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User Manual: The Early Stage Startups I Want To Hear About Most in 2017 and 2018

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About KEC Ventures

We are a team of early-stage investors based in New York City. We invest in information technology startups that are pursuing business models with the potential to transform the way business is done in their market. In such startups, we invest in the first institutional Seed Round. Often, but not always, we act as the lead investor. On rare occasions, we might invest earlier than this when we meet a founder pursuing a vision that we believe in. Currently, we focus on investing in startups based in the United States or Canada. Very rarely, we may invest in a startup based in Israel, but that is in the process of establishing a presence in the United States.

On our team at KEC Ventures, I have been largely focused on finding and meeting the founders that we can become most excited about. I will continue to maintain that focus over the course of 2017 and 2018.

Here are some notes for the founders of the startups I am most eager to meet.

Why I Love What I Do

My mom and dad have been running small businesses since 1981 when my mom quit her job as a teacher in Kano, Nigeria. She started a school in 1986 which they have been growing since under conditions of high uncertainty. I am intimately familiar with the pressures entrepreneurs face. I wake up every day trying to be the kind of investor my mom would have loved to have at her side.

I am most content when I am thinking about and trying to solve ill-defined problems – the types of problems other people may describe as being too difficult and not worth the trouble. I am abnormally enthusiastic about the research process that leads me to develop answers to such problems. I think of myself first and foremost as a research analyst. I embrace uncertainty. I am not afraid to be different.

Connecting With Me

If you know someone who knows me, an introduction would help. If you do not, never hesitate to communicate with me directly. I am easy to reach on the major social networking platforms. Also, I hold regular and frequent office hours at various co-working spaces in New York City. Some allow non-members to sign-up and attend.

The best time to start communicating with me is at least 6–9 months before you believe you will raise a round in which KEC Ventures might invest because I believe it is important to build trust before entering into the kind of working relationship that exists between startup founders and their early stage investors.

That also gives me sufficient time to understand the problem you are solving, so that if we invest, we are doing so with conviction. Time enables me to become a more effective advocate on the startup’s behalf when my colleagues and I have discussions about making an investment.

Communicating With Me

If we are not meeting through an introduction, I will respond quickest to founders who get straight to the point, and explain why we should meet in 250–400 words in their first email to me. Founders do not need a warm intro in order to communicate with me in order to start a dialogue.

I try my best to respond. However, depending on what else I have going on, I may not respond if I feel the startup is outside KEC Ventures’ areas of interest and that the founder could have easily found that out before emailing me. Please follow up with me once or twice if you believe I have made a mistake.

If you are not connecting with me or anyone else at KEC ventures through a warm intro, you can email me at: brian@kecventures.com. For your subject line use; Pitch: {insert name of your startup}. This way I can easily filter my inbox for these emails when I review them each week.

Characteristics I Look For in Founders, and Teams

I look for teams in which the founders have known one another for a considerable amount of time prior to launching their startup. I look for teams in which the level of trust and respect between the co-founders is high. I look for teams that will not have difficulty attracting other great people to join the startup. I look for founders who inspire confidence and loyalty from others because they are good at what they do, the kind of people I could picture myself working for.

I look for founders for whom solving the problem that their startup is solving has become their life’s mission and they plan to solve that problem with or without help from outside investors. I look for founders who have an unconventional opinion about the market opportunity they are pursuing, and can explain why their position is correct with evidence which investors can analyze independently.

At the outset I look for teams that can focus on building a simple product that their initial customers love, and who can focus on a niche within which to launch their product. I look for teams that are judicious and frugal in how they deploy the startup’s resources.

I look for founders who value teamwork, and who can become great leaders if they desire to do so. I value transparency, honesty, and openness. I value self-awareness. I like people who are determined and tenacious, who do not give up just because the going gets uncomfortable and things seem bleak.

I look for founders who have a hard time doing something simply because it is what someone else expects them to do. I look for founders who are not afraid to be different.

I like founders who marry a strong technical background with a deep understanding of  the important role marketing and sales will play in determining the success of their startup. I like founders who demonstrate a singular focus on creating value for their customers/users.

Characteristics I Look For In Markets

I look for large markets that could ultimately be served by the startup’s product, even though the initial target might be a small portion of the whole. I look for customers capable of and willing to pay for the product, and who are looking for and eager to find a solution to their problem.

I look for markets in which the pain is acute because the problem suppresses customers’ profits significantly, or because the problem makes users less happy than they could be.

If currently the addressable market is between $1B and $10B, I want to see evidence that it is growing quickly enough to support the startup’s future goals, and the competition that I assume will quickly follow if the team is successful.

In certain markets where I believe there are invisible barriers to innovation, I look for industry expertise on the founding team.

If your team is based outside one of the first- or second-tier cities for startups, it helps a lot if I can drive, take a train, or take a direct flight from NYC or Newark to come and meet you.

Characteristics I look For In Business Models

I look for products and business models that:

  • will benefit from network effects as time progresses,
  • can scale efficiently and quickly, and
  • can eventually benefit from an economic moat.

If you have the time you can read my work on economic moats here in order to understand what I will be thinking about as I conduct my independent analysis of your startup.

My Philosophy

I believe my primary responsibility as a seed stage investor is to discover founders solving problems in a manner that has the potential to positively transform industries and markets before other investors have heard of them.

We help founders focus on finding product-market fit by creating an environment in which they can focus on 4 things;

  1. Keep existing customers/users as happy as possible so that they stay and use the product more often over time,
  2. Improve product features that create and deliver additional value to existing customers/users,
  3. Hire new teammates in order to enable the team improve the product in order to deliver increasing value to existing customers/users, and finally,
  4. Attract new customers and users in order to grow the startup into a company.

I think if our founders do those 4 things well, at an increasing cadence, and with increasing efficiency and productivity, we greatly raise the odds of success of the startups in our portfolio. We strive to be good thought-partners as our founders make this journey.

The Themes I Am Focused On

Notes:

  1. My mental model of how our team functions is akin to how a soccer team functions, or how an athletic relay team functions. We take a team-first approach – it matters more that you communicate with one of us, and less on who specifically you communicate with. In turn, we will make sure that the right people on our team collaborate with a startup’s founders as we conduct our due diligence.
  2. These themes cut across different industries and sectors. That is a deliberate choice. Once you meet one of us, you’ll understand how we think about this.
  3. The technology sector evolves constantly. Accordingly, our team’s interests might ebb and flow in response. The themes I have described below should serve as a rough guide to how I think about the universe of startups in which we wish to invest.
  4. A startup raising its first institutional seed round should have raised less than $1.5M  or so prior to the round in which KEC Ventures would be investing. I personally prefer that the startup has raised $1.0M or less prior to the round in which we would invest.

I am currently interested in hearing about:

  • Marketplaces: Platforms that enable the participants in large, global markets to interact with one another in ways that reduce waste or create new, untapped opportunities.
  • Interconnectivity: Platforms that enable large numbers of different types of connected devices, machines, apps, and websites to communicate with one another seamlessly, and with the people managing or using them, within a secure environment.
  • Data & Analytics: Platforms or applications that help people or other machines to manage, analyze, interpret, make decisions, and take actions based on vast and growing troves of centralized or decentralized data.
  • Effectiveness & Happiness: Products that enable people to accomplish more at work, or to become happier outside work. Products that help large enterprises and other types of businesses and organizations to grow or function more effectively.
  • Distribution: Products that make it easier to create, manage, distribute, and consume existing and emerging forms of digital media and content.
  • Asset Management: Technologies for managing different forms of enterprise, business, or individual assets. Technologies for managing different forms of enterprise, business, or individual risk.
  • Other: New, and as-yet unknown technologies and innovations founders are building to solve problems that exist only because no one else has developed a solution.

Some, but not all, of the markets that fall within these themes include artificial intelligence – including all its existing and potential applications in different industries, software-as-a-service for enterprises – I am especially interested in products that help SMBs accomplish much more for a relatively small investment, virtual and augmented reality, distributed ledgers and other distributed computing systems, financial technology, insurance technology, educational technology and healthcare technology – where the founders discover a business model that addresses the concerns venture capitalists typically express about those markets.

Note: Starting in July 2017 I will function as the subject matter specialist on our team for investments in seed-stage startups building Internet Infrastructure, Supply Chain, and Transportation Services software.

Internet Infrastructure Software is; The software that connects computers, machines, devices, and people on the internet. Hardware is an important component of internet infrastructure, so I am willing to speak with founders who are developing a product that combines software and hardware.

Supply Chain and Transportation Software is; The software that enables networks of organizations, people, and information involved in moving products and services from one part of the world to another. This includes; Supply Chain Management, Supply Chain Logistics, and Supply Chain Finance. I have a particular interest in the application of artificial intelligence (e.g. computational stochastic optimization and learning), connected devices, and distributed ledger technologies, to the solution of problems in global supply chain networks.

Think of my focus as the union of Digital/Virtual Supply Chains and Physical Supply Chains. Virtual Supply Chains enable the movement of information within a network. Physical Supply Chains enable the movement of goods, services, and people within a network.

Things I am Not Interested In

  1. Exploding rounds: An exploding round comes with a caveat like “Seed round in ground-breaking tech startup closing in 1 week!” I do not like exploding rounds, not even exploding rounds that are being led by a name-brand VC. I need time to do my own homework.
  2. Meetings led by an advisor: I prefer my first few interactions with a startup to be with the team of co-founders, not with an advisor. It is okay for an introduction to come from an advisor, but I do not like to have advisors or mentors micro-manage my interactions with startup founders. That does not inspire confidence.
  3. Lack of control over core technologies: I try to avoid situations in which the startup has a product that has launched to the public, but the startup’s team has no primary responsibility for actually building the core product.
  4. Founders who will not share bad news: I only want to work with founders who will not hide bad news until it is too late for investors to do anything that might help the startup make a course-correction. I absolutely want to hear about difficulties, challenges, and problems. I expect the good news, but I think we have an obligation to try to fix the bad stuff before it becomes unfixable.
  5. Buzzwords: I do not believe in buzzword investing. I focus first on understanding the problem the startup has set out to solve. Only after I understand that do I concern myself with the specific technology or business model being employed to accomplish the founders’ goals.
  6. Obfuscation: “Trust me. Our algorithm is so complex and sophisticated that there’s no way you could possibly understand it.” Don’t say that. I’m willing to teach myself what I need to learn in order to understand what you do, and I need to understand the basics of how you will accomplish your vision before I can develop enough conviction to recommend an investment by our team.

My Commitment to Startup Founders

  1. I believe in Gil Dibner’s VC Code of Conduct, and will adhere to it in my interactions with founders.
  2. Given that we approach conversations with founders from the perspective of a potential lead investor, we always try to move as fast as we can to get to an answer without being sloppy about our due diligence. I wrote this guide so that founders can help us speed the due diligence process along.
  3. Other founders tell us they appreciate our team’s transparency about our due diligence process. We know founders’ time is invaluable, and we do not want to waste it if the probability that we’ll make an investment is nonexistent.

Update #1: Sunday, July 2, 2017 at 22:55 EST.

  • To reflect ongoing subject matter specialization on Internet Infrastructure and Supply Chain software.
  • To reflect institutional seed-stage focus.
  • To clarify approach to investments in Israeli startups.

Update #2: Thursday, August 17, 2017 at 08:47 EST.

