Santosh Sankar of Dynamo Ventures joins Nick to discuss The Rise of Supply Chain Startups, Why We’re Feeling Whiplash, and What the Future Holds for Labor & Data. In this episode we cover:
- Santosh’s Background & Path to VC
- Why Chattanooga, Tennessee makes a great HQ
- How China’s Shutdown led to Queues at Home
- The 3 Supply Chain Stalwarts
- Where the 2nd Generation of Supply Chain Startups are poised for success
Guest Links:
The host of The Full Ratchet is Nick Moran, General Partner of New Stack Ventures, a venture capital firm committed to investing in the exceptions.
To learn more about New Stack Ventures by visiting our Website and LinkedIn and be sure to follow us on Twitter.
Want to keep up to date with The Full Ratchet? Subscribe to our podcast and follow us on LinkedIn and Twitter.
Are you a founder looking for your next investor? Visit our free tool VC-Rank and tell us about your business. We’ll send a list of possible investors right to your email’s InBox!

Santosh Sankar joins us today from Chattanooga, Tennessee. Santosh is co-founder and managing partner at Dynamo ventures and early stage investor focused on startups in supply chain and mobility. Santosh has led investments in Stord, Solvento, and Envision amongst many others, Santosh Welcome to the show.
Thanks for having me. Been a longtime listener, so it’s an honor here to join some of those folks that I’ve kind of upheld as the best in the game for a long time.
Of course. We’ve been friendly for some time now. I’ve shared a number of chats. It’s great to have you here on the show. For the listeners benefit, you know, give us a sense for your background and your path to VC.
Yes, so perhaps like a lot of others these days, my path to VC was a bit serendipitous, where I didn’t think I would be a VC in my late 20s is when I ultimately became one. So I’m one of those few people, Nick, who are fortunate enough to say I wake up and it’s not a work day or a weekend, I get to wake up and just do what I love. And I’m very genuine about that. And some people might call me a workaholic for that, because like sometimes, the lines just blur. But my background prior to VC was in New York, I was a spreadsheet monkey, as many folks might have been I was in banking. Then I switched to public side equities covering a lot of the tech bellwethers Apple, Microsoft, Dell, EMC, that whole jazz, but kind of in my mid 20s, went into this little bit of a soul searching, exercise, and I wanted to do something more entrepreneurial. And a lot of that stemmed from high school and college. I’d always been entrepreneurial. And I guess somewhere I lost my compass chasing those big paychecks out of college, which is very short sighted, and naive. But I had the good fortune of meeting one of my partners I work with today, Ted, and after a couple of sessions in a room, we walked out and we said, we’re going to go build Dynamo. And today I’d say we’re the seed fund of choice for founders, we’re looking for a supply chain and Mobility Specialist. Right. So that’s the specific focus we have. That’s the role we play on the team, which makes it very natural that we tend to pair up with other investors, generalists, SAS marketplace specialists, what have you.
But how do you go from banking to running a venture firm right in your 20s? No less? It’s amazing where you cut an angel checks, or did you dip your toe in the water first?
No, you know, I’ve been working since I was probably about 12 years old. And when you’re 12 years old, and trying to get a job, nobody’s hiring you obviously, right? You need a work permit. And there’s all these labor laws. So I opened up shop for myself. So I didn’t make enough, unfortunately, in my high school or my college businesses, in order to Angel invest, not neither were venture backed, obviously. But really, it’s kind of coming into it. And I think having a supportive partnership where we recognize each other’s strengths. And as we looked across our partnership, we had individuals with industry experience around brokerage, my partner, John has been seed investing for 25 years nearly at this point between US and Europe, and being able to pair up with them and put in the hard work. So when we got started, it was pretty obvious like I’m the one that’s out there helping build the brand, right? What are the strategies to do that? And part of what I did was I leveraged some of the things that I’ve done previously as I was an entrepreneur building content businesses, how do you create a newsletter? How do you create a podcast? How do you become top of mind for the types of people that you’re trying to connect with? But equally, how do you then connect with the founder? Right? So the first several years, we’re just hard work like, dude, the unscalable right is something we might be telling our founders, but really, Nick, it’s like having good fortune. And I think a lot of people that I meet are wildly successful people, I’ll often ask them how much of your success is attributable to luck versus skill. And you can usually pick out the self honest people who attribute some meaningful amount to lock it just a reality of life, I believe.
