VC funding is down this year in almost all sectors except supply chain!
To find out more about why this might be I invited Silicon Foundry CEO Neal Hansch to come on the podcast.
We had a fascinating conversation covering what's happening in the world of VC funding right now, what startups can expect when interacting with large enterprises in a funding round, and how startups can help organisations sustainability goals.
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Corporates investing in startups has been happening for 30 years, but in just the last five, you know, that category has risen dramatically. And now something along the lines of a third of all venture deals have corporates participating in them Good morning, good afternoon, or good evening, wherever you are in the world. This is the Digital Supply Chain podcast, the number one podcast focusing on the digitization of supply chain, and I'm your host, Tom Raftery.Tom Raftery:
That's on recording, so here we go. Hi everyone. Welcome to the Digital Supply Chain podcast. My name is Tom Raftery, and with me on the podcast today, I have my special guest, Neil. Neil, Welcome to the podcast. Would you like to introduce yourself?Neal Hansch:
Yes. Hi. Thank you Tom. Very much appreciate you having me today. I'm Neil Hanson, the CEO of Silicon Foundry. And, I'm sitting in our headquarters here in San Francisco and we are an advisory business. We were started about a decade ago and our core value prop is we work with big corporations. You know, we've seen over the last number of years as they're looking to increasingly tap. External innovation. And what that means is really working with startups understanding which ones should be on their radar screen which ones are breaking out of the pack are proving themselves to be best of breed. And then these large multinational corporations from all over the world, all different industries. Are trying to determine which ones that they should engage, either because they should be a customer taking advantage of the new platforms, business models, services, products, technologies coming from those companies or partnerships, you know, even deeper relationships and more far ranging, or in many cases, increasingly strategic investment where they become not just a customer, but they're actually an investor in the company, or last, but not least, where some of those interactions may blossom into acquisitions. So our business is working with the Fortune 2000 companies from around the world, helping them navigate the startup ecosystem, really helping them separate the signal from the noise. Cos we know there's, you know, where I'm sitting today, there's 50,000 startups within you know, a hundred miles. But if you think about it globally, all the major tech ecosystems, there's literally tens of thousands, not hundreds of thousands of startups. So to figure out which ones which ones are those that you should be doing one of these things with the, all with an eye towards, you know, every company going through their own flavor and version and speed of digital transformation and where startups can be a part of those journies.Tom Raftery:
Okay. And how do you do that with, you know that many tens or hundreds of thousands of startups out there, How do you find the ones that you think large enterprises should be talking to?Neal Hansch:
Yes. So it is definitely art, not science and when people ask the question, so I think it, it's, is a couple of different sort of parallel skills, if you will. The first is, we're leveraging databases as everybody does. To, it's almost like the start of the lift, right? Companies that have started to, you know, hit the radar screen because they've raised capital, whether it's angel or seed or institutional venture money. And again, the need there is to be a metasearch engine across all the major ecosystems. So that's the, the starting point. But really the way we do it is relationships across these ecosystems. Relationships with the founders and CEOs and, most of our team either we worked at startups, we worked in venture capital, we worked at corporates and strategy or corporate development or business development. So this has been our profession. And so step one, lay out the landscape. And then the most important is the next steps, which is the filter. And that's the art, right? Is, is taking a look at those companies assessing the entrepreneurs. In some cases the product, in many cases, the momentum they have as, as shown by customer win s in the early days even. And so that's where we get, as we like to say, if, if one of our members is looking at the drone space, there's 5,000 drone companies, but what's the use case and application? Ultimately, our, our goal doing what we just said is to get down to, but here's the five you should be talking to. And then what's most important from there is relationships. And do you have the relationship? Can you develop the relationship with the founding team so that you can then explore and get to one of those outcomes?Tom Raftery:
Okay, and this is the Digital Supply Chain podcast. Are you looking into the supply chain space?Neal Hansch:
We are, I think if there's, there's a couple of phrases that myself and my colleagues on my team find ourselves saying at least five times a day. One would be sustainability and esg, and the other is supply chain. So, you may hear me use the term members during this podcast. That's our term for clients, but our members, you know, they bridge everything from companies like sk, He, which is a enormous, you know, SSD and man memory company to folks like British Petroleum and UPS and Southwest Airlines and retailers and whatnot. So again, back to across industries. But all of them and not just, you know, from the supply chain challenges that, that everyone's seen in the last few years, but all of them are thinking about the transformation of the supply chain, having visibility into their supply chain. You know, certainly in the case of CPG players or the retailers, it's. Last mile delivery and and how to go about solving that, whether it's through a partner, through an owns network or what have you. And so, yes, you know, for digital supply chain, it's, it's what topic from within that's driven by the nature of the fortune, you know, 1000 company we're working with. But in all cases, you know, they're trying to, I would say in all cases, visibility, right? To understand it to understand the risk. To understand the second and third and fourth order you know, risk to it. And then again, in many cases like in the case of ups, of course, the very heart of their business. And understanding supply chain from the demands on one end in terms of e-commerce to you know, their own operations from inside the warehouse to the drivers and the vehicles and the airplanes and everything in-between.Tom Raftery:
Okay. Interesting. Fascinating. And what kind of trends are you seeing in the kind of funding that are going to supply chain startups these days?Neal Hansch:
Yes. No, and this is, I think, what's particularly interesting. So, if you follow the, the venture funding trend trends more broadly, not surprisingly, 2022 has been a challenging year and pretty much across the board in almost every category with, with an asterisk and a footnote. But in almost every category it. Meaningfully down year over year. We know that, and if we work backwards, the IPO markets are shut. Effectively SPACS, which has seen quite a hay day in 2021 they're no longer a part of most of conversations at the moment. And venture, if we look at just the most recent quarter here, venture broadly speaking, was down 30% quarter over quarter and 50% year over year. So, you know, up until 2021 all time highs. In 2022, a huge reduction except supply chain and digital supply chain and how we define it. But it's actually been up this year and you know, many folks are, are projecting that it'll actually have a bigger year this year than, than last. And so I think that's certainly indicative of the tailwinds that continue. And so you might say it's a, it's a bright you know, it's a bright source and would otherwise been a pretty increasingly dim year in terms of the flow of, of venture dollars. I think if you look within it and if I use the sort of subcategories that I referenced earlier I think there is one area though, which that last mile delivery, which had garnered, you know, so much of the venture funding and that's where we've seen more challenges. So companies like Instacart and Go Puff and others, which had, you know, raised big amounts of capital at very lofty valuations. And, you know, those are taking their licks right now. But that's more on the valuation side. And new funding doesn't mean that the, the core business they're at a right sizing for the current market. But overall, back to your question, that's really what we're seeing in terms of venture funding in the space and, and within. If we also look at it from one more lens stage funding. So the, two, three, $400 million rounds, those have decreased a bit, but actually the funding at the earlier stages has increased. Which that's fairly consistent, what you generally see across the board with venture, right? Cause if you're investing today in the earliest of stages, you know, as much as anything you're thinking, what's the market gonna look like two, three years from now rather than two or three quarters from now?Tom Raftery:
Okay. Interesting. And I mean, you mentioned Instacart and, and it gets me wondering, that's taking a bit of a licking at the moment, as you say, but what are the ones that are doing really well? What are the kind of the hottest emerging new companies in the, in the space?Neal Hansch:
Yes. So, you know, one thing we were looking at was the, who are the new unicorn births? And for those who may not know the term unicorn, right, The billion dollar valuation. And so a couple of interesting things, first is geographically, so we just looked at the unicorns. Cause the data's out there for at least Q1 entering Q2 this year. They're global. So four of the five unicorns that were birthed Realex Solutions in Femen Finland, excuse me, G Seven Networks in China, Ex tech in France, Elastic Run in India, and Load Smart, you know, rounding it out from the States. So I think that's one thing that's interesting is just seeing that geographic diversity of where the newest unicorns are coming from. I do think that in terms of, you know, the other area that's, that's seeing a shakeout, but then you could say who's going to emerge as the leaders or the autonomous trucking. Industry. And we saw some of those go pub bug via SPAC, others, hit the public marks like too simple and what have you. So I'd say there's strength there, but strength will end up coming through combinations. As