  • To add Transportation.
  • To clarify that supply chain finance and supply chain management are part of our areas of interest.

Update #3: Thursday, October 26, 2017 at 09:30 EST.

  • Clarifications to themes I am focused on, and investment stage.
  • Add “Why I Love What I Do” section.

Industry Study: Freight Trucking (#Startups)

by

Co-author: John Azubuike (@jnazubuike), KEC Ventures.

Note: This article does not necessarily reflect the opinion of KEC Ventures, or of other members of the KEC Ventures team.

Note: Updated on October 2, 2019 to remove charts from Statista because the data has been moved behind Statista’s paywall and no longer adds any value. I’ll look for relevant data when I have time. (Brian)

Introduction

In 2015, the United States freight trucking industry collected gross revenues of $726.4 billion. That accounted for approximately 82% of the total for freight carriers. The freight trucking market is so large because trucks play a critical role in moving merchandise of all kinds between points of production and points of consumption. They also move merchandise between different types of freight carriers – rail, maritime, air.

This post synthesizes what we have learned about the industry since Brian started becoming interested in startups trying to solve problems for the United States trucking market in the summer of 2014, and since John joined KEC Ventures a year later.

In the rest of this discussion, we will refer to “startups” as distinct from “companies”. To ensure we are on the same page;

  • A startup is a temporary organization built to search for the solution to a problem, and in the process to find a repeatable, scalable and profitable business model that is designed for incredibly fast growth. The defining characteristic of a startup is that of experimentation – in order to have a chance of survival every startup has to be good at performing the experiments that are necessary for the discovery of a successful business model.
  • A company is what a startup becomes once it has successfully navigated the discovery phase of its lifecycle. This is the phase during which relatively fixed organizational structures start being built in order to facilitate the firm’s work on behalf of its customers, employees, shareholders, business partners, and society.

KEC Ventures invests in early stage startups. Therefore our primary purpose in studying the freight trucking market is to gain adequate context for the instances when we might assess startups trying to solve problems in this market. We have not yet made an investment in any of the startups in this market.

In the rest of this post we;

  • Describe the freight trucking market,
  • Discuss its market structure,
  • Describe the economics of operating within the market,
  • Describe and discuss the opportunities that startups are pursuing, and finally we
  • Discuss some threats such startups might encounter.

Writing this post is primarily an exercise in documenting what we know in order to identify gaps in our knowledge so that we can fill in those gaps. So if we have missed anything please let us know. If you are building a seed stage startup in this market we would love to hear from you. If there are companies we have not heard of yet, we would love to know that too. You can leave a comment in the comments section below, or you can email us directly;

  • Brian – brian@kecventures.com, or
  • John – johna@kecventures.com.

What Is Freight Trucking?

Freight trucking comprises the handling and transportation of goods of all kinds – providing an important link between producers and consumers. There is an industry adage: “If you bought it, a truck brought it.”

The market can be segmented as follows;

For-Hire: This segment of the market is made up of companies that provide freight trucking services to other companies for compensation. Participants in the for-hire trucking market are subject to state and federal regulation in the United States.

In-house: In-house freight trucking keeps freight trucking within the confines of a company’s business model rather than outsourcing that activity to a for-hire trucking company.

Truckload (TL): This form of freight trucking involves the movement of merchandise that fills an entire truck container.

Less-Than-Truckload (LTL): This form of freight trucking involves the movement of merchandise is too small to fill an entire truck. This means that a number of shipments for different customers can be combined to fill a truck, and the cost of transporting the merchandise is apportioned among the different customers. LTL can be further categorized into parcel carriers and dry van shipping. Parcel carriers carry merchandise made up of units weighing 150 lbs or less. Dry van freight involves shipping merchandise in a standard trailer that is adequate for shipping many different types of good and merchandise.

General: This form of freight trucking involves the movement of any merchandise that does not require specialized equipment.

Specialized: This form of freight trucking requires specialized equipment to move merchandise. Some examples; flatbed trucks, tankers, refrigerated trucks, and hazmat trucks.

Local: This form of freight trucking restricts activity to within a metropolitan area. Local trucking services are characterized by same-day trips, or by trips serving a region within a 150-mile radius of the freight trucker’s operating base.

Long-Distance: This form of freight trucking provides freight services between multiple metropolitan areas, and often crossing several states. Long-distance truckers generally serve regions that are beyond a 250-mile radius of the freight trucker’s operating base.

Intermodal: This involves equipment that can shift between different modes of freight transportation without the need to directly handle the merchandise that is being transported. In this case, merchandise is containerised to make it easy to move from ship to rail to truck for example. Intermodal freight trucking interacts with container ships, railways, cargo aircraft, pipelines, and barges. Intermodal freight trucking is critical in the formation of land bridges.

How Is The Trucking Industry Structured?

According to the American Trucking Association’s Trucking Trends 2015 the United States’s trucking market is characterized by the following statistics:

  • In 2015, trucks moved 10.49 billion tons, or 70.1%, of all domestic freight.
  • Freight trucking collected $726.4 billion in revenues, accounting for 81.5% of all freight transportation spending in 2015.
  • There were 3.63 million Class 8 trucks in operation in 2015. 1Class 8 trucks belong to the highest Gross Vehicle Weight Rating (GVWR) assigned by the US Department of Transportation (US DOT).
  • The industry employs more than 3 million truck drivers.

Approximately 80% of all trucks in the trucking market belong to fleets with 50 trucks or fewer, 97% belong to fleets of 20 trucks or less, and 90% of the market is represented by fleets with 6 trucks or less. Estimates suggest that there may be as many as 1,200,000 companies in the US trucking market. The largest 50 companies account for 40% of total industry revenues. Owner-operators represent about 10% of drivers in the trucking industry. 2Owner-operators own and operate their own trucking business. Most own 1 truck and 1 trailer.

About 50% of the freight trucking market operates in the for-hire segment. We assume that the vast majority of owner-operators exist in the for-hire segment. Roughly 15% of the for-hire freight market is LTL, while the remaining 85% is TL.

Brokers serve as a liaison between shippers and carriers by matching the unique needs of the shipper with a registered freight trucking carrier capable of fulfilling the shipper’s needs within established and agreed constraints. By some estimates, truck freight brokers earn as much as $50 billion or more in revenues each year.

What Are The Economics Of The Trucking Industry?

Freight trucking is a challenging business that is characterized by net margins of 7% or less, with most carriers earning margins of about 5%. The main operating expenses that carriers have to contend with are; 32014 estimates, developed from American Transportation Research Institute’s An Analysis of the Operational Costs of Trucking: 2015 Update.

  • Fuel Costs: 34.2%
  • Truck/Trailer Payments: 12.6%
  • Repair & Maintenance: 9.3%
  • Truck Insurance Premiums: 4.2%
  • Permits & Licenses: 1.1%
  • Tires: 2.6%
  • Tolls: 1.3%
  • Driver Wages: 27.1%
  • Driver Benefits: 7.6%

Other cost-drivers in the trucking industry include;

  • Driver shortages and workforce retention issues,
  • Federal and state transportation regulations,
  • Environmental regulations, and
  • Technology for fleet management.

What Opportunities Are Startups Pursuing?

Startups are pursuing opportunities in the freight trucking industry for a number of reasons;

  • First, it is a huge market.
  • Second, industry outsiders perceive it to be highly inefficient and hence, ripe for “disruption”.
  • Third, from a technologist’s perspective, there’s a lot of room to apply technology to fleet management and operations, freight brokerage, and compliance.
  • Fourth, it is highly fragmented – making it an attractive candidate for the types of software platforms that have already transformed the way business is done in other markets.

Before we discuss the opportunities that startups are pursuing, it may help to get a sense of the investment landscape in which such startups are competing for capital.

Based on the data from CBInsights in the 2 charts that follow, we see that there has been a significant increase in the aggregate amount of capital investors have deployed into startups in the freight trucking market each year since 2009. We also see that this trend is reflected in the average and median deal size, respectively. The data is as of mid-November 2016.

Funding to trucking startups has steadily increased YoY since '09 and is up more than 27% since 2015
Funding to trucking startups has steadily increased YoY since ’09 and is up more than 27% since 2015.
Average and Median deal size are both up significantly this year as well.
Average and Median deal size are both up significantly this year as well.

To put the data from CB Insights in context, a quick search on AngelList yields 149 startups described as “trucking startups” with 522 investors. A cursory inspection of that list suggests that most are based in the United States, with a few in other parts of the world such as the United Kingdon, India, Canada, the Middle East, Bulgaria, Germany, and Brazil – the opportunity is global.

Some of the more notable investors in freight trucking startups include; the United States Energy Department’s Advanced Research Projects Agency – Energy (ARPA-E), SandHill Angels, Band of Angels, Nokia Growth Partners, Intel Capital, UPS Strategic Enterprise Fund, Volvo Group Venture Capital, Institutional Venture Partners, Pritzker Group Venture Capital, Kleiner Perkins Caufield & Byers, GM Ventures, Capital One Financial, Wells Fargo & Company, Google Ventures, Index Ventures, Sequoia Capital, Harrison Metal, Accel Partners, DFJ Growth Fund, Draper Fisher Jurvetson, Andreessen Horowitz, Bessemer Venture Partners, FirstMark Capital, Fidelity Investments, SV Angel, Goldman Sachs, Lowercase Capital Benchmark, First Round Capital, Industry Ventures, Wellington Management, Founder Collective, BlackRock . . . etcetera etcetera – investors believe that big companies will emerge from the startups in this market.

Broadly, the following categorizations can be used to discuss the areas in which startups are most active. 4Startups listed are obtained from CBInsights, as of Nov 15, 2016. The authors developed the categories into which the startups are grouped. With only a few exceptions, each startup is listed under the category the authors believe represents the majority of each startup’s business activity based on publicly available information.

  • On-demand Commercial Trucking Services: These startups match shippers directly with carriers by cutting out the freight brokers who act as middlemen in the industry. Brokers can command fees as high as 40%, or more, of each transaction. Also, the process by which a broker connects a shipper with a carrier is manual and time-consuming. On-demand trucking startups build apps that promise to remove the inefficiencies that arise from dealing with a broker. Typically such startups say they are “disrupting” the truck freight brokerage market. Some of the startups in this category are; Convoy, Cargomatic, Cargo Chief, Deliv, Keychain Logistics, Kanga, Optimal Dynamics, RenRen Kuaidi, Roadie, Schlep, and Transfix. 5On-demand trucking apps and electronic load boards fulfill the same function, though people think of them as different. Electronic load boards aggregate carrier capacity listings, as well as shipper loads, in one web-portal that freight trucking market participants can access.
  • Freight Tracking & Fleet Management: These startups provide telematics solutions that enable truck fleet operators to track the location of vehicles in their fleet in order to increase the overall efficiency of their operations. Some of the startups/companies in this category are; Fleetmatics, Telogis, Teletrac, Cloudmade, Drivefactor, Peloton Technology, OmniTracs, OnFleet, Convey, Supply Chain Integrity, Traansmission. The product that truckers pay for is often a bundle of hardware and software, with a monthly subscription for the software.
  • Compliance & Safety: These startups provide hardware and software products that enable freight truck operators comply with state and federal regulations in the United States. The benefit to fleet operators is that these products minimize the number of times a fleet is found non-compliant. They do this through; Compliance related safety reporting and monitoring at the individual driver level, compliance related safety reporting and monitoring at the fleet-wide level, and efficient reporting and monitoring through the reduction of paper and pencil record-keeping, and the creation of electronic audit trails for safety and compliance. Non-compliance can result in the grounding of an entire fleet while the operator tries to fix the problem identified by regulators. Some of the startups in this category are; Big Road, Keep Truckin, Trucker Path, GreenRoad Technology, SmartDrive Systems. The product that truckers pay for is often a bundle of hardware and software, with a monthly subscription for the software.
  • Delivery Platforms & Last-Mile Parcel Delivery: These startups build platforms for large enterprises and for small-and-medium sized businesses to enable them to offer shipping price comparisons, on-demand pick-up and delivery, and other services related to shipping merchandise and products to end-use customers.  Some of the startups in this category are Darkstore, Dispatch, Kanga, Doorman, Rickshaw, Bringg, Narvar, Shyp.
  • Autonomous Vehicle Platforms (Trucks): These startups develop and build automation technologies and platforms for the trucking industry with the goal of lowering costs, improving safety, and generally increasing efficiency and productivity in the freight trucking industry. Typically, a software-focused startup partners with an established truck manufacturer to build and test a self-driving system. The Chinese government is encouraging this nascent market as a means of tackling some of the problems that confront its freight trucking industry, where, for example, driver-related costs account for about 40% of operating expenses. According to CB Insights, the following startups fall in this category; Mobileye, Otto – which was acquired by Uber, Peloton Technology, Drive.ai, Quanergy Systems.