Awesome. Tell us just a bit more, and then we’ll move on to the firm, but how did you come together with your partners?
So we had a mutual friend that brought us all together. I had a friend who’s like you should go talk to Ted. He’s a successful entrepreneur and Ted and his partner Barry just exited their business and they were getting into the angel investing game very locally here in Tennessee. But Ted, who wants to make Chattanooga specifically a great place to live and maybe the best city in America, he would tell you ended up doing the same to my partner, John. So we’re all sitting there in a room together with that single node and Ted, and my partner, Ted, for those who might not know him, his larger than life character is how we describe him. And he has this hobby of collecting friends. So he collected me in New York, he called my partner John, in London. And I guess we were the ones that took him up on the offer to come hang out with me in Chattanooga, but we’re very glad we did because it was life changing. And at this point, we could say trailblaze, this focus in and around, you know, an industry specific fund pertaining to supply chain at Chattanooga doesn’t strike me as the hotbed of tech and venture, although I do think you guys have fiber, sir. Right? We do have fiber. So I will take credit like no one in this office takes credit for it. But the electric utility here, as they were thinking about upgrading the grid, I guess, about 15-20 years ago now laid fiber alongside the electric lines, because they realized how’s the future, you transmit electricity, you should transmit communications and packets of data. So anybody who comes to Chattanooga today, can plug into the wall and provide your provision for it, you get gigabit access very affordably. So I think in my home, something like 70 bucks a month, get gigabit internet, right. So pretty nice. It’s awesome. But kind of coming back to what you’re saying, Nick, when we made the decision to go build the firm, there was a conversation around why is Chattanooga the right place? Is this the right thing for this business? You know, just go back to New York, what’s happened in the valley, you know, Atlanta, like, what do you do, and we kept coming back to the heritage strengths that are in this region. So when you look at this region, right, the way the roads and river, and rail have converged over the years, we did some historical research last year. And as far back as the early settlers, there’s a part of the ridge that opens up, this has been an important transportation route for goods. And it’s because you can flow things on a barge, you can move them back then on a wagon these days trucks, but there’s an ecosystem that evolved. So you have two of the top 10 trucking fleets in North America based here, top five warehouser, FedEx flexes to the west, UPS to the east, right? So you start to get a sense of there’s a lot of weight in this part of the country when you think about this. And what we’ve done is, you know, we’ve gone out and built relationships with these firms. And you know, our advantages, we have domain expertise and network. And we can then leverage that to determine what is investment worthy, or what is not. But more importantly, I think about supporting a company after investment. So you’ll see us be very proud about how we’re ultimately able to have a very contextual view on a company strategy. And this will be things like pining on and giving perspective on Hey, like, how do you think about your product roadmap? How are you prioritizing? Right? Wargaming, with early stage founders, to sales introductions, like we love to make sales introductions, and it’s probably not unusual to see a partner here, going out and try to cold email people we don’t know, to bring them into the network to bring them in to meet with our companies. And then finally, alongside that is talent, right? We have access to industry talent. That’s not easy to find. If you’re in the Bay Area, New York, Boston, what have you.
So Santosh tell us more about firm Dynamo ventures, right, supply chain mobility focus, I believe you guys closed your second fund at $43 Million?
Second fund at $43.21 million.
Congratulations here for the people. I get it. That’s a huge accomplishment.
Yeah, we closed and we announced that early last year. And our focus is pre seed and seed stage. That’s where we write our first checks. So what that practically means in a market where these tags might have lesser and lesser value and meaning is that for us pre seed is pre revenue, just very broad strokes. So these are probably rounds that are anywhere from one to 2 million, we’re probably coming in taking anywhere from a quarter to half the round. At seed stage, these are rounds that are increasingly looking closer to three to 4 million, and we’re probably taking roughly half the round there. For those who might be wondering, these are really weird ranges and Nikhil understands that what we’re trying to do is align with our ownership targets. So our ownership target at Dynamo is having 10% ownership prior to a Series A. So there are a couple different ways for us to achieve that, depending on when our first entry point is into a company. We really enjoy being hands on. And I’ll say that we’re as hands on as people want us to be. So we’re not the type who’ll, like just Bulldog in and try to help with everything we pause align with our founders, where do we think their risks? How can we concentrate our time and helping you de-risk those areas much faster? And in a much more efficient process? And that oftentimes may not mean that’s directly us. I mean, who can we introduce from our network, right? Who are the customer introductions, we can help short circuit for you as a precede founder to do customer discovery within a very friendly environment. That’s how we go about investing. About half of our funds have always been reserved for follow on. So you will see us participate in Series A, B and beyond. And as you achieve a later stage, we’ve also built alternative vehicles in order to continue to support you through your lifestyle.
