five years. It may take 10 years or more, but these are typically growth equity series B to, I don’t know, X let’s say you’ve established market fit.
Greg White (17:38):
You’re extending your penetration into that market. There are potentially new markets for you to go to or product extensions in your market or, or even additional companies that you might want to acquire or merge with to add your add to your tool set you’re at zero burn, definitely at zero burn rate. So you are bringing in more cash than you are spending. You may even be approaching or at profitable. So think about how far down the road we are. And we’re now just finally starting to talk about profitability. So your fundraise amount, this is a big range, anywhere from 10 million to over a billion dollars, usually used for growth acquisition. And finally, finally, what’s called founder liquidity, which is where the founders actually get to take some chips off the table. So let’s say an investor gives you $25 million. 10 of that may go to you.
Greg White (18:40):
And 15 goes to the balance sheet, meaning it goes to cash in the company to extend operations. So you get to pay off all your debts. You might get to buy a new car, whatever, but you are still engaged as a manager of the company. If you’ve done all these funding rounds, right? And I’ll, I’ll talk about what that means here in just a second. So these investors are typically called growth equity funds. They’re big. You may have even heard of them, even if you’re not familiar with investment, your revenue is going to be in the range of 10 million to a hundred million plus. And your valuation could be anywhere from 50 million should be. If you’re getting growth equity, somewhere in the 50 million to 1 billion plus range, if you are a unicorn, you are definitely going to get to take some chips off the table, but you’re still going to have a lot of growth potential in the company.
Greg White (19:34):
And you will have two things, both the leverage by way of the funding and the maturity by way of a company and hopefully management team to be able to bring this forward. So I’m not going to go into how investors evaluate founders and companies just yet, but that gives you an idea of how the funding rounds work. And it’s sometimes a shock to people to realize that they’re going to give away a portion, sell frankly, a portion of their company each time, this occurs, and they’re not going to put any money in their pocket. They’re going to put it all back into the business until you get to that growth round. So an important thing to think about as you are selling your company is each time you do any of these rounds, you want to try to keep the investor base the new investors at around 20% of the equity.
Greg White (20:27):
So to give you an example, in the last episode, we talked about a company worth a million dollars that took a million dollars worth of investment. You wouldn’t want to do that. You would basically be 50 50 partners with your investors. It’s way too early to do that. You want to try to keep them at about a 20% equity stake. So let’s say you’re in your seed round and worth $10 million. You need investment. That investment should be in the neighborhood of two to $3 million that would put your investors in that 20% ish range post money. Remember we talked in the last episode about pre money valuation, $10 million. If you take $3 million on a $10 million pre money valuation, as soon as you get that check, you’re worth $13 million. So they would own three thirteenths of the company. So anyway, you can do the math probably better than I can, but understand that you want to try to keep each round in that 20 to 30% range so that you maintain control of the company for as long as you possibly can.
Greg White (21:28):
That’s the way to make sure that your dream gets seen through. Alright. That is, it’s a lot of learning under our belt. So let’s take a look at what’s going on with tech and, and jobs in this current environment. So tech startups have shed close to 70,000 jobs since the start of the pandemic. According to the wall street journal startups have cut costs, obviously due to the lack of funding, which we’re about to talk about yet. Again, we talked about again in the last episode and lost sales since March, of course, when the world shut down a lot of business shut down for a lot of companies, there are a few that were fairly fortunate, a lot in the supply chain industry. As a matter of fact, we’re fair. We’re pretty fortunate as companies realized how inadequate their lack of technological systems were in a time of crisis like this.
Greg White (22:21):
So almost a 26,000 jobs have been lost just in the San Francisco area. That’s the Valley at companies, including Uber group on an Airbnb. The Lyft has also cut about 17% of its workforce and the job losses at smaller companies could affect larger companies too, which often turned to startups to hire emerging talent. So let’s move on to something really interesting and very uplifting. So trade Depot gets $10 million to add financial services to its supply chain for African small and medium businesses. So Nigeria is e-comm startup trade Depot connects international brands to small businesses in Africa raised 10 million in a new round of funding to expand its business into financial services and credit offerings for offline retailers. The initial business model managed to get about a $3 million investment by Partec back in 2018. And now as the firm invests from its West African fund Partec co-lead Trey, Depot’s less last round with the international finance Corp women entrepreneurs, finance initiative, and MSA capital trade Depot’s business makes a range of household supplies like milk soap, detergent, more accessible and affordable for street side vendors and small shops that provide goods and services for hundreds of communities and cities like lagos’ where the company is headquartered.
Greg White (23:57):
So this is a quote and it’s pretty impressive. Africa’s offline retail market is estimated at $1 trillion. And this new investment allows us to capture an even greater segment of the market said on your catchy is a Connie in a statement, we will continue to use data to drive efficiencies and provide an easier stock acquisition service for over 40,000 retailers, driving down costs for them by negotiating even better deals with our global manufacturing partners whilst simultaneously providing a better, faster route to market for our suppliers. The company said that a new store comes online to use its services every three minutes. And that the company receives an order from retailers every four seconds on average, using the company’s mobile apps on Android or WhatsApp shortcode messaging, or a toll free number, retailers can place orders and have goods and services delivered through their fleet of vans and tricycles.