First Analysis Securities Corporation estimates that: 6Howard Smith and David Gearhart, Internet of Things/Machine-to-Machine: Fleet Management Solutions. January 2014.

  1. Fleet management software generates about $5.5 billion of revenue globally, with growth estimated at 21% compounded annually between now and 2023, bringing the market size to $37 billion in 2023.
  2. Fleet management software in the United States generates about $1.6 billion of revenue, with growth estimated at 19% compounded annually till 2023, growing to $8.6 billion.
  3. They estimate a theoretical global market size of $92 billion and $11 billion for the global and US markets respectively, suggesting 6% and 14% penetration in those markets respectively.

Freight Trucking Software Startups

Threats

To a naive observer, the opportunities in the freight trucking market appear ripe for the taking of early stage startup companies intent on “disrupting” it. Moreover, it would also appear that incumbent players in that market are slow, lumbering, and clumsy organizations incapable of keeping up with the threat that startups pose. While some of that is true, there exist a number of threats that might take some early-stage startups and their investors by surprise. Below, a broad outline of those threats that we pay the most attention to when we encounter such startups.

Nice-to-Have or Necessity?

As a result of the thin margins earned by freight truck operators, products targeted for sale to owners of truck fleets must be seen as necessary for ongoing operations as a result of regulatory changes, or as a demonstrable catalyst for increased profitability. In the latter case, the startup that seeks to sell the product must be in a position to quickly provide a return-on-investment to a fleet operator after the decision has been made to adopt the new product. Closely related to this is the issue of ease of use;  Can individual truck drivers or fleet managers learn how to use the product quickly, with little or no training? In markets that have frontline workforce characteristics similar to that of the freight trucking market, psychological lock-in to incumbent products is extremely strong. As a result, attention to UI and UX design is an important determinant of success or failure.

As an example; The Federal Motor Carrier Safety Administration (FMCSA) enacted a regulatory change in December 2015 that mandates and requires automatic electronic logging devices on all commercial vehicles. All trucks have to become compliant within 24 months of the adoption of the new rule. Industry estimates are that 125,000 – 150,000 trucks need to be brought into compliance every month during that 24-month grace period. Once the grace period ends, noncompliance will incur fines and other penalties that could go as far as the grounding of entire fleets for each incidence of noncompliance that inspectors discover.

Trustworthy or Trustless?

The insistence by early stage startups that they will “disrupt” the freight brokerage market overlooks the most important function brokers play; They are arbiters of trust between shippers and truck operators. By using a broker, the shipper outsources the headache of vetting the freight truck operator to whom the shipper’s merchandise will be entrusted while it travels between locations. Furthermore, brokers and shippers have completely aligned interests since both groups stand to suffer adverse consequences if misbehaving truck operators are allowed to remain in business without the implied threat that they stand to lose a significant amount of business. It is not clear if shippers feel that their interests are aligned in the same way, or as strongly, with the interests of truck operators.

Startups pursuing a business model predicated on eliminating freight brokers need to have thought about how they will solve this problem, or if they will solve it at all.

Truckers have a love-hate relationship with brokers. But what I learned is—brokers aren’t going anywhere anytime soon because brokers own and manage the relationship with shippers. And a point that cannot be overstated—shippers, too, have complete faith in and reliance upon their brokers.

–  Jason Cahill, Why The WSJ’s “Reinventing the Trucking Industry” story got it wrong. Jason is the founder of Traansmission, a Brooklyn, NY-based startup in the freight trucking market.

By some estimates the freight brokerage market is worth more than $50 billion in annual revenues. Given the popular perception that brokers are an unnecessary part of the industry, we expect that several startups will continue trying to eliminate brokers altogether.

Will The Startup Solve The Dynamic Assignment Problem?

The dynamic assignment problem arises when customer demands for a service arrive continuously and randomly over a period of time, requiring a dispatcher to assign and send a service agent to satisfy each demand request. The number of service agents is limited relative to the potential number of random customer demands. The fulfillment of each task imposes a cost on the dispatcher, and extreme surpluses or shortages of tasks or service agents impose system-wide costs that can result in system-wide failures.

The dynamic assignment problem is a resource allocation problem. More specifically, it is a problem of allocating resources in an optimal manner, given uncertain conditions.

It should not be difficult to see why this problem arises in the freight trucking market. On one hand, shippers randomly demand freight services, to move merchandise between locations. On the other hand, freight carriers must satisfy that demand in a manner that maintains trust and meets shippers’ expectations.

The Stochastic Optimization Approach

Professor Warren Powell of the Computational Stochastic Optimization and Learning (CASTLE) Labs at Princeton University has studied the problem of optimization under uncertainty extensively. Specifically, the Transportation and Logistics Laboratory at CASTLE Labs has been working on trying to solve this problem for those markets since 1981. Their work spans stochastic fleet management in trucking, rail and air, real-time dispatching, routing and scheduling, and spare parts management, among others.

In his paper; A Stochastic Formulation of the Dynamic Assignment Problem, with an Application to Truckload Motor Carriers, he delineates the dynamic assignment problem in freight trucking into a supply management problem and a demand management problem.

The supply management problem is a capacity management problem related to serving the customer – in this case, the shipper. To solve this problem, fleet operators must;

  • Assign different drivers to handle different shipping requests,
  • Reposition idle drivers and trucks from one region to another in anticipation of future shipping requests,
  • Determine how a load of merchandise should be handled once it has been picked up by a driver – move the load directly to its destination, hold it temporarily till a new driver can be assigned to move it to its final destination, or move it to its final destination using a relay network of drivers.
  • Manage the flow and inventory of trailers that will be needed to move freight.

It should be obvious that driver management is an important dimension of the capacity management problem. This observation is further supported by the fact that driver-related costs account for 34.7% of the operating costs of a truck. Solving the driver management requires giving consideration to;

  • Driver work rules,
  • Driver pay,
  • Returning drivers home,
  • Driver skills, and
  • Driver quality.

The demand management problem arises because the shipper calls the carrier, or vice versa. Prof. Powell divides shippers into 3 broad categories;

  • Primary shippers – the carrier has an obligation to move any merchandise that the shipper needs moved,
  • Secondary shippers – the truck operator is obligated to move merchandise for that shipper only in certain traffic lanes, e.g. only southeast freight, and
  • Tertiary shippers – the carrier may accept or reject a request to move the shippers merchandise.

To solve the demand management problem, carriers must solve for 2 aspects of the fleet management problem;

  • Load acceptance or rejection, based on real-time capacity constraints or fleet-balance considerations, and
  • Load solicitation, to correct short-term surplus capacity in certain regions that the carrier serves.

Solving the fleet management problem requires that carriers have a means of quickly;

  • Assessing the profitability of loads tendered by secondary and tertiary shippers – “spot” loads as they are known in the industry,
  • Anticipate areas of surplus or shortage within the carriers’ fleet of trucks, and
  • Make trade-offs between current and future demand, especially if future demand may come from a primary shipper.

Given the low-margin nature of this business, it is not difficult to see why these considerations matter. The difference between a year that ends in the black and one that ends in the red may amount to relatively no more than a few loads of merchandise. 7This is a reality I encountered in the general aviation industry, between 2008 and 2012. A product that solves the profitability problem and the optimization problem has superior chances of surviving the vagaries of this industry. This suggests that a startup that incorporates stochastic optimization into its freight trucking platform has a better chance of success over the long term than its counterparts that do not.

You can read more about the work being done at CASTLE Labs on this application of stochastic optimization in the papers listed below;

The Contract Theory Approach – Real Options

Professor Warren Powell’s approach is one way to solve the dynamic assignment problem. Another approach is proposed by Mei-Ting Tsai, Jean-Daniel Saphores, and Amelia Regan in Freight Transportation Under Uncertainty. This approach applies concepts from financial derivatives markets and real options theory to craft Truckload Options. A truckload option is an option to buy or sell freight services on a specific route, at a predetermined price, on a specific date. 8A derivative contract is a contract whose value is based on the value of an underlying asset.

A truckload call option gives its holder the right to buy freight services on a specific route, at a predetermined price, on a predetermined date. The decision to exercise the call option will be made by the holder based on information available leading up to the exercise date. A shipper will exercise the option to buy freight services if the strike price of the truckload call is less than the spot price, otherwise, the truckload call is allowed to expire. The total cost to the shipper is the option premium plus the cost of shipping.

A truckload put option gives its holder the right to sell freight services on a specific route, at a predetermined price, on a predetermined date. The decision to exercise the put option will be made by the holder based on information available leading up to the exercise date. In this case, a freight carrier will exercise the option to sell freight services only if the strike price of the truckload put is greater than the spot price, otherwise, the put will be allowed to expire.  While put options are possible in theory, in practice they are unlikely to be widely used.

Generally, options are less beneficial when uncertainty is low, and this is also true for truckload options when system-wide demand uncertainty is low. However, Mei-Ting et al argue that the system-wide benefit of truckload options is positive. This suggests that there may be some competitive advantage to be derived from implementing a truckload option pricing mechanism as part of an on-demand trucking services marketplace.

A Rake Too Far?

The argument may be made that expecting a startup that operates an on-demand freight services marketplace to solve the dynamic assignment problem is asking too much. After all, such marketplaces mainly target owner operators.

Based on our back-of-the-envelope calculations, owner-operators probably represent 5% of the overall freight trucking market. Given the economics of operating a truck, it seems to make sense for startups to think about how a product might eventually migrate beyond that initial customer base in order to include operators of small, medium, large fleets, and possibly freight brokers too. In other words, the minimum viable product does not need to solve the dynamic assignment problem. But, if the startup is to survive and become the big, dominant company in its market, it ultimately needs to solve the dynamic assignment problem. Doing that will eliminate, or minimize, the probability of deadheading which is a source of much of the friction in the spot market. 9Deadheading occurs when a truck is operated while it is empty. Such a trip is described as a dead leg.

Will Freight Services Marketplaces Offer Freight Factoring Services, Directly Or Through A Partner?