You know, I am curious what your experience was, like, early on in Dynamo, back in 2016, right. So supply chain, generally regarded as hot or surging in a lot of ways. Now, we’ve seen some big successes, but when you started the firm, back in the day, not quite so hot. I remember, you know what, one of my majors in college was supply chain. So my first internship was a supply chain internship. I don’t want to go down a rabbit hole. But I remember I discovered this pricing discrepancy, we would ship these things around that looked like kegs that worked for this water treatment chemical company. And they were charging us about forex, the cost to ship to return ship these things, because we would reuse them, they were metal containers, and just the way the pricing worked with LTL less than truckload it was based on weight and volume. And so because they were charging a such a higher rate, for low weight, we would end up, you know, spending far more to ship these things back. And this all could have been solved with software, right. But I just happened to figure it out, because I was looking at the bill of ladings. And I was processing these things. But you know, supply chain used to be very sleepy, very legacy, not hot at all, what was your experience building dynamo, back in 2016 in this segment.
So kind of part of the decision as to whether I wanted to be a part of this founding journey was like independently verifying validating the opportunity, right. And in a very analytical approach, like starting to reach out to folks who are friendly to us. And as you saw how manual the industry was, this is back 2015, about six years ago, seven years ago. And you know, you’re using spreadsheets to track things across a firm, you’re using fax machines to pass back and forth critical data API’s. You said that people went hmm. And they point to somebody that might understand EDI for those of you who are aware of that format. So back then, like there was, there’s just this recognition that there’s a lot of opportunity here. And when we were raising our first fund, a lot of our early LPs, I think had some type of exposure to logistics supply chain broadly, where they understood that opportunity, or rather, they bought into us walking through that journey with them as to how the status cooperates today, comparing it to other industries that have benefited from early digitization, and identifying this gap that we believe that we could go play a role in as a partner to early stage companies. Fast forward to late 2019, when we did the first close on our second fund, and then COVID head right prior to COVID Hitting I remember some of the world’s most sophisticated LPS completely dumbfounded that we were investing lean supply chain, they actually didn’t believe that this was a large enough industry to have a sector oriented fund. And the same LPS we’ve had conversations with as COVID was happening and there was ripple through effects on the supply chain who just recognized it. Yeah, we didn’t get it. And we have some just out of embarrassment. Just ignore that. Those are the types of conversations we had and were just very excited about the supply chain. But the interesting thing about supply chain Nick is it’s one of those things if you’re not in it or around it close enough you only notice it or appreciate it when things are not working to your experience for benefit right rather expectation not benefit but the right like when lumber isn’t available when through a home remodel lumber wasn’t available and it wasn’t available at the price we’d originally anticipated. That wasn’t any good when you’re talking about toilet paper at the start of this right like people would run banks you had runs on grocery stores where the staples are just missing. And that was a shock to the supply chain because the way the supply chain often work was that you actually worked within parameters. And if you were thrown a parameter that was not within your pre confined model, things just broke. And some organizations are set up to be a bit more resilient and responsive than others. But as you started seeing things go offline in manufacturing, you saw the ports come under further congestion, you saw, then trucking become more expensive, because there weren’t enough truck drivers in the industry warehouses started filling up last mile networks are congested, you start to kind of grapple with this backlog in this just inability to move goods through the heart of COVID. Right. And that’s where I was our moment to shine and our portfolio released moments to shine more than ours, because people finally realized, okay, the way we have done work in supply chain, it just doesn’t work anymore. In a digital world, we expect better. And the supply chain now is such an important driver of the customer experience, we can do better. And we have to do better, because roughly speaking about 10% of GDP is what supply chain activities constitute on a global basis. So that parallels financial services and the FinTech funds out there.
Well, you gave us a bunch of consumer examples, but the sort of the corresponding enterprise examples have risen, or have, you know, caused that yes, supply chain to become a c-suite level issue, right?
