VC investment fuels supply chain innovation

Supply chain, once a dusty backwater technology, has recently seen a spate of innovation, and this in turn has opened up the purse strings of venture capital.

SourceDay, a firm that provides supply chain and procurement collaboration software in Austin, Texas, closed out a $31.5 million Series C funding round in February. More recently, Certa, from Saratoga, Calif., which provides software that automates and vets suppliers for issues like risk and environmental, social and governance compliance, took in $15 million in a Series A round. Sourcemap, based in New York, which provides end-to-end supplier due diligence and supply chain tracing, received a $10 million Series A funding round in early March. Data Gumbo, a Houston-based firm that provides a supply-chain-related smart contract platform, closed a $7.7 million Series B funding round last August.

The recent volatility and disruption in supply chains has provided the impetus for the innovation, as companies look to find applications that help to solve their problems, according to analysts. Investors, who are always looking for the right opportunities, are now finding fertile ground in supply chain tech.

A two-year-old startup Most of the companies that have recently seen an infusion of venture cash span a range of technologies and applications, and address supply chain issues like collaboration, resiliency, visibility and risk management.

Two-year-old startup Leverage is characteristic of the supply chain innovation startup investment trend.

Leverage, based in New York, makes AI-enabled supply chain visibility and automation software and received $5 million from a group of investors that included Mark Cuban.

Developed during the early days of the COVID-19 pandemic in the wake of personal protective equipment shortages, Leverage was designed to address an age-old problem of how inefficiently supply chains are managed, according to Leverage co-founder Nadav Ullman.

Most buyers spend about 50% to 80% of their day calling and emailing their suppliers and freight forwarders to track down their purchase orders, Ullman said.

Launched in early 2021, Leverage plugs into ERP and inventory management systems and automates the supplier management process. It then uses AI to learn how the processes work in order to analyze and predict where issues may occur, he said.

"The reason why buyers are calling and emailing suppliers is they're looking for risk and they spend time solving that problem," Ullman said. "With Leverage, they spend time strategically solving problems, which is a much better job for a human to do. The tedious, manual day-to-day emails and phone calls getting status updates should be a job for a machine."

Inefficiencies of supply chain management are not a new problem, he said, but the past few years have compounded issues, bringing supply chain to the attention of the highest-level executives.

"The supply chain has become so volatile and unpredictable, it's become a bottleneck in a company's growth," Ullman said. "It becomes vital to solve because visibility is now crucial with all the volatility and instability."

Supply chain innovation solves old problems There's always been VC interest in supply chain, but the pandemic provided an opportunity to step back and question how things are done, opening the door to potential innovation, said Simon Ellis, practice director at IDC.

"It's time to reassess them, to think about where the challenges are, where the cracks were and where the cracks are," Ellis said. "It's been good to see that supply chains have been able to respond as well as they have, but it's also disappointing that there were a lot of things that we recognized were problems but didn't do anything about them."

It's not surprising that much of the supply chain innovation is coming from early stage and more established startup companies, rather than large, established tech firms like SAP or Oracle, he said.

It's been good to see that supply chains have been able to respond as well as they have, but it's also disappointing that there were a lot of things that we recognized were problems but didn't do anything about them. Simon Ellis Practice Director, IDC

"[The large firms] don't shift gears particularly well. That's how to think about all this VC money going into these supply chain startups," Ellis said. "That's likely to be where the really innovative stuff happens, and frankly, in a lot of these startup cases, their goal is to get acquired -- to have SAP or Blue Yonder buy them, just as JDA bought Blue Yonder [and Panasonic subsequently acquired Blue Yonder]."

Investment in supply chain innovation is part of larger trend to use cloud technologies, AI and machine learning to solve problems at a more affordable price than before, said Dana Gardner, president and principal analyst at Interarbor Solutions, an enterprise computing systems consulting firm in Gilford, N.H.

"People are applying that power to more and more problems," Gardner said. "Supply chain is a huge problem and visibility into a supply chain and the analysis of the data you derive from that can be super powerful and give you a leg up on competition."

Companies need to take advantage of the new technologies and analytics because of the severe challenges to procurement and supply chain management, he said.

These include transport and logistics holdups that change on a daily basis, shortages of chips and commodities, skyrocketing prices for certain things that you couldn't have forecast, as well as major events like the pandemic and the Russian invasion of Ukraine.

"Going back to historical data where you look at every quarter doesn't cut it; this is something you need to be able to do in fairly real or close to real time, with as much data as possible," Gardner said. "That's the higher value that these newer VC-funded startups are shooting for."

Venture capital goes to where the money is, and now there is a gold rush for companies applying data, AI and machine learning to as many use cases as possible, he said. This is no different than when business applications proliferated in the client-server days of the 1980s, and dot-com retailers and e-commerce startups flooded the market in the 1990s.

"Suffice it to say when you've got that much money supporting a technology, you can rest assured there's going to be some viable products that come to market," he said.