Given the economics and structure of the freight trucking market, it is not difficult to understand why owner-operators and some fleet operators will find services that enable them to sell their accounts receivables assets in order to meet cash needs as part of a multi-sided marketplace highly desirable. In a typical accounts receivable financing transaction the receivables are sold at a discount in exchange for certain cash. Alternatively, the accounts receivables can be used as collateral for a short-term loan. 10Technically, accounts receivables factoring is the outright sale of the asset. Invoice discounting – assignment of accounts receivable, is using the asset as collateral for a short-term loan.

Typical services would include; credit checks, credit risk management, freight insurance, accounts receivables collections and management, receivables financing . . . as described above.

According to Factors Chain International, in 2015 factoring revenues amounted to $104 billion. The domestic only portion of that market was 84%.

Everything being equal, a freight services marketplace that also offers these kinds of financing options should win over its counterparts that do not.

Cargomatic is forced to pivot from its "Uber for Truckers" business model.
Cargomatic is forced to pivot from its “Uber for Truckers” business model.

Wrapping Things Up

Estimates suggest that the global transportation services market is worth $12 trillion annually. In the United States, that market is believed to exceed $1.0  trillion each year. As we have already stated, freight trucking accounts for more than $700 billion of that total. Thanks to the friction, inefficiency, and opacity that characterizes the market startups will continue building products to solve problems that freight truckers and their customers face. Some of the business models that these startups implement will face more threats than others as they attempt to navigate the path from discovery, to becoming big and market-dominating companies. But, the opportunity exists, and it is big, and it is global . . . and holds tantalizing promise for the startup founders and venture capitalists who succeed in solving the puzzles it presents.

Writing this post was primarily an exercise in documenting what we know in order to identify gaps in our knowledge so that we can fill in those gaps. If we have missed anything you feel is important please let us know.

If you are building a seed stage startup in this market we would love to hear from you. If there are early-stage startups we have not heard about yet, we would love to know that too. If you invest in or have invested seed-stage startups pursuing any of the opportunities we have described above, or others in the freight trucking market, we’d love to collaborate with you on future investments.

You can leave a comment in the comments section below, or you can email us directly;

  • Brian – brian@kecventures.com, or
  • John – johna@kecventures.com.

Update: November 24, 2016 at 07:30 to include data from AngelList and representative sample of investors from CB Insights.

References   [ + ]

1. ↩ Class 8 trucks belong to the highest Gross Vehicle Weight Rating (GVWR) assigned by the US Department of Transportation (US DOT).
2. ↩ Owner-operators own and operate their own trucking business. Most own 1 truck and 1 trailer.
3. ↩ 2014 estimates, developed from American Transportation Research Institute’s An Analysis of the Operational Costs of Trucking: 2015 Update.
4. ↩ Startups listed are obtained from CBInsights, as of Nov 15, 2016. The authors developed the categories into which the startups are grouped. With only a few exceptions, each startup is listed under the category the authors believe represents the majority of each startup’s business activity based on publicly available information.
5. ↩ On-demand trucking apps and electronic load boards fulfill the same function, though people think of them as different. Electronic load boards aggregate carrier capacity listings, as well as shipper loads, in one web-portal that freight trucking market participants can access.
6. ↩ Howard Smith and David Gearhart, Internet of Things/Machine-to-Machine: Fleet Management Solutions. January 2014.
7. ↩ This is a reality I encountered in the general aviation industry, between 2008 and 2012.
8. ↩ A derivative contract is a contract whose value is based on the value of an underlying asset.
9. ↩ Deadheading occurs when a truck is operated while it is empty. Such a trip is described as a dead leg.
10. ↩ Technically, accounts receivables factoring is the outright sale of the asset. Invoice discounting – assignment of accounts receivable, is using the asset as collateral for a short-term loan.

#OpposingViewpoints: Do Economic Moats Happen By Accident?

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Brick by brick . . . Solve it one step at a time.
Brick by brick . . . Solve it one step at a time.

Do economic moats occur naturally or by accident? I had never contemplated this question till Andy Rachleff graciously emailed me back after I sent him my presentation on economic moats seeking his comments about two weeks ago.

Why did I email Andy? That’s a great question.

In early 2010, when it started becoming clear that we would head down the path of building an independent venture fund, I put together a list of venture capitalists I admire and started reading some of their work. I noticed that invariably, at some point some of them would make a statement like; “I did not fully understand this concept until Andy Rachleff explained it to me.” After encountering this more times than I expected, I decided that I should find a way of learning as much from Andy as I possibly can. I started by connecting with him on LinkedIn and later followed him on Twitter.

Since then I have emailed him about once a year, perhaps somewhat less frequently, to ask him a question . . . A book recommendation, for example. Each time he has responded by pointing me in the direction of an answer to my question.

Here’s Andy’s comment about economic moats; “. . . I do not agree with your assertion. Successful companies do not create moats. They happen naturally or by accident. Companies that attempt to create moats usually do so at the cost of not spending time on further delighting their customers – which almost always backfires. This is a major point I teach in my product market fit class because it is a common misperception.”

Andy is a legend in venture capital. He co-founded Benchmark Capital in 1995 and was a GP there till 2004. He is a co-founder of Wealthfront, and now serves as executive chairman after having previously served as CEO and president. He also currently teaches courses in technology entrepreneurship and venture capital at the Stanford University Graduate School of Business.

So . . . as you might imagine, his comment gave me pause.

It was just before 6:00 AM when I read his email. I walked away from my desk, drank a cup of strong coffee and thought about his comment. It was then I realized that I am more aligned philosophically with Andy’s view on economic moats than it first appears.

Yes, in trying to communicate the concepts on which the idea of an economic moat is based we often speak about “building a moat” or “digging a moat” . . . . That can be misleading in the context of early-stage technology startups. However, I am not surprised that misperception arises since much of the vocabulary for economic moats is borrowed from value investors who invest in publicly traded, or mature privately held, companies. Specifically, it is a concept first attributed to Warren Buffet and Charlie Munger and it is one aspect of their approach to investing at Berkshire Hathaway.

Sometime in late June, I made an observation to my teammates at KEC Ventures; I had come to the realization that each time we met the founder of an early-stage startup who spent a lot of time talking to us about the economic moats around that startup’s business model we usually later discovered that the startup was failing to keep its existing customers/users and was also failing to recruit new customers/users. Andy’s comment helped me connect the dots . . . The early-stage founders who talk to us at length about economic moats are insufficiently focused on creating value for their customers/users.

When founders ask me about the role KEC Ventures plays as an early-stage investor, I have always said that once we decide to make a Seed-Stage or Series A investment we believe that we have a responsibility to help create the conditions that will allow our founders to do 4 things well;

First; Keep their existing customers as happy as possible.

Second; Improve the startup’s product, in order to make existing customers happier than they already are.

Third; Recruit additional team members, to enable their startup to do a better job of executing the two preceding tasks.

Fourth; Win new customers.

If we deliver on that promise, I think we would have fulfilled our primary obligations as an early-stage investor. Doing this involves a mix of activities that basically boil down to taking on assignments from our founders when something arises that needs to be done, but that does not directly help the startup accomplish the 4 tasks I have listed above.

Nowhere on my own list do I expect our founders to “Build an economic moat.”

However, when I am thinking of the startups in which KEC Ventures should invest I think about the potential for economic moats to develop if the startup’s founders;

  • create value for their customers and delight them,
  • find product-market-fit,
  • discover a business model that scales profitably, and
  • build a team to do those 3 things successfully.

My interest in studying economic moats is so that I can recognize those instances in which the probability that they emerge is high, whether naturally or by accident. Seed-stage technology startups with a high potential for economic moats to eventually emerge are the ones that I personally find most attractive as potential investments.

But Andy was right; After reading my blog posts and the accompanying presentation deck, one could come away thinking that I am suggesting that founders of early-stage technology startups add “build an economic moat” to the list of things that they should be doing. I am not.

At the stage at which we invest at KEC Ventures, I believe founders need to focus on only the things that directly enable them to delight their current customers/user and find new ones. Everything else proceeds from doing that successfully. Failure to do that? Nothing else will even matter.

So, perhaps it is fitting for me to now say; I did not fully understand why early-stage startup founders should not focus on building economic moats until Andy Rachleff compelled me to think about it more critically.

How To Make Africa More Innovative And Entrepreneurial

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Note: This blog post is a consolidation of a 4-part series I wrote for Tekedia. They were published between June 10, 2012 and July 22, 2012. This version is substantially identical to the originals from which it is compiled, with only non-material updates.

My exam is behind me now, and I can turn my attention back to topics that I would like to explore in this column. Before you ask me how the exam went . . . results come out in late July. Don’t worry, you’ll know if I pass because I’ll brag so loudly that you can’t bear but get fed up with me.

You may recall that my article How African Countries Can Spur Startup Innovation was inspired by an article published by BusinessWeek. I want to explore that topic further over the next two or three installments of this column. This time my inspiration comes primarily from How To Make A Region Innovative.

Before we dive in I should point out one important caveat. I am neither an economist nor a policy maker. Yet, I hope we can start and sustain a conversation that goes beyond my limited capacity to tackle a topic this enormous using the format of a series of “blog posts”. I should also point out that I believe African’s as a people are more entrepreneurial than most, however much entrepreneurship in Africa is of the subsistence variety. I have in mind the kind of high-impact entrepreneurship that lifts millions out of poverty at once by creating a platform on which other revenue generating activities and businesses can be built.
Why the focus on “making Africa more innovative and entrepreneurial”? In two phrases, economic growth and poverty reduction. There is growing evidence to suggest that the internet is spawning an era of economic growth unlike any we have seen in history. In May 2011 The McKinsey Global Institute said1This article is based on The Global Innovation Index 2011, accessed online on June 22, 2012.:

New McKinsey research into the Internet economies of the G-8 nations as well as Brazil, China, India, South Korea, and Sweden finds that the web accounts for a significant and growing portion of global GDP. Indeed, if measured as a sector, Internet-related consumption and expenditure is now bigger than agriculture or energy. On average, the Internet contributes 3.4 percent to GDP in the 13 countries covered by the research—an amount the size of Spain or Canada in terms of GDP, and growing at a faster rate than that of Brazil.

Africa has a rare opportunity to accelerate her efforts to diversify beyond the extraction and export of primary commodities and to create the conditions that will foster the growth of startups that harness the internet and software technology to build businesses that become successful enough to earn hundreds of millions, even billions, of dollars in annual revenue while employing hundreds if not thousands of her people in the process.