Because, yeah, so many things were breaking down in organizations and lots of enterprises couldn’t get goods, couldn’t get components, couldn’t get x from a to b on time. And that became a major issue that was exacerbating over the past two or so years. Yeah. On the b2b side, a good example is when you’re a manufacturer, a large manufacturer will have 1000s of suppliers and sub suppliers they’re relying on. And you’ll traditionally share your product catalog through a series of download exports into spreadsheets that will then get uploaded on a regular basis into an ERP of some kind. So it’s highly manual. But we have a portfolio company called backbone AI out in New York. And what they’re doing is they’re actually bringing this data gap together. So they’re networking are two separate systems together, where if you’re a major manufacturer, you can now manage and understand the product data, the availability, the pricing in an inflationary environment, in close to real time. And you don’t need to rely on exporting this highly manual function, which by the way, was full of bad data, right? There was a lot of trouble again, sure, there’s Miss labels. But that’s kind of what’s sitting in the belly of the beast here that people may or may not be aware of. It’s amazing how little cloud data in cloud software has infiltrated a lot of legacy spaces. You Santosh give us a sense for the framework you use, you know, when you and the firm are thinking about this industry and the sub segments that are of greatest interest. Yeah, depending on who it is, when they ask this question. They’re a bit shocked. And I think as an industry investor, the thing we don’t have is a list of thesis areas or areas that we think we need to go make investments in this year. And the realities of seed investors, I could tell you, Nick, it’s a really interesting opportunity to have something around rescaling for frontline workers across the supply chain. As a seed investor, that might not mean that I meet the right team this year, next year, year after we’ve actually probably for the last three or four years sat on an insurance and supply chain thesis that we just now we’re closing an investment and later this week, right, so like, we’ve had to sit on that for years. And the reason I raised that is we’re all about the team. And when you come here, the culture Junior investors get exposed to is that 80% of a decision is around the team. And what we’re talking about is founder market fit. And it doesn’t mean you’re from industry. Actually, if you look at our breakout winner so far in the first round, Shawn Jacob had stored exposed industry, but there’s no deep tenured experience in the industry. The boys had a center in Berlin, same situation, there’s exposure, and there’s just sort of exposure to kind of identify and latch on to some key problems. They can then go solve and get passionate about solving as founders in their own right. But what is this advantage or Aha, that this founding team has, that is durable, and others don’t necessarily have? Right? Like that’s what we’re all trying to figure out as a team. How do they work to ultimately build this into a fund returning investment. Everything that we invest in, we believe, based on the data input we know today has a chance of returning the fund. And that leads us to the second part of what is the actual market. And this is where I think our domain expertise in our network works to our benefit. Because if we have any hesitation, usually within 24 hours, we can get an expert on the phone to walk us through as to how they deal with this problem. What are the vendors they’re dealing with? We can even float across what do you think about these ideas that are being put forth in order to approach this right, and it’s a part of the mosaic, we’re not industry led, but we’re certainly industry informed. I think it’s important because if you’re overly industry led, you fall into the innovator’s dilemma, you’re never going to fund a disrupter. But knowing kind of the tendencies, the mechanics, allow us to be a better partner, because we could say perhaps these are the types of features to prioritize, or have you ever considered kind of streamlining your narrative in this way, that might just be a bit sweeter on the ears of the decision maker sitting on the other side of the table? Right. And then finally, you know, it’s kind of what’s the level of traction. And I’d say this is probably the least important, but candidly, when you show up to an investor, and you have revenue, and there might be some gaps elsewhere, it kind of solves a lot of things, it cures a lot of evil is what we’ll say, having, you know, some punchy top line number. Now, one shouldn’t be purely kind of reeled in on top line revenue, because there are plenty of businesses out there that have had early revenue growth and sputter and fall out a product market fit. But what we’re trying to figure out is, what have you done with the resources you have? Because it also speaks to how creative you are? Are you capital efficient? Are you thoughtful as to how you pull the levers to accelerate the business and achieve your goals? So it does sound like you and the team, you do have market maps, and you do create investment theses around certain areas, but you’re not overly indexed on those. It’s mostly a team decision. Are there hallmarks of the team that maybe are non obvious that you would point out? Yeah. So if you look through our investment process, specifically around the team, there are 10 key attributes we look for. And you’ll notice, as we go through every interaction with the founder, we’re constantly taking notes like anyone would do, but we’re also kind of paying attention to where these qualities