we, as we look ahead. I think another area is the, the ev, the EV for last mile delivery. So we were talking to a company this past week called Bill, and they're doing the, the three wheeled ev last mile delivery in India, in Africa. So actually there's one area where the venture funding has also been increasing year over year. An example is Africa, broadly speaking, even beyond supply chain logistics. But so that's where the, maybe the, the macroeconomic headwinds are being surpassed by the tailwinds of, you know, there's, there's huge growth in population and consumption, but one of the biggest challenges, logistics and delivery, and certainly last mile delivery. So that's another area. It's having momentum, not just geographically, but we know the last mile delivery solutions there look different because so much is you know, is in that highly congested urban metro. And so if you can bring a solution that that's ev that has better economics than petrol, That also the form factor works very well in those areas. So that's one that, you know, we, we've seen rise as well. So I think with all of this, it's double clicking on, you know, within supply chain logistics and digital supply chain. Well, you know, which areas both in terms of the nature of the solution, but also geographically are on the upswing. You know, even again, even in, in the environment, the global macro environment that we're in today.Tom Raftery:
Fascinating. Fascinating. And within supply chain, I mean supply chain is extremely broad. It's everything from kind of engineering a product at the very start before you start manufacturing, you know, planning, manufacturing, making, delivering the logistics thereabouts, you know, the, the operation and, and field service management at the, at the other end, and then bringing it back for recycling, et cetera. So it's hugely, hugely broad when you look at it. What kind of sub sectors are you seeing there and what kind of challenges are you seeing there?Neal Hansch:
Yeah, so I think some of the sub sectors and I apologize in advance cuz I will jump I fear a good bit, but so robotics. The manufacturing line. And so you've got the, the, you know, the big incumbents like ABB and, and an endless series of startups bringing solutions in the robotics market. And obviously, you know, from a geo standpoint, folks like in Japan have been historically very strong on robotics, but we're seeing more distribution of where that innovation is coming from today. And not just fully automated, but Cobots. So robots, you know, sitting next to the humans on the line. So I think that there's been a ton of activity in that area. The, we mentioned we referenced sustainability, esg, you know, that ability to measure the carbon footprint of the supply chain, you know, which is certainly not a new topic and there's no clear obvious standards, you know, but, but software provider, Trying to impute those, those calculations and platforms to do that. And I'd say in part that that goes hand in hand with visibility. Asset tracking, you know, and I think obviously a lot of the, the, you know, the freight tech companies have that as a core part of their value prop, but that also is where it intersects with iot. And how can, how can we have better visibility, not just in the carbon footprint, but where our goods are, where our pallet is, where our you know, choose your, choose your size of order to be tracked. So I think that that's a handful, you know, across the different subcategories. We are, I mentioned earlier, I think definitely in the supply chain management tools, you know, the four kits and others, you are seeing the acquisitions. You know, come together. And so it's, I think it's, here's the core platform, bringing more functionality to it, you know, either with the classic buy, buy or build. And so they I think we've seen, which is somewhat indicative of the, the areas that we may come across more and more. You start to see some of the, the players tucking in on acquisitions. And also the retailers. So many of the retailers over the past year have acquired their delivery networks, right? So at first it was, you know, it's gonna be a crowdsource delivery network. The retailer didn't go through the journey of developing that, that supply of drivers and organizing it. But they became one of, if not the biggest customer of some of these startups. And then, you know, ultimately decided to bring them in house and own that network. You know, guys like Target that, that. UPS acquired roadie, which is the company they had previously invested in. So there's at least a half dozen examples like that. So I say these are some of the, Again, I knew as I, as I warned at the outset, I jump around of it, say, these are probably half dozen of the ones that come top of mind for us and top of mind because they're what's top of mind to these big corporates.Tom Raftery:
Okay. Okay. Interesting, interesting. And I mean, you mentioned sustainability and carbon accounting. How are the sustainability goals of organizations and supply chain technologies, you know, how are they intersecting now?Neal Hansch:
Yes. So I, maybe I'll, I'll choose one arena or one area, which is sustainability goals intersecting with the corporate venture capital programs. So, this, this is one way, which is, okay, there's a big broad based, you know, we're gonna be carbon neutral by X date and. And often we're seeing that dovetail into the mandate changing for the corporate venture capital groups. So we've seen a number of called CVCs short. We've seen a number of CVC platforms launch dedicated sustainability fund efforts. So maybe it's a chemicals company and they invest, you know, across many different advanced materials, categories and now they are gonna exclusively carve out, here's a fund. Entire job is the back company that can help, you know, let's just say reduce carbon footprint with different technologies, different services. So one way we're seeing it play out is very tangibly manifest in, you know, resource dollars. To invest in startups that will help the corporate, you know, it will help the mothership, if you will, move towards their their sustainability goals. I think that, and so that's happened consistently once again, regardless of industry of the corporate. and often it's, we're gonna reach this goal. And then the next question, How the hell are we gonna get there? And so I think that, you know, also we've seen in some areas where, okay, it's a company that has thousands of delivery trucks, may have different type of business, but they've got thousands trucks. The question a couple of years ago is, Right, how do we electrify those trucks? Then it was, alright. What about lithium ion battery recycling? Technologies and companies. And so they're scouting for those types of companies. and so I think that's, that's just one area where sustainability with, many of the corporates has come into the fold for us, is seeing their venture activities which are at all time highs. Just to provide little context there. Corporates investing in startups has been happening for 30 years, but in just the last five, you know, that category has risen dramatically. And now something along the lines of a third of all venture deals have corporates participating in them. And, to relate it here. And then having those venture arms now have sustainability as a core fundamental part of many of their mandates, which also means they may be looking out further. Right? So their job is not necessarily to back companies that will have impact on the mothership in the next year, but how do they get us to our goals five years from now? So that's another way that it's had impact on those activities is it actually allows them to extend the time horizon. So the things that they're investing in today, they know will have meaningful impact, that they have more degrees of freedom to, to see the roadmap. So when that, that impact will come into the fold.Tom Raftery:
Cool. Cool. That's great. Neil. You know, startups who might be listening to this podcast what kind of advice would you give them on, how they should go about collaborating with major corporates?Neal Hansch:
Yes, that is a, a million dollar question as the saying goes, in some cases, the 10 million or a hundred million depending on the, the, the stage of the startup. I think that you know, and of course in our business, we work for the corporate at the end of the day, but we really find ourselves and our ethos is we're champion of the startup as well. And the, the goal is for that interaction, that partnership, that customer relationship would have you to be successful. And so how do you get to that success outcome? Admittedly, corporates, if we use that term they're c. They move slow, they can be opaque. They can kill you with kindness. You know, there's the metaphor, the elephant stepping on the mouse, you know, but not intending to. And so I think our, when we think about commercial best practices, I think the first, putting ourselves in the shoe of the, the founder, the CEO of the emergent company, whether it's five people or five hundreds. And I think first is to really have a really fair assessment of, who your champion at that corporate, you know, the senior internal champion, you could say the buyer, the decision maker. if we are talking to a founder and they're crying on our shoulder, it's because boy spent, you know, hours and hours and hours and we realized we're talking to someone who didn't have the ability to pull the trigger or the purchase string. So it's that honest assessment at the corporate. And, and maybe if I back up for one second. One of the biggest challenges is navigating these massive corporates. So, you know, I've got a solution. I'm the founder, ceo, job one is who is the right person at that corporate that has 300,000 global employees. But that dovetails to ensure that your point of contact is the right one. And if not, to continue to, to work hard to find the right one before you start investing all the time to explore the relationship. I think especially when we're talking about enterprise technologies, we know that often the word pilot or proof of concept will come into the fold. Right. They're not self-serving and buying it with their credit card, you know, but this is hey, we need to do something together. And then if that goes well, you know, we'll roll it out across our division or across the company. And so I think when it comes to pilots the, as with anything in life expectation setting upfront, I think is critical. So defining the true scope of the pilot up front defining What's the definition of success for both of us, right? If the pilot, succeeds in delivering ABC or X, Y, and Z, do we both agree that's success? And then what does it look like? Hey, hey, corporate