Ernest J. Wilson III states that four different sectors must link together to create a center of innovation (or innovation cluster), an environment that fosters creativity and innovation. He calls this the “quad” and it comprises;

  • Government agencies that provide and invest in the infrastructure that is necessary for the activities that must go on within the center of innovation to occur. An example of such infrastructure investments would be the internet connection between Ghana and the rest of the world – over the course of a six month mentoring relationship, I never once successfully held a video chat using Skype with the team of four entrepreneurs in training at the Meltwater Entrepreneurial School of Technology in Accra that I had been assigned to assist as a volunteer advisor while they tried to conceive and develop an internet based software startup and compete for funding from the Meltwater Foundation. Other examples? Schools. Transportation. Power generation plants – yes, NEPA (aka Never Expect Power Always) I am looking at you. Power transmission lines. Land. These are the types of infrastructure investments that are critical to the establishment and success of a center on innovation. They are also the kinds of investments that government is best positioned to make because they must happen at a massive scale. Government also has to maintain the legal, regulatory and tax regimes that govern activity in centers of innovation.
  • Universities provide a steady supply of people with the skills and the knowledge to pursue innovative solutions to problems that become the foundation on which great businesses can be built. Research that has sat in university labs can be brought to the real world. University students can continue the pursuit of solutions to problems they were grappling with in school after graduation by forming startups that set up their base in the confines of the center of innovation.
  • Nongovernmental or nonprofit organizations provide services that highlight chronic problems waiting for the “problem solving” treatment that entrepreneurs are so good at providing. In some cases some nonprofits and NGO’s might even start solving some of these chronic problems. Two examples I am familiar with are the Meltwater Foundation and the Kumasi Center of Lifelong Learning – I am a volunteer advisor with KCCL.
  • Businesses function as the economic engine of the innovation cluster by providing the capital for strategic investments in the kind of innovation that attracts large numbers of customers and generates profits large enough for reinvestment in more strategic innovation. This cycle of sourcing capital, investing it, generating profits, and reinvesting a portion of the wealth that has been generated creates a unique vitality and creativity that none of the other three sectors can replicate with the same level of success.

A high level of trust is necessary for the collaboration between these sectors to be successful. Without trust leaders within each sector will transact with a short-term focus and will tend not to look beyond the immediate transaction at hand. Innovation clusters only succeed when all four sectors work collaboratively knowing that their individual and collective interests will be protected over the long term.

Why are some nations more innovative than others?
Fortunately we do not have to attempt to divine an answer on our own. INSEAD professor Soumitra Dutta leads a research project, the Global Innovation Index, conducted by INSEAD in partnership with Alcatel-Lucent, Booz & Company, The Confederation of Indian Industry and the World Intellectual Property Organization.

I can imagine that one of the questions you must be thinking about at this very moment is this: How do they measure innovation? The following description of their methodology comes from their website2Any mistakes in quoting from GII 2011 are entirely mine..

The Global Innovation Index 2011 (GII) relies on two sub-indices, the Innovation Input Sub-Index and the Innovation Output Sub-Index, each built around pillars.

Five input pillars capture elements of the national economy that enable innovative activities: (1) Institutions, (2) Human capital and research, (3) Infrastructure, (4) Market sophistication, and (5) Business sophistication. Two output pillars capture actual evidence of innovation outputs: (6) Scientific outputs and (7) Creative outputs.

Each pillar is divided into sub-pillars and each sub-pillar is composed of individual indicators. Sub-pillar scores are calculated as the weighted average of individual indicators; pillar scores are calculated as the simple average of the sub-pillar scores. Four measures are then calculated:

  • The Innovation Input Sub-Index is the simple average of the first five pillar scores.

  • The Innovation Output Sub- Index is the simple average of the last two pillar scores.

  • The overall GII is the simple average of the Input and Output Sub-Indices.

  • The Innovation Efficiency Index is the ratio of the Output Sub- Index over the Input Sub-Index.

They do this for:

. . . . 125 economies, accounting for 93.2% of the world’s population and 98.0% of the world’s Gross Domestic Product (in current US dollars).

So how do African countries fare? Not good. Mauritius and South Africa are the highest ranked African countries at 53 and 59 respectively. Tunisia, Ghana, Namibia, Botswana, Egypt, Kenya, Morocco, Nigeria, Senegal, Swaziland, Cameroun, Tanzania, Uganda, Mali, Malawi, Rwanda, Madagascar, Zambia, Cote d’Ivoire, Benin, Zimbabwe, Burkina Faso, Ethiopia, Niger, Sudan and Algeria respectively fall somewhere between 64 and 125. It is interesting to note that the United States is ranked 7 and Switzerland 1. Brazil, Russia, India and China are ranked 47, 56, 62 and 29 respectively. Sweden, Singapore, Hong Kong and Finland round out the top 5 in that order.

So what lessons can we glean from the GII 2011? You will recall that we have previously stated that in order to create centers of innovation (or innovation clusters) government agencies, universities, non-governmental or nonprofit organization and businesses need to work in partnership. We did not say how such a partnership might function. To gain some insight I decided to dig into the GII 2011 Report. It is available without charge online.

In the GII 2011 Framework, one of the roles African governments should play in nurturing innovation clusters on the continent is studied under the Institutions pillar. It comprises three main elements as sub-pillars; Political environment, regulatory environment, and business environment. The political environment plays a role in the development of innovation clusters by fostering political stability, government effectiveness and press freedom. The comparison of the regulatory environment in each of the countries studied by the GII is based on regulatory quality, rule of law and employment flexibility or rigidity of employment as it is called in the report. Finally, conclusions about the business environment are drawn after examining such things as the length of time it takes to start a business, the cost of starting a business and national tax regimes.

The GII 2011 Framework argues that the innovation capacity of a nation is determined by the level and standard of education and research activity. It tries to gauge the human capital of the countries included in the index by studying three things; Education, Tertiary Education, and Research and Development (R&D). Here the GII looks at a country’s effectiveness in educating its citizens at the elementary level as well as at the tertiary level. Tertiary education is important mainly because it enables countries to transform themselves from exporters of primary commodities into exporters of finished, manufactured goods that rely on specialized knowledge in science and engineering. R&D measures the level and quality of activities that transform ideas into products and services. Education is another area in which African governments have a big role to play. It is also an area in which an effective partnership between the public and private sectors can yield enormous dividends – a strong public education system that educates the vast majority of a country’s citizens, and is supplemented by well funded private elementary, secondary and tertiary institutions that educate a small minority of people that can afford to pay for a private education. Ideally, the public option should be competitive with the private option in terms of output at every level.

The GII 2011 Framework delves into the importance of infrastructure in aiding the formation of innovation clusters. We touched on the importance of infrastructure only very briefly in part I, where we suggested it is another area in which government bears primary responsibility. GII goes a step further;

Information and communication technologies (ICT), energy supply, and infrastructure are respectively the nervous system, the circulatory system, and the backbone of any economy. They facilitate the production and exchange of ideas, services, and goods and feed into the innovation system through increased productivity and efficiency, lower transaction costs, and better access to marks.

In relation to ICT, GII studies access, use, government’s online service, and e-participation. To reach its conclusions on energy it studies electricity output and consumption, GDP per unit of energy use, and the share of renewables in a country’s energy use. General infrastructure is studied by examining each country’s quality of trade and transportation networks, gross capital formation and ecological footprint and bio-capacity.

The fourth pillar on which the GII is based relates to market sophistication. This pillar comprises sub-pillars that examine credit, investment, and trade and competition.

Credit is studied by

. . . measuring the degree to which collateral and bankruptcy laws facilitate lending by protecting the rights of borrowers and lenders, as well as the rules and practices affecting the coverage, scope, and accessibility of credit information.

The investment sub-pillar is closely related to credit. The investment sub-pillar measures

. . . . the extent of disclosure and of director liability and the ease of share holder suits. To show whether market size is matched by market dynamism, stock market capitalization is complemented by the value of shares traded.

GII 2011 is the first year in which venture capital deals have been included in the study – 7,937 deals in 81 countries form part of the research study.

The last sub-pillar under market sophistication looks at trade and competition by country:

The market conditions for trade are given by two indicators: the average tariff rate weighted by import shares and a measure capturing market access conditions to foreign markets. The sub-pillar then includes the total value of exports and imports as a percentage of GDP.

The GII research team did not have a lot of success obtaining hard data on competition. However, the study includes a survey question that reflects on the intensity of competition in local markets.

The business sophistication pillar takes the logic that was introduced under the human capital and research pillar a step further. Business sophistication studies how the businesses within a country foster their own productivity, competitiveness and innovation potential by employing people that have benefitted from the country’s education infrastructure. It also examines links and partnerships between public and private entities in fostering the diffusion of innovation within each country’s economy. Lastly, this pillar looks at knowledge absorption within an economy by examining foreign direct investment net inflows, and royalties and license fees payments, among other things.

The sixth pillar is one of two output pillars in the GII 2011 framework. Scientific outputs looks at knowledge creation, knowledge impact and knowledge diffusion. This pillar looks at all the variables that have traditionally been recognized as fruits of innovation. It also looks at

. . . . the impact that innovation has at the micro and macroeconomic level: increases in labour productivity, the entry and density of new firms, and spending on software.

Knowledge diffusion under this pillar is a mirror image of knowledge absorption under the market sophistication pillar. It examines statistics linked to sectors with high-tech content or that are key to innovation.

The seventh pillar looks at creative outputs. It has two sub-pillars. Creative intangibles looks at statistics related to issues like trademark registrations as well as the use of ICT in developing new business and organizational models. Creative goods and services looks at the share of household expenditure on recreation and culture. This serves as a proxy for the comparative level of creative activity in a particular national economy.
The report devotes an entire chapter to public-private partnerships, and provides examples of public-private partnerships that date as far back as the 4th century BC. There are examples of PPPs being used to accomplish public-private goals in East Africa as well as in Egypt.3The Eastern African Submarine Cable System and Egypt Smart Village are the two examples. Both are focused on the ICT sector.

To quote from GII 2011 on PPPs:

The term ‘public-private partnership’ (PPP) describes a relationship in which public and private resources are blended to achieve a goal or set of goals judged to be mutually beneficial to both the private entity and to the public.

However, after reading the chapter I came away with two impressions:

  • First, African countries do not use PPPs as much as they could or should to advance national and transcontinental development.
  • Second, the longer Africa’s national governments and her people allow PPPs to remain the exception rather than the norm the more tedious the task of driving innovation across multiple economic sectors across the continent becomes.

In chapter 3, GII 2011 looks at Saudi Arabia’s efforts to reshape its economy from one that is heavily dependent on petroleum and crude oil exports to a more industrialized and diversified economy based on its National Plan for Science Technology and Innovation (NPSTI 2010 – 2025). One need not think long or hard to recognize why Saudi Arabia’s example is one African political and business leaders might want to observe keenly. Reading about what is happening in Saudi Arabia leads me to conclude that:

  • Some African countries need to set a medium term goal of becoming global science and technology supply countries – countries where multinational enterprises choose to locate their offshore research and development centers. Why? This is an acknowledged means of causing a diffusion of technology between companies and regions.
  • African institutions of higher education must train and graduate more scientists, engineers, mathematicians and technologists at the Masters and PhD level. Undergraduate students in these fields must become more involved in academic and industrial research in order to build a human resource base that attracts foreign direct investment in research and development.
  • National and multi-national PPPs should be used to encourage industry-university collaborations aimed at taking innovations dreamt up within the science, technology, engineering and mathematics departments of African universities and transforming them into viable commercial products developed, manufactured and sold in national, regional and transcontinental markets.4Don’t forget that Africa is a continent of close to 1.1 billion people according to the UNFPA.
  • Innovation and entrepreneurship in African countries will remain stillborn as long as potential entrepreneurs and investors feel they lack legal recourse to protect their investments of time and money in developing and acquiring intellectual and physical property.

In chapter 7, GII 2011 looks at India’s experience shaping a national innovation system. This example too is instructive for Africa’s political and business leaders. To quote from the chapter:

The Indian innovation system is extremely complex in terms of user segments and income disparities, and therefore markets are highly differentiated. At the same time, parts of some sectors need to cater to global demands. 