and traits might be showing themselves. And we then also obviously, use reference checks both on list and awfulest to validate whether we have made the right perception and judgment call there. But I would say that there are a couple things that I personally look for. And because we’re a team, you’ll see that different people index on different traits and qualities. But I think coachability is a really important one. And here’s why. It’s not that a founder should take what an investor tells them, I would actually tell you most, most investors don’t really know anything. And we’d be the first to tell you that we think that we’re probably the base idiots in the room when you put us on with our family. And it should be that way. If we’re not, we’re not doing our job, right. But the founders that have demonstrated really high coachability tend to come back and say, I heard you, we process that this is why we are not doing it. Or we heard generic things. And we you know what, that was really interesting. We went back when we spoke to so and so then we found a customer. And this is actually how that impacted what we’re talking about here around product or sales, right. And that’s also interestingly dovetails into this ability to be self aware. And that’s so important as a leader where you generally have like your kind of normal operating mode. But when you walk in and out of rooms when you’re approached with difficult situations, props in easy situations, how is your demeanor? How do you make others around you feel because that type of body language could really be make or break in some situations, right? And also knowing equally, what are you good at what are you not good at. And if you’re not somebody that kind of handles some of the stresses, well, maybe your co founder should be able to or as you grow, there should be somebody on your management team that is really good at handling stuff you’re not as good at. So it’s almost like self honesty that it ultimately boils down to and to round it out to a three because everybody loves threes and fives. I’ve also come to learn as a VC is the one thing you might see us also trend towards are these founders who can engage. And some people might call this charismatic or having great personality, but we use the word engage very specifically. And what that means is specifically
To the CEO, is this individual able to engage us? And can they engage other stakeholders? Because you have to be able to engage and have the attention of an investor to close around the loan officer to bank would he want to work in capital facility, future employees, current employees, your customers, and that’s in our believe very important. So you’ll tend to see that our CEOs, even if they have some type of a technical background, tend to lead with a commercial bet. And they’re generally always looking to engage, that might be a commonality Some people pick up around, like what is the Dynamo founding team have on the bench there? I’ve noticed that myself, Santosh, you’ve said that sending founders your investment memo is your secret hack. Why share the memo, to be transparent, and to start on the same page together. And some people characterize the relationship VCs have with founders as one that’s like, measured in years or a decade. And I’ll tell my founders, like I’m with you for life, my friend, like, win or lose, right? We’ve worked together, we’re early, we’re funding your dream, your vision. So you should always turn to us as a confidant, even if you’re out on your way. And you’re growing, and there’s new sets of investors and rolled off on board. But what that allows you to do on day one is we’ll send a wire and shortly thereafter, you’ll CRNs a memo, because you understand what got us excited about the investment? Why did we choose to do this in meaningful detail. But we have a couple key areas that are worth paying attention to risks, right? And these risks are also what are the things that are inhibiting or that we need to address in order to go raise the next round. And we’ve learned it’s much easier to have these conversations when you have 18 to 24 months of runway, then when you’re like six months of runway, and you’re like, well, we knew that back when we funded the thing, why don’t we talk about it then? Right? So it’s active and intentional de risking in alignment. And it also allows us to if we misheard or misunderstood something, we’re allowed to recalibrate around it. And I’d say alongside that, in addition to kind of building this, like trust and this plan together, it’s also like, we have nothing to hide. And part of the reason that you’ll see in the memo we’ve invested is because we believe we can meaningfully help. And maybe the unofficial fourth aspect to our MSM model is how can we be helpful. And this isn’t like advice. Like if if any of us bring an investment or write them out with advice, you’ll see us Charlie get roasted by the other and that’s usually between John and I, dude like no, not advice at Qusay or the spars purse or know anything about this area. So it tends to be around who are the advisors, right? Who are the corporates in our network, we can introduce you to how can we be more specific around fundraising? What are the specific things with credibility, we can apply not. And what that does is it allows our founders to hold us accountable. So they from day one, effectively have like these are the ways dynamos going to help you, you should be able to check that off as much as possible through the course of that initial 18-24 month period.
Have you ever used it as a tactic to win a competitive deal? Send it before the deal is done? We haven’t what we will do in competitive deals is we will just do as we have said we would do?