Greg White (25:00):
They can make payments order stock and manage inventory online through the app as well. That support for businesses disproportionately goes to helping women entrepreneurs, according to the company women account for over 75% of the retailers on the company’s platform. Now with the help of its new investor, we fi trade Depot will look to offer more mentorship opportunities and link these business owners to global markets. This is a quote, women play a pivotal role in driving economies across Africa, but lack access to capital limited marketing market linkages, cultural norms, and other challenges often prevent them from achieving the success they want said Han nom Newin who represents Wi-Fi initiative with the IFC financing will incentivize trade Depot to build stronger. Women led small and medium enterprises, retailer and distributor networks, which will support them to become drivers of economic growth in their community. So here’s the thing.
Greg White (26:04):
These are literally street vendors and they are actually getting microfunding and a, the ability to sell international brands from wherever their spot is. So it’s, it’s very enabling technology and methodology and now funding so that I think that’s good news $1 trillion industry. I have to keep my eye on that as usual I’m running long. So let’s get through the deal ticker. So even in this unstable business environment, there are some deals getting done. So this week, though, there weren’t a lot of supply chain deals, 202 funding rounds were completed for nine point $8 billion and 81 acquisitions for $27 billion. Both of those are up substantially from last week. So here’s an interesting enabler of, of commerce pop shop live a Los Angeles, California based live streaming shopping app. They say at the intersection of social e-commerce and entertainment raise $3 million in funding bringing the total amount raised to 4.5 million.
Greg White (27:13):
So this startup is helping boutique retailers unload inventory. So many of them have been impacted, did buy this size mixed societal disruption of Corona virus. And while I did take a look while a lot of the product is not exactly my vibe, in fact, some of it I’ve never even heard of, but it’s mostly sort of geeky chotchkies right now, but this spreads to more mainstream stuff, it could be really, really big. There’s a big opportunity. I would encourage you to take a look at it, pop shop live there. Founder Dan yell, Lee, I believe L I li is on Twitter and has a few videos of, of how people use the app. And it’s pretty interesting. Also, uh, our friend Ben Gordon, uh, led a 22 point $5 million series B round his company, Cambridge capital with lifted a Columbia based logistics firm, also participating where H2O cap AC ventures and a few others lifted offers a trucking operations platform that operates across several Latin American countries.
Greg White (28:24):
Five, I believe has raised $61 million to date lifted, get this expects to reach profitability across all of it operations before the end of the year. That’s really good news considering it’s this company operates in transportation and the current global economic conditions. So a quick update on the tequila sunrise supply chain tech stock index, I am still compiling the mechanism of the index. It’s an intensive and painstaking process. And one thing I’ve found is that true supply chain tech public companies are very few on a suggestion from listener Keith Moore from provision AI. I’m altering the weighting of the companies like Amazon, Oracle, and SAP that have only a portion of their revenue from supply chain. A quick update, I guess, supply chain stocks are generally fluctuating within a range though. Kanaxis and Amazon have been moving upward fairly dramatically. In the last 12 months. You might recall that I gave my undereducated opinion on Kanaxis, which promptly went up and while they did blip up, they’ve largely fallen back to near where they were when we kicked off tequila sunrise.
Greg White (29:40):
At the end of, I can’t say that their value will be reflected in the stock market, but so far it has. And in any case, I believe they’ll continue. Kanaxis will continue to make waves in supply chain. All right, we are finally at that point, and that is all you need to know about supply chain tech for this week. Hey, give me some feedback. You’ve been so generous and I really appreciate it. Let me know how to continue to tune this show. Don’t forget to get to supply chain now, radio.com for more supply chain now, series interviews and events. In fact, I’m going to encourage you to get your buzz zone. We linked in live stream. You can join 10,000 or so of your fellow supply chain professionals for the supply chain news of the week, each Monday at noon Eastern time with Scott Luton and me, that is what you need to know about supply chain for the week.
Greg White (30:36):
Also keep an eye out for a couple of new pilots series Jaman Alvidrez on transportation and tech talk. Yeah, like the app with the great Kerryn bursa and me, mostly her for a deep dive on supply chain tech and how it works in practice. Hey, if you’re listening and haven’t subscribed, there’s no excuse. Now we are everywhere. Apple podcast, Spotify, Google podcast, wherever you get your podcasts. So subscribe to tequila, sunrise, wherever you get podcasts. I want to thank you, especially for this little bit long run today for spending time with me and remember acknowledge reality,
Speaker 2 (31:19):
But never be bound.
Would you rather watch the show in action? Watch as Greg brings TECHquila Sunrise to Supply Chain Now through our YouTube channel.
Greg White serves as Principle & Host at Supply Chain Now. Greg is a founder, CEO, board director and advisor in B2B technology with multiple successful exits. He recently joined Trefoil Advisory as a Partner to further their vision of stronger companies by delivering practical solutions to the highest-stakes challenges. Prior to Trefoil, Greg served as CEO at Curo, a field service management solution most notably used by Amazon to direct their fulfillment center deployment workforce. Greg is most known for founding Blue Ridge Solutions and served as President & CEO for the Gartner Magic Quadrant Leader of cloud-native supply chain applications that balance inventory with customer demand. Greg has also held leadership roles with Servigistics, and E3 Corporation, where he pioneered their cloud supply chain offering in 1998. In addition to his work at Supply Chain Now and Trefoil, rapidly-growing companies leverage Greg as an independent board director and advisor for his experience building disruptive B2B technology and supply chain companies widely recognized as industry leaders. He’s an insightful visionary who helps companies rapidly align vision, team, market, messaging, product, and intellectual property to accelerate value creation. Greg guides founders, investors and leadership teams to create breakthroughs that gain market exposure and momentum, and increase company esteem and valuation. Learn more about Trefoil Advisory: www.trefoiladvisory.com
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