Supply Chain Startup: Looking at nearly 20 years of startup investing

Editor's note: This article originally appeared on LM's sister siter, Supply Chain Management Review.

How many supply chain investors do you know who can say they were early to the party with LeanLogistics, Kiva Systems, Descartes Systems, Llamasoft, Optiant and Steelwedge Software? Some of these firms went on to be acquired by major companies (think Amazon and Kiva or Steelwedge and E2open) or major investment firms (Llamasoft and TPG). Or can claim an internal rate of return (IRR) of around 52% on their fund? 

If your answer was: None, then meet Dave Anderson, the 75-year-old founder of Supply Chain Ventures, the firm he founded in 2002 and co-owns with Dan Dershem, the founder of LeanLogistics. “Dan was my first investment, and after we sold LeanLogistics I asked him to come onboard,” Anderson recalls. “For the past 7 years, It’s been the two of us, both with deep supply chain experience. He’s the operator and I’m the IT guy and strategist.” For the record, Lean was acquired by Brambles, best known for the CHEP pallet pooling service, in 2008, and was sold again in 2016 to Francisco Partners, which rebranded the combined company as Blujay Solutions.
 
Today, Anderson and Dershem manage a portfolio of 36 companies, with roughly 30 in the supply chain space. The firm’s tagline is simple: “Investing in Supply Chain & Data Analytics Innovators.”

According to Anderson, startup funding was a natural extension of a supply chain career that spans some 50 years. He spent 35 years in supply chain and IT consulting, which his final stint in Accenture’s global supply chain practice, “screwing in i2 and other big enterprise systems,” he says. During his final years at Accenture, he worked with the firms Technology Ventures Fund which invested in disruptive technologies. “When Accenture went public, I retired,” Anderson recalls. “I was 58, and my wife asked: ‘What are you going to do now?’ I thought I was rather good at what we were doing in the venture fund and said: ‘I guess I’m going to be a venture capital guy.’” He set up Supply Chain Ventures, attracted some investors and has been doing it ever since.

So, what’s changed in the nearly 20 years since Anderson founded his fund? For one, he says it’s no longer an obscure field for investors. “We get a call a day from other private equity guys who want to do investments with us,” Anderson notes. “It’s a land rush right now for people to find companies they can add to their portfolios.” That’s been driven in part by the globalization of supply chains that created a new marketplace for enterprise-type systems. “The sophistication of moving product is a big business, and now, it’s on the world stage,” Anderson says. That created opportunities for large firms like Thomas H. Lee, which acquired AutoStore, Fortna and MHS, and Francisco Partners, which acquired Blujay’s component pieces, to roll up firms and create a sort of one stop shopping for large enterprises. “The private equity guys are trying to pull together full-service solutions to help global companies better manage their freight rather than have 20 systems in 15 different countries,” Anderson says.

Meanwhile, Anderson still sees plenty of best-of-breed opportunities. Big companies, he says, have time and money invested in large legacy enterprise systems that are unable to use anything but “old school data.” But, to make better real-time decisions, you need solutions that can sit on top of those legacy systems, pull out more real-time and social media data and use artificial intelligence and machine learning to make faster and better decisions that can be exported back into the legacy system. “There’s a group of people who are incorporating real-time data and AI to identify trends within the data,” Anderson says. “Those are the modules we’re eager to invest in. We’ve seen 30% improvements in route efficiency by incorporating real-time data into legacy solutions.”

As to what’s attracting that group of people bringing new tools to age-old supply chain solutions, Anderson says there’s a generation of young, well-educated entrepreneurs who “don’t want to run a WMS all day. The revolution is coming from this group, who, in some ways, are coming from outside supply chain and see better ways of doing things.” 

Last, given his experience integrating startups at Accenture, I asked Anderson what it takes for large organizations to bring startups into their solution set. “It’s most successful when the company has an innovation group in supply chain,” he says. “Companies like P&G and Mondelez have them. They incubate startups to see if there are savings there and if so, how to roll out a solution. Now you have a group that’s working with the plant manager or logistics manager. That’s the game companies need to play.”

SCMR’s Supply Chain Startup Blog is published every Friday. If you’re a startup, a venture capitalist or a supply chain practitioner working with startups, and want to share your story, or have startup news to share, email me at [email protected]. Remember that the purpose is not to promote any one firm—and a blog shouldn’t be interpreted as an endorsement of a firm or its technology. Rather it’s to start the dialogue between me, my readers and the people creating the NextGen Technologies that will power tomorrow’s supply chains.