Yeah. And we’ll just go ahead and introduce you to corporates right will just start filling me up with customers and right rather than tell we’ll just show and that’s been able to gain us kudos and allocation and in competitive rounds. But when it comes to competition, I think there’s only one, one instance where we lost the deal. And it was just like a series a fund in Europe just totally priced it like a series act. So we weren’t competing on the same level. But because we’re an industry fund and like the way we are constructed is to be cooperative with others, we can tend to be happy, get our ownership and there’s others that can come alongside us as well. Right? Because at the end of the day, you have probably, I guess in this market, it could be as low as 15%, but usually about 20% Maybe 25% of ownership to deal with. And if we’re taking say 10% of that there’s room for others as well to come alongside of it. Well, yeah, a couple years ago, we had a founder speak at one of our events as successful founder and I never knew this but at the event he said he would on the dark days. He’d go back and read the memo and it would re energize us and yeah, it was kind of nice to hear. So, Santosh, I love to talk a little bit more about supply chain right we saw shocks to the system in 2020 and 2021. huge year for the industry.
What are the true root causes of the problems in your estimation? And which one of those are sustaining versus fleeting?
That’s a good question, especially as we’re going into a new year. And they’re signs that some of these could begin dissipating into midair. But if we go back, and we think about what started this, the interesting thing is that you basically had this initial kind of whiplash effect, where, at first demand completely eroded. And we were staring down the face of an economy where we thought demand was falling off a cliff. And next thing we know, there were key commodity products, where we turn back around and demand was skyrocketing. And as a result, there wasn’t enough supply. And we saw price inflation, right. So part of this has to do effectively with the fact that when we were going through COVID, initially, there was a supply side shock, we did not actually believe that there was enough supply to cover off the demand that we were ultimately seeing. And this happened like in a matter of months, right? When people had that initial Oh, my goodness are shutting down to work back at it. And you know, we’re building homes, right, we’re purchasing things for our home, our home office, because we can no longer spend at restaurants. So there’s a little bit of like services to goods mix shift that ultimately had goods demand going up. So what does that ultimately mean when you start to roll back to the supply chain, and I’m going to take you on a quick journey, we look at the supply chain across five areas. So if you looked at that first area on manufacturing, procurement for the sub stream, where goods are made, grown or created, right, you start to see what we’re an import economy. China had gone offline and has been struggling COVID, probably about six months prior to we, in the US dealing with it and starting shutdowns, we had manufacturing plants that were just idle. And to this day, China’s still unable to contain it. They have port cities, inland manufacturing hubs that are entirely shut down. And the population is trying to figure out what’s going to happen to us. Right, so you don’t have people making goods. And you have demand going through the roof because you’re ripped through any stock and any safety stock, in some cases, what’s going to happen? Not good. So then the little that you are able to eke out of the line or your supply chain, you are putting in to some type of an international logistics process. What’s happening there? Well, a lot of container ships were idled or slowed down as they were trying to figure out how do you deal with this cross border movement? Do you have COVID? Do you need to be quarantined all that stuff, and you start to see a queue. And the queue only grew as things are starting to slowly come back online, overseas and manufacturing, albeit not fully, and starting to clog up ports. And when he talks about ports right this there’s not as much technology, there’s some technology opportunity here. But part of this is just the physicality of what we’re doing. And the Port of LA only has so much space for New York, New Jersey only has so much space at their terminals. So it’s not like you can just show up overnight and say we have more people on shift. So we could rip these things off. It’s like well, no, you pull a container off what happens, you’re usually waiting for a truck to dry it out. You’re waiting for some type of rail or intermodal workflow in order to move it inland. And that’s where you start to get more into surface transportation and upward your base, Nick, right, a lot of the rail yards in Chicago through the majority of last year have had this open close kind of rhythm where they closed when they’re at capacity. And what that is, is they have a bunch of empty containers that are on the reverse journey trying to get their way back to China to get filled up with the goods and come back. But they equally have goods on their Ford like trying to go to a destination, right? They’re just accumulating. And this continues to be exacerbated because you don’t have enough people. Right? You’re running out of space. So as you’re on a space, you can only move so quick removed. So much throughput in any given period of time. And that then starts to leak into warehousing fulfillment, the fourth area as we defined supply chain, and one of the large real estate brokers out there said that occupancy is at all time highs. They’ve all said this at some point in q4 21. But I think the final one said something like there’s like 2% vacancy in their network of industrial assets. And people are now going out building warehouses around the world. We’re seeing this trend because there’s not enough out there. And that natural lends itself to last mile. And when I say like last mile is probably the part of this industry that came under pressure but it’s really done well, right food delivery, parcel delivery, how do we ultimately get things to their final point of consumption? That’s fair fairly well, it’s also been high growth, because people don’t eat out. People are eating in right. Econ volumes have skyrocketed and to 20 and 21. I think it was Salesforce that did a survey. And something like 70% of consumers said that they will permanently use online as a way to get household items and groceries. So I think you mentioned something, is this site, is this temporary? Is this more of a near term issue a transient issue? Or is it secular? It takes 21 days to build a habit is what some say. And if we’re sitting here two years, then I think there’s some habits that are going to be hard to unwind that we’ve built, and it only supports more supply chain volume coming through. So the other types of things we’re now seeing as we look ahead, right? Labor scarcity, it’s a subject of our q4 LP letter going out in a couple weeks.
