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November 11 2019

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16 The Journal of Commerce | November 11 2019 www.joc.com International Maritime investment across technology, infrastructure, and expertise. When we raised our most recent round, our intent was to have enough funds to build out all three of these areas while weathering any economic or political turbulence on our path to profitability." Flexport has never been shy about promoting its technology-first approach to forwarding, but it is nonetheless a people-intensive company similar to other third-party logistics providers (3PLs). CEO Ryan Petersen said in September his com- pany has 1,700 employees. At the announcement of the $1 billion SoftBank round in Febru- ary, Flexport said it earned $441 mil- lion in revenue in 2018, a 95 percent increase over 2017. Because Flexport is privately held, its financials are not publicly available, but assuming revenue growth in 2019 is similar to the stated 2018 growth, it would be on track to generate about $860 mil- lion in gross revenue this year. That would be a theoretical ratio of about $506,000 of reve- nue per employee. Compare that to publicly traded rival Panalpina, which in 2018 had revenue of about $419,000 per employee (Panal- pina was acquired by DSV in a deal completed in August). In 2018, DSV earned about $245,000 per employee, while Kuehne + Nagel earned $270,000 per employee (both DSV and Kuehne + Nagel are publicly traded). The revenue per employee metric helps to measure Flexport against its forwarding competitors, but software providers would ultimately aim to have higher per-employee revenue generation than freight service providers. The health — and perception of health — of the broader Vision Fund portfolio is relevant for Flexport. Big-name VC firms are brought into deals to bolster the profile of the startup being backed. When a VC perceived to be on the lower end of the totem pole leads a round, that can influence the attractiveness of a startup in future investment rounds. When a large VC with a con- sistent track record misses big on an investment, it's considered an anomaly. But when a VC, even one as well capitalized as SoftBank, misses on numerous late-stage valuations, it becomes a concern. WeWork and Uber were supposed to be SoftBank's success stories. VCs invested a total of $12.8 billion in WeWork, according to the venture capital database Crunchbase. The company was privately valued by SoftBank at $47 billion in January, but Bloomberg reported Oct. 18 the valuation at initial public offering could be as low as $8 billion. SoftBank was not available for comment. Another round? So, does Flexport need to raise more money? "Independent of runway, it's important for a startup to fundraise every 12 to 24 months, to 'check in with the market,'" the venture capitalist Semil Shah, founder and general partner at Sili- con Valley-based Haystack Ventures, wrote on Twitter Oct. 15. "The act of convincing a new investor to get conviction and set a price is a healthy checkpoint for all parties — founders, early employees, and existing investors." In the modern model of VC-backed growth, VC investments — from seed stage all the way to multibillion-dollar later rounds — are all larger than they were a decade ago. Startups that have successfully raised venture capital are waiting longer to go public. In that environment, Flexport may need to keep raising funds. In February, tech sources told The Journal of Commerce raising $1 billion made sense for Flexport if its goal was to overtake incumbents, because forwarding takes human resources, requiring capital, but it might limit the company's next steps. Less funding, on the other hand, might presage an initial public offering, and a lower valuation might entice another company to acquire Flexport. By taking such a large tranche of investment, they said, Flexport might be boxing itself into a single path down the road: acquisition by a private equity firm, which would be an entirely different scenario, mak- ing the end to Flexport's tale similar to other 3PLs and software compa- nies in the logistics industry. Petersen, at the time, disagreed with the notion that the $1 billion investment in Flexport might reduce the number of paths the company could take. "It establishes [Flexport] as a strong independent company. The future is wide open on what we can do. Our investors, of course, expect a return on their investment, but there are many ways to pay those investors back." What happens if Flexport goes out for funding in the near future but is only able to raise a down round? And is its growth funda- mentally constrained by its 3PL model, or can it achieve the kind of growth that SaaS companies can? In response to the latter question, the Flexport spokesperson said, "That's not a concern for us." Flexport in October added an SaaS component to its offerings in acquiring the container visibility software provider Crux Systems, which it will continue to offer as a standalone solution. As such, the future of the company may be more as a platform and less as a pure for- warder or SaaS provider. Bubble about to pop? An equity analyst in the trans- portation and logistics space told The Journal of Commerce some feel logistics technology is not a good long-term investment, because the technology can be replicated

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