So what lessons can one take from India’s experience?

  • African countries must identify and establish an innovation paradigm that is in contrast to the dominant innovation paradigm. India has developed an innovation paradigm that focuses on the production of solutions to pervasive problems in a manner that makes such solutions affordable and accessible to people with extremely low incomes – people at the “bottom of the pyramid.”
  • Where it is possible, African countries must identify and nurture their own pockets of excellence with a view to stimulating the growth of a robust innovation and entrepreneurship ecosystem around these pockets of excellence and enabling private firms within that ecosystem compete and conduct business internationally.
  • African countries need to develop their own versions of the following programs which India’s Department of Science and Technology has been pursuing:
    • Home Grown Technology – encouraging small and medium sized enterprises to carry out significant innovations at the pilot production level.
    • ‘Technopreneur’ Promotion – encouraging Indian innovators to become technology-based entrepreneurs.
    • Technology Refinement & Marketing – supporting Indian innovation by pushing innovative technologies from prototype to viable commercial product.
  • A strong intellectual property rights framework will be necessary both at national and transcontinental levels if African companies are to develop and sustain a competitive advantage.

The chapter on India ends with a discussion of the challenges India faces in her bid to foster innovation and entrepreneurship. You might recognize these problems as very similar to the problems present in almost every African country as well.

  • Inertia – among political and business leaders.
  • Opacity – lack of transparency in the political environment, and a system plagued with innumerable bureaucratic hurdles.
  • Decay – rural and urban infrastructure that simply cannot support the ambition of building a more innovative and entrepreneurial economy.

GII 2011 does not mention corruption or unacceptably low educational standards as challenges facing India. I would suggest they pose real challenges in many African countries – at the very least in both Ghana and Nigeria, where I grew up.

Connecting The Dots and Tying Up Some Loose Ends 

We have covered a lot of ground. We will wrap things up now by connecting a few dots and tying up some loose ends. Hopefully when all is said and done we would have raised more questions than any one person can answer.

First, it is not uncommon to find that a “grand vision” lies at the genesis of successful efforts to create innovation clusters that are now the envy of the world. For example:

  • Bangalore became a reality in the 1890s when J.R.N. Tata donated money and the maharaja of Mysore donated land in order to realize their dream of building a “science city” to jump start India’s modernization. Today the Indian Institute of Science (IISc) is one of the world’s greatest centers of science and technology education5How To Make A Region Innovative by Ernest J. Wilson III, Strategy+Business, Issue 66 Spring 2012 accessed at www.strategy-business.com on 21 July 2012. and the Tata Group “operates in more than 80 countries and markets across Africa, Asia, Australia, North America, South America and Europe.” Tata Group has business sectors in information technology and communications, engineering products and services, materials, services, consumer products, chemicals and international operations.
  • Stanford University, the corner stone of Silicon Valley was formed in 1891 when Leland and Jane Stanford founded the university in honor of their son who had died shortly before his 16th Leland Stanford was a Governor and Senator of California, and had amassed his wealth as a leading railroad tycoon. At its opening, founding President David Starr Jordan said to the pioneering class of matriculating students: “[Stanford] is hallowed by no traditions; it is hampered by none. Its finger posts all point forward.”6Stanford University Wikipedia page, accessed on 21 July 2012.

Second, it is no coincidence that the Global Innovation Index 2012 (GII 2012)7Global Innovation Index 2012 accessed online on 21 July 2012. focuses on education as a bulwark in efforts to boost innovation. A casual inspection shows that the countries that ranked high in the GII also tend to perform well on the OECD’s Program for International Student Assessment (PISA).8OECD PISA 2009 Database accessed online on 21 July 2012.

PISA assesses how far students near the end of compulsory education have acquired some of the knowledge and skills that are essential for full participation in society. In all cycles, the domains of reading, mathematical and scientific literacy are covered not merely in terms of mastery of the school curriculum, but in terms of important knowledge and skills needed in adult life.

In the PISA 2003 cycle, an additional domain of problem solving was introduced to continue the examination of cross-curriculum competencies.9From www.oecd.org accessed online on 21 July 2012.

For example:

  • Korea, Finland, Hong Kong, Singapore, Norway, Switzerland, the United States, Sweden, and Germany all perform very well in the PISA assessment and also rank very high in the GII analysis.
  • A high ranking in the PISA analysis does not automatically translate into an “enviable placement” on the GII – Shanghai-China sits at the very top of the PISA rankings, yet China comes in at number 34 in the GII rankings. One reason for this might be an existence of wide disparities in the quality of education across mainland China. I should point out that China’s GII placement in 2012 compares to its ranking of 29 in the GII 2011 report.

Tunisia is the only African country whose participation is reflected in the PISA 2009 database. It comes in at number 59 on the GII 2012 index and is not very far from the bottom in the PISA analysis.

Lastly, the issue of trust between government agencies, universities, non-governmental or nonprofit organizations, and businesses cannot be downplayed. On this front, Transparency International’s Global Corruption Barometer 2010/11 (GCB) data10Transparency International, Global Corruption Barometer 2010/11 accessed on 21 July 2012.  gives one pause. Among other things, the survey asked respondents how the level of corruption has changed over a three-year period preceding the administration of the survey. These are the results;

  • Kenya: 39% of respondents to the survey said corruption has increased in the past 3 years.
  • Other African countries I looked up in relation to that question include Ghana – 60%, South Africa – 62%, Nigeria – 73%, Uganda – 67%, Rwanda – 21%, Cameroun – 62%, and Ethiopia – 34%.
  • Interestingly I did not find Botswana in the database.
  • Transparency International’s Corruption Perceptions Index 2011 (CPI) ranks these countries out of 183 as follows: Kenya – 154, Ghana – 69, South Africa – 64, Nigeria – 143, Uganda – 143, Rwanda – 49, Cameroun – 134, and Ethiopia – 120. Botswana has the best performance with relation to CPI.
  • For comparison the GCB and CPI data is: 64% and 73 respectively for Brazil, 53% and 143 respectively for Russia, 74% and 95 respectively for India, and 46% and 75 for China.
  • May be it is not a coincidence that Kenya leads the continent as a hub for information and communication technology (ICT) innovation. It may also not be an accident that Botswana’s economy has fared as well as it has over the recent past in comparison to Nigeria, for example.

Rampant and institutionalized corruption and lack of transparency impedes the proper functioning of financial and labor markets, interferes with the functioning of the legal system in fairly and impartially adjudicating disagreements between entities participating in the innovation and entrepreneurship ecosystem, and prevents the establishment and respect of intellectual and physical property rights. Moreover, corruption drives a lot of activity into the shadow economy – a state of affairs that does not promote widespread development. As an example, imagine personnel for national water or electric utilities agreeing to accept bribes while utility bills remain unpaid by large segments of the utilities’ customers for months, even years. It does not take an enlightened mind to extrapolate the unfortunate effects such behavior will have on the ability of the utilities in this example to continue providing the service for which they were established.

However, as with everything about Africa I cannot help but admire the resilience, ingenuity, energy and eternal optimism shared by the people confronting what many would consider daunting odds.

Consider that:

  • Network organizations like AfriLabs are forming all around the continent to promote the work of technologists and software engineers in developing startups to solve problems and create wealth for risk taking entrepreneurs.
  • Programs like that organized by the Mo Ibrahim Foundation and the Tony Elumelu Foundation are aimed at developing a new cadre of political and business leaders aimed at spearheading the sort of grand visions that can flame the fires of development and modernization across the continent.11Ben Schiller, Are MBAs The Solution To Africa’s Problems?, www.fastcoexist.com accessed on 21 July 2012.
  • Programs like the Innovation Prize for Africa and others on a smaller scale encourage innovation that develops new products, increases efficiency, or saves costs in the African context.
  • Though there remains a lot of work to be done, investor interest in Africa is increasing.12Chris Tredger, Global VCs Throw Their Weight Behind African Startups, IT News Africa, 20 July 2012. Accessed on 21 July 2012. Africans returning home after completing academic study and acquiring professional experience abroad drive some of this investor activity.

There are many more examples of that nature. Moreover, I cannot enumerate all the instances of individuals abroad investing in, and collaborating with, relatives and friends at home to start various entrepreneurial projects while also providing seed funding and advice.

One could reasonably argue that taken in isolation, none of the activities I have described above will amount to much. Taken in sum, they paint a picture of hope. Will this hope prove to be merely a mirage, or will partnerships develop that transform that hope into a tangible reality?

What do you think?

 

 

References   [ + ]

1. ↩ This article is based on The Global Innovation Index 2011, accessed online on June 22, 2012.
2. ↩ Any mistakes in quoting from GII 2011 are entirely mine.
3. ↩ The Eastern African Submarine Cable System and Egypt Smart Village are the two examples. Both are focused on the ICT sector.
4. ↩ Don’t forget that Africa is a continent of close to 1.1 billion people according to the UNFPA.
5. ↩ How To Make A Region Innovative by Ernest J. Wilson III, Strategy+Business, Issue 66 Spring 2012 accessed at www.strategy-business.com on 21 July 2012.
6. ↩ Stanford University Wikipedia page, accessed on 21 July 2012.
7. ↩ Global Innovation Index 2012 accessed online on 21 July 2012.
8. ↩ OECD PISA 2009 Database accessed online on 21 July 2012.
9. ↩ From www.oecd.org accessed online on 21 July 2012.
10. ↩ Transparency International, Global Corruption Barometer 2010/11 accessed on 21 July 2012.
11. ↩ Ben Schiller, Are MBAs The Solution To Africa’s Problems?, www.fastcoexist.com accessed on 21 July 2012.
12. ↩ Chris Tredger, Global VCs Throw Their Weight Behind African Startups, IT News Africa, 20 July 2012. Accessed on 21 July 2012.

Recap: My 3 Days at #PowerMoves.NOLA 2015

by

I checked in, and then got some coffee.
I checked in, and then got some coffee.

I rarely like to travel; I hate having to go through security. I hate going to conferences. Most of the time I come away feeling I did not accomplish what I set out to accomplish. On Wednesday morning I left NYC on a JetBlue flight. I was heading to New Orleans for the 2nd annual PowerMoves.NOLA conference. I had to change my plans to attend the 1st installment of the conference last year at the last minute. I am glad I was able to attend this year.

In this post I will highlight the work that PowerMoves.NOLA is doing, the startups that were at the conference as part of the program, and some of the conversations I had with founders, and other investors while I was there.

About PowerMoves.NOLA

PowerMoves.NOLA is a national initiative to deploy innovative ideas, fresh approaches, and an overall commitment to equity and diversity as a growth strategy to address the generational obstacles that prevent minority entrepreneurship. Leveraging the thriving entrepreneurial ecosystem, resources, and culture of New Orleans, PowerMoves.NOLA’s mission is to increase the number of venture-backed minority-founded companies locally and nationally.

Through its fellowship program, pitch competitions, and boot camp, PowerMoves.NOLA acts as a catalyst, providing early-stage and high-growth minority entrepreneurs with access to capital, advisors, and the support they need to succeed. The national conference events showcases some of the top minority entrepreneurs from around the country.

PowerMoves.NOLA’s objective is to make the national conference the premier event for minority entrepreneurs to support their companies, learn from experts, and build visibility of their products, and attract early stage investors.