People are changing jobs faster. There’s some people who have been in frontline work hospitality, restaurants, warehousing, who have just come out of the market. And they’re working through household saving. So household savings only looked at it per capita, kind of peaked middle of last year, and it’s on its trend back down. So our assumption is some of these people will come back into the workforce when they start to get through a little more of their savings. But there’s this disconnect, we need far more labor to run our supply chains these days, because demand is up. automation. Automation is one of these things that the ROI has probably been never better in the last year. And we’ve heard of and spoken with retailers, three pls who’ve made more investments in automation. And as those come online in the next several years, it might be that they have automated away a meaningful part of their labor demand. Now, that’s not how it always works, right? You’re gonna have some roles not necessary, but usually how technology’s worked in previous cycles is for every 10 warehouse or warehouse robots, you might have an operator and a fleet manager for that, right? You probably need a robot assist on staff to keep your fleet maintained and ensure uptime. So there’s this multiplicity that might on the margin exists. But all in all, I personally think we’re being dishonest. If we say there’s no labor displacement, I think part of this is we’re solving a problem, but it’s also we can reduce overall staffing costs, because they’ve gotten so high. That’s what the ROI is hinged on. So we’ll continue to see opportunity there for sure. Well, you know, as you’ve articulated here, it’s, it’s an interesting category, because there’s more collaboration, I think, required amongst, you know, constituents and stakeholders. Yeah, you know, it’s multidisciplinary, multi party, it is a supply chain, right, it’s a chain of different folks vertical, you know, you have to go through these different stages. And in so doing a lot of b2b SaaS that I may look at could be workflow automation, or project management, you know, that’s siloed, within a company, but you spoke about backbone AI, right. There’s visibility and data that has to go cross organization in many cases, and the inputs that one organization puts in have to be able to be processed by, you know, other stakeholders in the chain. How do you think that changes the founder and startup journey? It seems to add complexity, but you know, where there’s where there are challenges, there’s opportunity? Yeah. So supply chain, I affectionately call it as the OG network effects business because of exactly that. It says it just multidisciplinary multi party, it’s exchange, it’s in the name. So what does that mean? It means a few things. I think the the first thing before we jumped on here we’re having a chat internally is founders will sometimes see partners as a customer in some case, or rather a short circuit at this stage to getting revenue quickly. And partners exist because there are certain aspects of supply chain like the TMS, the ERP WMS, where you have these stalwarts right. These are like the systems of record and supply chain. I call these the three pillars of supply chain enterprise resource planning, transportation management system, warehouse management system, and their legacy. So you have like SAP Oracle, right in ERP equal you have SAP showing up in WMS, but Manhattan, high job blue yonder, and like that TMS has its flavors as well. Mercury grade Oracle Trimble that stuff, the car, and it could be very easy to say, Oh, they have such a large customer base. Surely they can.
Selling through and they’ll take some type of cut on revenue. But the big thing in this world is to not be fooled by that. And the thing you have to do is you have to go build brand and reputation and market before you have any weight and channel. And you can get a Salesforce that is not your own, who feels incentivized and feels that it’s easy to earn a little bit of a kicker when they sell your product through. So we tend to not see that actually work till like Series C or D, you’re welcome to grow your well removed from seen. But another thing about supply chain, right, you talk about it being the chain, but who sits at the top of the chain.
