The following is a transcript from our latest podcast.
Drivery: Welcome back to the next episode of the Drivery podcast, today with Jakob Muus, CEO of Tracks. Jakob, what is your company doing?
Jakob: In short: We help the trucking industry to become more green and more efficient through artificial intelligence.
Drivery: Exciting! We already chatted in more detail about that in another episode. We hear you now have some exciting news to share!
Jakob: Yes! We have just closed our investment round and that’s something we are quite proud of to have achieved – in the middle of this crisis.
Drivery: Congratulations on this! Can you give us a quick rundown of the typical funding round process? How does it work?
Jakob: A typical funding round process probably does not exist. Let’s say there is an ideal you have in mind, that you know round about when you need to raise capital. You create the material three months before you really want to start looking for the money. You know what you want to go for. You create a communication plan, and that is a little bit like sales. So, you gather your information and create supporting materials, you make a list of people you want to go for and then you just attack. And the best way to do it is to know some very well-connected people who can give you an introduction to investors. When you come to a point when you know there is a fit with an investor, you start to hopefully and quite quickly enter a negotiation and due diligence process. And when you know there is a fit and you have a good investor and everyone is agreeing on what they want, then you come to a closing.
Drivery: When did you finish your last round?
Jakob: We got a nice email from the notary on the 30 December. When you do an investment round you always say: It’s not over before the money is in the account. And there are many steps to the process, and with every step, the risks just become smaller and smaller. We still need a little bit of the money, but that’s due to processes. When that day comes, I will open a bottle of champagne. But for me it was the 30 December where I said “Okay, cool – we are through it, we got it”.
Drivery: Especially in these crazy times, that is an achievement. What has your experience been fundraising during a pandemic?
Jakob: Oh, it was very different. It has to do with a lot of things. We had to pivot like many other AI-based startups. We were very focused on needing to develop the AI predictive services in order to get customers. But we also need to have customers’ data before we can make good predictive services.
So, we have the AI connect problem and we were solving that through RND projects with big companies. We are very, very good at CO2 calculations, we are very good at maths and very good at working with vehicle data. We had around five different customers lined up for relatively big projects, and that should give us the money that we can go to market with the services, where it really counts.
And then came the pandemic – which is one thing – but the crisis that followed the pandemic was another. We could see how everyone just pulled back, some people didn’t even pick up the phone anymore. Lots of the contracts we had just fell through. We had to adjust, and we started to focus much more on the shippers – the ones who buy the transport in the trucking industry – and less on the carrier – the ones who own the trucking fleet. So we said to the shippers: “You want to measure CO2 precisely and you want to lower CO2. Let us help you do that, because that’s more descriptive analytics. We can help taking the data from the subcontractor and match it with your trips”.
Seeing that pivot, many investors then say: “Oh, I am not going to touch a startup in the middle of a pivot. I’ll see how you deal with a pivot.” So, I had no revenue, I was in the middle of a pivot and I had to persuade the investors. This time our investment round was much more difficult than it was supposed to be, but again – raising capital in a global pandemic is difficult.
Drivery: You have a great product, but it’s not easy to push it on the market now.
Jakob: Exactly. Our product of working with fleet managers and owners to lower their diesel consumption through efficiency was also dropped quite heavily. People were like: “Yeah, it’s cool, but right now I need to find out if I get my trucks full. I don’t have time for you.” So the whole market just broke down and the market for money as well – the market for capital.
The nice investors say: “You are too early; you have to prove something first.” That’s always a good investor who does that. But you also see the other side. Sometimes somebody comes around the corner and says: ‚Oh I want to invest in them‘. And you are like ‚oh, great!‘ and then there are some people that say: ‚Oh that’s cool I want to invest in you, can we talk in two weeks‘. And you are like: ‚Yes we can talk in two weeks.
Drivery: I see. Sounds like such a process can drain a startup.
Jakob: You get the feeling of kicking the can down the road for a long time. That’s how I sum up what the difference is this time. There is a lot of kicking the can down the road, or I would rather say: building a house of cards and you just have to build it up faster than it falls. So you build and then the thing you started on falls, but you have already built something else, so you build on, and you just run, run, run and hope you are faster than the things that fall.
Drivery: A strong and impressive comparison, it really shows the difficulty. Is there other advice you would give founders, especially in the current situation of the market?