PowerMoves.NOLA is an initiative of the New Orleans Startup Fund (NOSF), sponsored by Chevron, and in a promotional partnership with ESSENCE Festival™ presented by Coca-Cola®. 1Source: PowerMoves.NOLA website. Accessed on Jul 5, 2015. Slightly edited.

PowerMovesNOLA Program Book
PowerMovesNOLA Program Book

While there is danger in the venture business in getting too far away from the crowd, it can often pay to be unconventional. Don Valentine, the founder of Sequoia Capital, told me to trust my instincts, which lets you avoid getting dragged into conventional thinking and trying to please others.

In order to outperform any given market, it is mathematically true that you must not essentially *be* that market.  In other words, a venture capitalist can’t outperform other venture capitalist if they act just like them. This may seem like common sense but you would be surprised how much herding happens anyway, since many people would rather fail conventionally than succeed unconventionally.

– Tren Griffin, A Dozen Things I’ve Learned From Michael Moritz About Venture Capital. Accessed on Jul 5, 2015 at http://25iq.com/2014/06/07/a-dozen-things-ive-learned-from-michael-moritz-about-venture-capital/

Day 1 – Wednesday, July 1

The flight from JFK was shorter than I had thought it would, I did not realize New Orleans is that close. I arrived in the morning, and had a bit of time to catch up on work before activities related to the conference began.

The conference began with a networking reception and dinner at the New Orleans Museum of Art. I spent my bus ride from the hotel to the museum chatting with Rachelle Oribio who runs the Techstars++ Mayo Clinic program. Before Techstars Rachelle worked at Defy Ventures, and before that she helped convince communities in the Amazon to give up cultivating coca and instead to grow coffee and cocoa. We had a great conversation about early-stage investing, and startups. Our conversation got most animated when we were talking about startups we both got to see up-close, but in which KEC Ventures did not make an investment. It was interesting to hear what they are up to now, after going through Techstars++ Mayo Clinic and how the vision has evolved into what I assumed it would become.

I also ran into Chinedu Echeruo. He is the founder of HopStop, which was bought by Apple in 2013. We have been corresponding by email for about 3 years, but have never met or spoken on the phone. It was great to finally meet him in real life. Also, I always have a lot of fun when I meet a Nigerian or a Ghanaian . . . They get my jokes about Nigerians and Ghanaians.

Before that I had been chatting with Nnamdi and Aaron from 645 Ventures and also with Karl Bell and Adrian Ohmer from Invest Detroit. During dinner we listened to a presentation by LISNR’s Rodney William’s. LISNR is a high frequency, inaudible smart-tone technology; a new communication protocol that sends data over audio. LISNR aims to eventually be a technology standard for user authentication, peer-to-peer communication, and secure data transfer for connected devices in the evolving internet of things. I had seen him pitch in NYC about 9 months ago, so it was great to see how much progress LINR has made since then. It is in the midst of raising a Series B Round of financing.

Next time I visit New Orleans, I will try to visit the New Orleans Museum of Art again.

New Orleans Museum of Art - Jul 1, 2015
New Orleans Museum of Art – Jul 1, 2015

After dinner I went back to my room, did some work, and then went to sleep around midnight.

There’s nothing more invigorating than being deeply involved with a small company and everybody’s betting against us.

Great venture capitalists love the process of creating companies and more importantly creating customer value. Venture capital is a service business. Making others successful is the driving activity in the work.  Finding vicarious joy in the success of others is essential.

– Tren Griffin, A Dozen Things I’ve Learned From Michael Moritz About Venture Capital. Accessed on Jul 5, 2015 at http://25iq.com/2014/06/07/a-dozen-things-ive-learned-from-michael-moritz-about-venture-capital/

Day 2 – Thursday, July 2

I was up early. At 4:00 AM. So I did some work, showered, and then I emailed the attendees around 5:30 AM to say I’d be down at Starbucks between 6:00 AM and 8:45 AM, if anyone wanted to chat. The response was overwhelming. I got to chat with about 20 of the founders who were attending the conference during that time as they stopped by to chat for a few minutes each. Through out the rest of the day, and the rest of the conference founders identified me by my obnoxious neon orange sneakers, and my puma t-shirt and my black baseball cap. I got to chat with lots of people I might not have met otherwise.

#Coffee&AMeeting @PowerMovesNOLA 2015
#Coffee&AMeeting @PowerMovesNOLA 2015
My Uniform - Orange sneakers + jeans, puma t-shirt, black cap
My Uniform – Orange sneakers + jeans, puma t-shirt, black cap

Some of the people who stopped by that morning to chat; the ones with whom I had conversations that went a bit in-depth on a specific question they wanted to talk through; Edward Morgan of Revitalize Charging Solutions – he has a sales pipeline of about $8.7M and described his revenue model to me. Of course, I immediately suggested he run an experiment to see if the market will embrace another revenue model that would make his business model more attractive to investors. He currently has a payback period of two months on each device, I suggested he should see if he could reduce that to zero. I made the suggestion based on what I have learned from a startup I have been working on since August 2010, and in which KEC Ventures is an investor. I also chatted with Rudi from Joicaster, K.G from Quarrio, Craig Lewis from Visage Payroll, Larry Lawal from HealthFundIt, and Toni Okolo from PracticeGigs. I also had a long conversation with Harold Jean-Louis from SmartCoos about the market for business-to-consumer apps designed to help parents educate their young children. We spent a lot of time chatting about opportunities abroad, especially in China.

I bet the baristas and other folks at SBUX must have wondered what was going on . . . Our table was packed, some people had to pull up more chairs from other tables because the 6 at our table were taken. I’m glad I hit send on that email instead of deleting it for fear of pissing people off. There was a lot of laughter. That’s always a good sign.

Around 8:45 I walked over to Champion Square with Aaron Holiday of 645 Ventures. He was a judge for the #EntergyAngelPitch so he wanted to get there a little early.

#Entergy #AngelPitch @PowerMovesNOLA
#Entergy #AngelPitch @PowerMovesNOLA

These are the startups that pitched – 3 of the 5 are startups I had not heard about before. 2Source: PowerMoves.NOLA website. Accessed on Jul 5, 2015. Slightly edited.

  • bluField is an interconnected system of Bluetooth® beacon networks, which creates a high-resolution grid of a real-world geographic area.
  • FoodTrace is a powerful software platform providing food businesses with tools for next-level sourcing management. We help farmers and artisans sell more and buyers buy better. A platform built on proven solutions for businesses to locate and attract new customers, utilize data as insights and food trends for better strategy, and increase revenue with sharing tools for the value-added marketability of quality sourcing.
  • Joicaster is a video syndication platform that enables content creators to schedule, manage, and distribute live content across multiple platforms to yield larger audiences in a simpler cost effective manner. JOICASTER simplifies the process of syndicating live video to multiple online streaming platforms.
  • Lineapple turns smart phones into a mobile buzzer which in turn helps businesses increase profits by converting lost shopping time into new opportunities to increase and close sales. Lineapple is unique because it works inside the micro sales and non-revenue producing windows that are generally controlled by wait-times not during the already profitable active shopping time.
  • [N]tensify provides a branded in-app merchandise store as an additional revenue stream for mobile app developers, integrated via a software development kit (“SDK”). Ntensify creates apparel, plush, and other unique merchandise based on app designs. Ntensify provides a full service production chain, handling all customer data, payment processing, design, manufacturing, and fulfillment.

The #AngelPitch was followed by the #SeriesAPitch – 3 of the 5 are startups I had not heard about before. 3Source: PowerMoves.NOLA website. Accessed on Jul 5, 2015. Slightly edited.

  • Maker’s Row is an online B2B marketplace that connects brands with US-based factories. Maker’s Row was founded in November 2012 and currently hosts over 75,000 brands and 6,000 US-based factories. For brands, Maker’s Row provides a transparent community for any size brand to connect with US manufacturers by viewing their factory profile and messaging directly through the Maker’s Row platform. For Factories, Maker’s Row provides a platform for factories to showcase their capabilities and generate inquiries and leads in our community of brands and designers
  • Quarrio is Conversational Analytics. Users ask questions in ordinary English and the system answers instantaneously in plain English with auto-generated graphs and charts. More importantly, the user can then ask follow-up questions and quickly drill down to the important information they seek. The software is a broad artificial intelligence platform that works with any enterprise data source, launching first to sales managers using salesforce.com. Quarrio has created a Learning Natural Language Interface to Databases delivered as a SaaS platform that enables ordinary people to do advanced reporting and analytics.
  • Upswing partners with colleges to provide an easy-to-use virtual learning center for students (for free) and a real-time comprehensive analytics for administrators. Each day, over 200,000 students have access to live, 24/7 tutoring via Upswing. Each student can choose which tutor to connect with among both their college support staff and Upswing’s coaches. Sessions take place online within Upswing. Each session is recorded, aggregated, and reported back to administrators so they can become equipped with the tools necessary to fight student attrition.
  • Partpic is an enterprise software solution that simplifies the search and purchase process of replacement parts using visual recognition technology. It’s as simple as 1. Snap 2. Discover 3. Purchase with Partpic’s API integrated on your retail website or mobile application. Partpic simplifies the part-search process by allowing a purchaser to simply snap a picture of the part she is looking to replace. Using a collection of visual recognition algorithms, Partpic matches the user-generated image with a part in our extensive database. It then returns the name of the part and its specifications. Partpic makes it easy. Consumers upload a picture of a part either via the company’s Partpic powered mobile application or the company’s website. Partpic handles identifying the part and only leaves the sales rep with the responsibility of confirming and processing the order for the consumer, eliminating purchase errors in the process.
  • Nexercise is a digital health company with the goal of disrupting the exercise industry with the only platform that provides personalized on-demand video workouts for any need to any screen anywhere. Sworkit, which is the consumer facing brand, has achieved over 1 million monthly active users with a 5X growth since January 2015 and see over 15K downloads per day. Nexercise is the first all African American leadership team to graduate from the TechStars accelerator in Chicago 2013. Sworkit is currently available on iOS and Android for both phones and tablets. They offer a “lite” version that is free and ad-supported, and a “pro” version costing a one-time fee that delivers an ad-free experience and enhanced customization. In Q2 2015, they are introducing subscriptions for both professionals and general users. Don’t quote me, but my sources tell me Sworkit hit the $100K revenue milestone for monthly revenue in June, last month.

I have been tracking Partpic since March/April 2013 when I saw Jewel pitch at NYC Seed. So I was not surprised when I heard the judge’s decision.

We had lunch after the #SeriesAPitch . . . I ate a lot – I usually do not eat very much, if at all. Shrimp and grits, more shrimp and grits, blackened pork chop with rice and beans, beef brisket sandwich, more beef brisket sandwich. I also talked with Nnamdi and Aaron about some of the startups, and possibly tag-teaming on due diligence in anticipation of their next round. I also caught up with Rudiger Ellis from Joicaster, he had come down for coffee at Starbucks early in the morning, so it was great to reconnect and chat about his experience attending the conference. It was his first time too. Danielle from Lineapple talked us into getting snowcones . . . shaved ice with syrup drizzled over it, helps cool down from the heat.

I decided to head back to my hotel room in order to make sure nothing work-related was falling through the cracks. Also, my wife decided to come down from NYC for one day, and I had not yet seen her since she arrived early that morning.

