Flexport's epic plan to build a freight empire with its $110M raise

Flexport's epic plan to build a freight empire with its $110M raise
From TechCrunch - October 6, 2017

Were actually out here trying to create value, not just give venture capital money away says Flexport CEO Ryan Petersen. Its counterintuitive. The more the business works, the more cash it needs.

Thats because Flexport doesnt ship bits, it ships atoms. Lots of them. Flexport is a freight forwarding logistics network. If you produce a few metric tons of goods in China and need them in stores across the U.S., it books the trucks, ports, planes, and boats you need to get them there. While the dinosaur freight forwarders still rely on paper manifests, Flexport tracks all the data to optimize every route.

Flexport sounds unsexy on the surface, but its multi-trillion dollar market opportunity thats attracting big-name investors. Flexport already moves 7,000 shipping containers a month for an average of $2,000 each while taking around a 15% cut, earning it roughly $2.1 million per month from ocean freight alone. [Correction: $2.1 million, not $21 million] Adding in air, trucking, customs brokerage, cargo insurance and more,revenue is up 3.7X in the last year. Unit economics have always worked for us, even when we were tiny. Weve always insisted on that says Petersen.

Now after TechCrunch reported last month that sources told us Flexport had raised a $110 million Series C at an $800 million pre-money valuation, the company today confirmed the deal. The $910 million post-money valuation round was led by DST Global, whose partner Rahul Mehta will become a board observer, and was joined by Founders Fund and Susa Ventures plus other existing investors. And crucial to Flexports audacious new business model is the addition of Wells Fargo Strategic Capital.

Flexport wants to finance its customers freight, not just ship it.

Forwarding + Financing

Businesses have to pay factories to produce their goods up front, but it can take months to ship and sell the inventory before they earn back that money. Flexport plans to offer trade financing funded by a big bank like Wells Fargo. Essentially, Flexport would use all its shipping data to calculate and minimize the risk, front the money to its 1800 customers, and score an added percentage when its paid back.

Its such a big business and a nice extension Petersen tells TechCrunch.80 percent to 90 percent of all global trade relies on trade financing, according to the WTO. We have all the data to assess credit worthiness the CEO says, touting the speed with which Flexport could do that research. A traditional bank might take a long time to get the money. It might take a month or two. But business happens really fast. We can lend to those customers, whether its Wells Fargos or someone elses money.

Matt Raubacher, a managing director of Wells Fargo Strategic Capital says While Flexport already had a banking and credit relationship with Wells Fargo, the Strategic Capital group is excited to take the next step and also become an equity investor in this rapidly growing business with an exceptional leadership team.

Customers like Ring, Osmo, and Le Tote could get their freight financed and forwarded all at once, cutting down their logistical headaches while giving Flexport more.flexibility in how it prices both the shipping and the loans. Its pretty sticky. If youre funding your business on the platform, you wont switch Petersen says. You could make the loan cheaper because youre making money with the freight, or offer cheaper freight because youre making money on the financing.

Owning The Warehouses Too

Flexport isnt content just sticking to the money and logistics. It plans to use the new $110 million in equity funding to buy warehouses around the world that it calls cross-ports. Petersen says Flexport can have more control withour software, our process in the warehouse.

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