It’s the shipper so there’s shippers and there’s carriers, three pls logistic service providers, whatever you want to call, but a shipper would be Walmart, and a carrier or three PL would be somebody like a JB Hunt, right that service them. It could be a UPS it could be geodis, what have you. The shipper ultimately pays for everything. One way or another right there the customer when they say jump, everyone jumps. And when they say that they need rates to be improved. It’s on the three pounds circulate what can we do in our operation? Were like this isn’t such a big deal, because we’re seeing it happen systemically? Is it a piece of technology? Is it something we need to raise to them as a partnership? Maybe we both go invest in certain things in our fulfillment center that we operate together? What is it? And that’s I would say that’s a second thing like recognizing that ultimately, if you can get the shipper understanding the value prop, there’s a lot of value, they’ll get pushed through the system, and you’re not necessarily selling their three PLS, it’s more so hey, we’re gonna use XYZ startup, you got to figure it out. You need provisioning to the state, they’ve got leverage. They have leverage. And ultimately, I think what you’ve identified, Nick is that because this is a chain, you have to have this interoperability of data. And on the back of that data, you can have interoperability and optimization of process. And when we optimize process enough, we almost automated away or we will automated away. So that is that is ultimately the challenge here, right? Like how do these fiefdoms basically work together as a like federated unit, and that’s part of what the technology opportunity is there. And Chicago has birth, some of you know, the companies that are trying to solve this be 44 with Chad and his team, you have the right team for kites, right. So there’s a lot of activity out there. But that’s just the first generation of supply chain technology businesses the reality of it. So I think we’re in the middle of here, seeing this second generation start to be developed. And some of these might be ex executives at some of these big venture backed names, who have seen different ways of doing things or have a different philosophy. And it’ll be interesting to see where they go over the coming years.
Santosh, this question is called three data points, I’m going to give you a hypothetical situation with a startup. And you can ask three questions for three specific data points. Let’s say you’re approached to invest in a seed stage enterprise SAS supply chain startup, companies based in LA, they have 250k of ARR. They’re growing 20% month over month. And again, the catches, you can only ask three questions for three specific data points, what three questions do you ask?
Walk me through what privileged insight the founding team has around the problem you’re solving. That’s one, how have you qualified that this is a large problem? And could you share some of that feedback? And then lastly, talk to me about how you’re making money. What is your business model, as you see today? And on the second one, what sort of qualification Are you looking for, in terms of you know, the size of the opportunity? So as I think about this stage, they’re at right there this cusp of like breaking out into a seed business pushing very meaningfully towards saying yeah, product market fit. So if you go through my questions, the first question is around statement of team to go back to my my earlier, elaboration. The second is, how can you help me validate that this is a big opportunity? And where have customers where’s their bidding market driven bottoms up? boots on the ground effort to validate that? Yeah, and what what we’ve seen and we tend to kind of roll our eyes is when there’s we call it desktop research, where like, you cannot say like, and I spoke to this customer and he was facing this problem when I spoke to her and she’s talking about this problem, but you’re telling me like what I could have probably Googled or like one of our junior investors could have Googled, that’s not helpful we want to see like market signal and demand so those read through our helps me say that there’s customer validation, but I’m seeing that your customer centric, and you’re getting out of the office so to speak, to get in front of customers to validate some of your hypothesis.
Santosh, what do you know you need to get better at?
Being better leader, right? Building a firm, we’re in an era of the emerging manager, right? How are you better leaders and the leadership skills I’m gonna use elsewhere prior year might not be useful right now or in the future. So how am I cognizant of that? And that’s a lot, right? There’s a lot of constant self improvement, self reflection, getting feedback, talking to my partnership, introspection. In order for us to take this to what we dream, it can be right. We don’t just want to be investors, we want this to be affirmed. We want it to endure, like once I pass like this should exist and should be amazing of what it’s doing. And a lot of that has to do with the foundations and the type of leadership we provide today.
And finally, Santosh, what’s the best way for listeners to connect with you and follow along with Dynamo ventures?
Yeah, so we are on social media as a firm, this is Dynamo. So we’re on Twitter, and we’re on LinkedIn. Those are the social platforms we double down on, you can easily find me hanging out there trying to sound smart and thoughtful about supply chain and right now also trying to understand web three, and I do not own an NF T for those wondering, like physical things. But I met Santosh Sankar. And if you want to hit me up by email, santosh@dynamo.vc.
Santosh, always a pleasure. Congrats to you and your partners on the funds. All the successes. I’m looking at the Crunchbase profile now and the many many markups. So I imagine it’s been a good year. And you know, thank you for coming on the program. It has been a great year.
Thanks, Nick. Cheers.
Transcribed by https://otter.ai