So, I did some work. Showered, and got ready for the cocktail reception that evening. It was hosted by Liberty Bank. On the bus ride over I sat next to Uchechi Kalu Jacobson of Wedocracy – before that I would never have thought I would be chatting with anyone anywhere about the logistical challenges involved in planning and having a Nigerian-American-Jewish wedding in Mexico. But, we did talk about that and it was helpful that I have been following “WeddingTech” for some time. Later that evening I met Peter, Uchechi’s husband at the cocktail party.

I went back to the hotel after the cocktail party – on the bus ride back to the hotel I got to catchup with Candace Mitchell from Techturized/Myavana who I have known since October 2014 when we met at Digital Undivided’s FOCUS100 in NYC. I told Candace about Indie dot vc when it launched. Techturized/Myavanna is in the 1st Indie.vc cohort. It was my first time seeing her since the program began and so I was eager to hear about the kinds of issues she and her co-founder are wrestling with now that fundraising is not as much of the desperate emergency it used to be.

Once at the hotel, I did some work and then went to sleep around 10:30 PM.

Day 3 – Friday, July 3

I woke up at 1:00 AM and did some work, mainly responding to emails . . . . and trying to fix appointments that had somehow fallen through the cracks because of a misunderstanding between me and Amy, my assistant. I also got caught up on news, and did a bit of reading. I emailed the #PowerMoves.NOLA attendees again, around 3:00 AM that morning. It had occurred to me that since it was Friday, and since I usually would be holding @KECVentures Investor Office Hours if were home in NYC, I ought to do the same @PowerMoves.NOLA. So I decided to hold @KECVentures Investor Office Hours @PowerMoves.NOLA, fuelled by Starbucks, from 6:00 AM – 9:00 AM. I had a large coffee with 3 shots of espresso. The barista thought I was crazy.

@KECVentures Investor Office Hours @PowerMoves.NOLA 2015, fuelled by Starbucks
@KECVentures Investor Office Hours @PowerMoves.NOLA 2015, fuelled by Starbucks

The most fascinating conversation I had during office hours was with Candace from Myavana. They are grappling with a problem that I think could form a great foundation for a ph.d thesis in combinatorial analysis – this would combine math, economics, finance, and business strategy. I suggested she chat with some of the graduate students in the Mathematics, Statistics, and Economics departments at Georgia Tech. There may be a ph.d candidate in one of those departments looking for an interesting problem to study who is also interested in this specific class of problems.

I also chatted with Sterling Smith. He and his team at Keystoke are building Sandbox, which is a system they believe will enable anyone anywhere in the world to build a mobile app to accompany an ecommerce store on the web. I expect to follow up with him when he visits NYC to try to meet investors, he’s raising a seed round.

Kofi Frimpong from Branslip also stopped by . . . I later remembered that I had read about him in 2012, and tried to connect with him then. At the time he was working on a different idea, mentoring high school students in the Philadelphia area to help them complete the journey from high school to college. Brandslip is different. It’s a social network for social media influencers and content creators.

Craig Lewis from Visage Payroll, and Samuel Lemu-Johnson from Sein Analytics also stopped by, though we could not chat for long because they were headed to an invitation only FinTech event from 8:30 AM to 10:00 AM. I was not invited to the FinTech showcase so I decided to use that time to try to catch up on some work in my hotel room between 9:00 and 10:00. That was a bad idea because I missed the bus to the next event, so I had to catch a cab. Fortunately I made it there on time.

These are the startups that pitched at the Morgan Stanley Fintech Showcase – 4 of the 5 startups that pitched are startups I had not heard about before.

  • eMoneyPool is an online community where members pool funds to borrow and save together. The concept is based on a centuries-old financial practice where your reputation within a community is your credit. Millions of people in the United States, and billions worldwide rely on money pools because they don’t have access to traditional credit, so they instead turn to each other and leverage the capital resources of a community. eMoneyPool has formalized this practice and created a high-tech solution that is efficient and familiar to our target market.
  • The municipal bond industry has grown significantly over the past 30 years, but the technology to support the industry has not kept pace. Munivestor offers financial software that tracks news, trades, and market events for more than 2 million individual municipal bonds. The information that we collect informs investors and assists them with maintaining their portfolio value.
  • Visage Payroll is a SaaS payroll startup established on the belief that small businesses shouldn’t have to pay to pay their employees or their taxes. There are 28 million small businesses in the US and 4M of those have less than 4 employees. We can help owners save an average of 10 hours/month and $1,800/year. Using back of the napkin math, that’s $50.4B in US small business savings and 280M hours a month being lost.
  • LendStreet combines credit counseling and distressed debt buying in a social lending platform to help distressed debtors proactively refinance existing debt into a low interest loan. Borrowers on our site do not receive cash; instead, the money invested by investors goes directly to paying the existing creditors at an agreed-upon discount. The discount is shared with the debtor in the form of lower debt, a reduced interest rate, and monetary incentives for financial literacy.
  • Sein Analytics helps investors, advisory firms, and issuers accurately value credit securities. Sein has developed a scalable cloud infrastructure specifically designed to manage complex mortgage and asset-backed securities (ABS).

You are the asshole who added me on LinkedIn and then did not respond to my follow up email!

– Toni Oloko, founder & ceo at PracticeGigs. PracticeGigs is in the current cohort of the MassChallenge Accelerator Program. Toni deferred starting his freshman year at Wharton in order to build PracticeGigs. We connected on LinkedIn in May. He joined me and other #PowerMoves attendees for coffee on Thursday. I responded: “I can tell we’ll get along really well.”

Time for the start of PowerUp Demo Day presented by #IberiaBank. @guydon is warming up the crowd with funny intros pic.twitter.com/JC3XsNjmZk

— PowerMovesNOLA (@PowerMovesNOLA) July 3, 2015

These are the startups that pitched at the PowerUP Demo Day, it was the culmination of the PowerUpBootcamp, which is part of PowerMovesNOLA programming. PowerUp is administered by PowerMovesNOLA in partnership with Startups Illustrated.

  • BIOEYE – puts a mass spectrometer in your smartphone.
  • Black&Sexy.TV – building the “Netflix + HBO” for the global black diaspora.
  • BrandSlip – a marketplace for social media stars to connect, collaborate, succeed and make money.
  • Callr – AI for connecting to every conference call you ever have to participate in, never dial into a conference call again. Ever. Techcrunch wrote about Callr.
  • Drivio – makes it less of a hassle for you to pay fines, and makes it easier for the government to collect fines.
  • HealthFundIt – improving the world’s collective health by connecting the people most passionate about a health condition with the scientists studying it so that people can directly support medical research in which they have a vested interest.
  • InstaSneaks – a social marketplace for the $100B+ street wear market. It enables peer-to-peer and business-to-consumer transactions.
  • Sandbox.io by Keystoke – build an ecommerce store on the web, then create a mobile version of your ecommerce store in about 10 minutes. Pay nothing, unless you actually sell stuff through the mobile app.
  • Legasyst – make interacting with the legal system as easy and seamless as using a mobile app.
  • NetworkingOut – a social networking platform that acts as a virtual athletic club for professionals.
  • Nomsy – food curation and discovery, to enable people with food allergies easily find food that suits them while on the go.
  • Paver – helps restaurants create, manage, and track their specials.
  • PracticeGigs – enables people to discover players and schedule practice sessions through a mobile social network. Initially focused on tennis in the Boston area.
  • ProSquire – a platform that enables small law firms to operate as if they have the infrastructure of their much larger peers.
  • RawShorts – a DIY builder for explainer videos, no need for a studio. If you know how to use powerpoint you know how to use RawShorts.
  • Revitalize Charging Solutions – is building a network of charging stations for electric vehicles. The charging stations also act as an advertising platform. Pilots underway with cities in Texas.
  • Roho – a media company that curates and distributes religious content. The initial product is focused on sermons for Black-American Christians.
  • RxCUE – enables patient savings through electronic medical rebates.
  • Solace – a seamless search and customization experience for home decor, initially focused on bedding, pillows, tapestries etc.
  • The Dime – makes local buying, selling, and promotion safer and more interactive with unedited video ads.
  • WedOcracy – a social wedding planning platform built by an engaged couple while they were planning their own wedding. The wedding hub of the future, today.

I spent some time chatting with Nichelle McCall, founder and ceo of BOLD Guidance. We first met at FOCUS100 in NYC, but never had a chance to chat at any length. So it was great to hear about what she’s trying to accomplish over the next 12 months. She’ll be fundraising soon. I wolfed down some lunch, and I am sure a few people must have thought I was scarfing down the food like there’s no tomorrow. I tend to eat very fast . . . I’d rather not waste time eating. I went back to the hotel and checked out. Then we headed to the Center Stage at the Ernest N. Memorial Convention Center for the #BigBreak Power Pitch – I arrived just as Dawn from Flat Out of Heels was wrapping up. These are the contestants.

  • Flat Out of Heels, LLC is the creator of the Flat Out rollable flat and the Flat Out shoe vending machine. Their rollable flats can be discretely carried for emergencies or worn all stay for stylish, durable comfort. Flat Out of Heels rollable flats are the solution to stiletto sore feet. Placed in venues like airports, nightclubs, malls, and hotels, where many women are wearing heels, the vending machines make it convenient to get emergency shoes when needed.
  • GemPhones is a fashion focused, jewelry inspired electronic accessory company that provides the most beautiful product designs in the consumer electronic industry. Every aspect of its product design is dual purpose, providing the look of a necklace and function for the usability of the device.
  • SmartCoos helps young children take advantage of their first 2,000 days and learn Mandarin, Spanish, French or English through 1:1 language sessions with a native speaker, e-books, and text nudges. Its product provides children with four critical web-based tools to learn Mandarin, Spanish, French, or English. Each child follows a tailored language curriculum based on the child’s age (0-2; 3-5; 6-8) in order to effectively use, coach, and reinforce the second language. Each child 1) Interacts with a native speaker on a weekly basis 2) Is provided with quality read-aloud eBooks 3) Learns the 200 most common words with baby sign language (“BSL”) 4) Are given daily text nudges, which increase the use of the language.
  • FashionTEQ manufactures a collection of smart jewelry for women. Its first product, Zazzi, keeps the user connected to her smartphone all day by notifying her of incoming texts, calls, emails, and more in a discreet and private display attached to a bracelet, pendant, or ring. The display provides imagery that lets the user know exactly what the notification is without having to access her phone.

I ran into Dawn Dickson, founder and ceo of Flat Out of Heels at the hotel when we went back to pick up our bags enroute to the airport. It was great to run into her since I had previously corresponded with her by email about a year ago through AngelList. We got to chat for about 10 minutes or so.

With Dawn Dickinson, ceo and founder of Flat Out of Heels, at the Hyatt Regency in NOLA after she won the #PowerMoves #BigBreak Pitch at #EssenceFest. Image Credit: Tasha Kersey Aoaeh
With Dawn Dickinson, ceo and founder of Flat Out of Heels, at the Hyatt Regency in NOLA after she won the #PowerMoves #BigBreak Pitch at #EssenceFest. Image Credit: Tasha Kersey Aoaeh

To close, for every founder who was at #PowerMoves.NOLA  and any founder who was not there, but wishes they could have been . . . This is one of the songs I listen to when I need to refuel my spirits after encountering obstacles that would otherwise knock me off my stride.

References   [ + ]

1, 2, 3. ↩ Source: PowerMoves.NOLA website. Accessed on Jul 5, 2015. Slightly edited.