champion, what does it look like after that? So then how do we go from successful pilot to, is that business unit head then gonna you know, pull the trigger so that we roll out in their division or whatnot? So I think having that conversation up front, to use a bad metaphor, having the pre nup established before you go down the aisle there it's very valuable. I think realistic expectation, setting yourself on the speed of movement of the corporate. And I, I think the, the best, you know, point of contact that we work with at these these large multi nationals, they're as transparent as possible to say, Look, this is gonna be a three month process, or this is gonna be a 13 month process case maybe. And that way you as the, you as the entrepreneur, you can plan around it, You can expect or not expect certain things. So, I think that's one, one other area, I think also being realistic on how you scale. For much of our work we spend more of our time looking at what you'd call series B or series C companies because we know that with many of our members, if the pilot goes well, you know, the next comment is great. So we're gonna roll out the 5,000 stores next year. Right. And so you as the entrepreneur, there's a fake it, before you make it team at times. But, will you be able, to do that? And so that kind of realistic planning. And then maybe last and not least, there's having a big 10 pole customer, the power that we all recognize and that blue chip name on your slide deck and on your website that they've adopted you, but also having that fortitude to not necessarily take their product feedback as viable. Right. And it's the classic product manager of, you know, here's the features that we have on a roadmap. This customer may prioritize these three features, but you know what, the rest of the market is prioritizing these other seventeen. And so you want that big early customer win or customer wins, but also, staying true to the, the market feedback, not just the individual corporate feedback. So that's our, you know, half dozen best practices that that we share when we're playing that, you know, man role, if you will, you know, facilitating between the big CO and the smaller co.Tom Raftery:
Nice. Nice, nice. Some great points there. Super. Neil, we're coming towards the end of the podcast now. Is there any question that I have not asked that you wish I had or any aspect of this we haven't touched on that you think it's important for people to be aware of?Neal Hansch:
I think, I would just say, you know, as a champion of the corporates I think starting the relationship sooner rather than later. So if you're, and maybe this is putting a bow on or the last part of our conversation here, but if you're an entrepreneur, you're gonna be selling to corporates. That's your primary, rather than trying to disrupt them. And that's a whole nother area where I wanna know what the, I wanna know the corporates because I wanna beat them. But if they are your customer base, starting those relationships as as early as possible, and you're certainly probably doing that as you're, you've formulated your own thesis for your business and the opportunity that you're pursuing. But that might be just the last recommendation, is that it? When all is said and done it's relationships. And navigating through the corporates that no is not easy, but it's time well spent that you're having the conversations with the right folks. And which will not just lead to potential customer, but they may end up being advisors to your business even if they don't know it. Defacto advisors and as I referenced a bit earlier, increasingly they may very well be not just customers but strategic investors and in many cases, They may very well be the exit path someday for your.Tom Raftery:
Nice. Nice. Yep. Great. Neil, it's been really interesting. If people want to know more about yourself or about Silicon Foundry or any of the things we discussed in the podcast today, where would you have me direct them?Neal Hansch:
Wonderful. Well, we started our website. It's www dot s i foundry, o u n d r y.com. Or even feel free to reach out to me directly. I'm at Neal n e a l si foundry.com and would love to whether or not you're an entrepreneur, a corporate executive, a venture capital firm. We cross paths with them every day cause we're invariably talking to their portfolio companies. We'd love to connect and as I mentioned earlier in the podcast, our, our business, while we're headquartered in San Francisco, my team is across the United States. It's truly a global business as we're serving corporates in Korea, Japan, Middle East, throughout Europe Latin, and the us. So please get in touch and thank you again, Tom, for including me in the podcast today. Thoroughly enjoyed the conversation.Tom Raftery:
Not at all. It was great to have you on Neal. It was fascinating episode, so thanks a million for that.Neal Hansch:
Thank you. Okay, we've come to the end of the show. Thanks everyone for listening. If you'd like to know more about digital supply chains, simply drop me an email to TomRaftery@outlook.com If you like the show, please don't forget to click Follow on it in your podcast application of choice to be sure to get new episodes as soon as they're published Also, please don't forget to rate and review the podcast. It really does help new people to find a show. Thanks, catch you all next time.