Jakob: It strongly depends. My advice for very young startups that haven’t really build up burn rates yet: just wait. Sit on it and just wait. If you can, go and find a temporary job and wait until the capital is there. At least if you are deep in the middle of a crisis. I know this sounds a little bit like Elon Musk when he was recently asked: “Which advice do you give new founders?” and he said: “Don’t do it.”
It sounds a little bit like that, but it is actually very difficult to gain external capital. I think there is that idea that founding should be something that is for everybody, but it’s not. 2019 was a super year for German startups and there were 700 startups that got external capital.
Drivery: It was not that easy this time. But I am sure there have also been good moments with your investors?
Jakob: Yes, definitely. We have great investors on board and they had put money in us before and they definitely want this to happen. There came a time around September, where one of our investors said: “You know what? Concentrate on selling, concentrate on building up the product in the market. We will make sure that there will be money coming in.” That was a very, very good experience. That somebody came in and said: “Yes, it’s your responsibility as a CEO to get this running”, but they also see the whole realistic picture of it. Because it is energy draining.
Drivery: I think it’s always good to have this background and to know: I can run my business as usual.
Jakob: Nearly as usual.
Drivery: So what will you use the money you raised for? What are the next steps for your company?
Jakob: We have hired some very cool people, professional and experienced sales managers and product managers. What we are doing now is…the whole technical concept is there, the market proof is there, the first customers are there – we have gained customers during the pandemic. Now we really create a product-market fit and prove the product-market fit, and take sales away from founder sales. So basically, now we are ready for growth. Because we know we are going to raise capital again sooner rather than later. By November it is planned that we will raise an A-round and there we should have the proof that is needed for people also to do significant investments and also be ready to go into a growth scale.
Drivery: It will not be easy for sure. How do you think the pandemic will impact the whole sector of mobility in the long run, or at least this year?
Jakob: It depends where in the market you look. The cards have played quite well into our hands in some ways. It was very difficult to get access to the fleet managers, because in the beginning they said: “We need to find a way to get our drivers home from abroad.” And afterwards they said: “We need to find out how to get our drivers to come to work, with or without their kids.”
Drivery: For them it is impossible to do home office and work remotely.
Jakob: And thirdly they were like: “We need to find out how we get the trucks full.” Because you see it in the car industry: if your trucks used to be full from the car industry, and then the car industry has closed their factories, then they drive around empty. It was very difficult in the beginning, but what has happened is most of the industry has started to realize: “We don‘t have the facilities for these kinds of changes in supply chain.”
We all remember the toilet paper crisis and the pasta crisis. The supply chains are so complex, and yet much is still being done with a fax and a pen and a Nokia phone. And they have realized that the digitalization is really important. That has played a little bit into our hands. What is still difficult is if they then say: “Oh, now we need to do all our homework at once”, and that’s difficult to navigate. But I think in my industry the crisis is going to pay out positively.
Drivery: And do you think it will change the general thinking of how we deliver goods? Change the general trucking industry? Will we see some big changes in how the supply chains work?
Jakob: I think we need to split it up the sector into the trucking industry and the transport sector, and into logistics and supply chain. If we first look at the trucking industry, I don’t think that many big changes will happen there. I think that it is going to be a very fragmented industry in the future as well. I think in transport we might see more near-sourcing and that many of the factories which went out of Europe a couple of years ago will now come closer to Europe. Which again probably will mean more trucks on the road. So we will see some differences.
But the digitalization of the whole supply chain – they often look at the shipper first because he has a complex supply chain and needs to navigate it – is going to change a lot of things and it‘s going to drip down to the whole transport sector, to the logistic sector and at the end of the day also into the trucking industry. These are things we have expected to come earlier, but the need was not there. Now it is.
Drivery: But now one thing impacts another, and this development can be seen everywhere, in every industry right now.
Jakob: I think we are going to see a lot of risk management – as in, very clever risk management systems, and then flexible supply chains that can actually show: “There is this chance of hard rain there, so let’s just reroute the transport and the production to somewhere else; just for the next two weeks.” We are going to see a lot of flexibility and it’s going to be super exciting. And my hope is that when it rains on the priest, it will drip a little bit on the church singer.
Drivery: We wish you the best of luck with that.
Jakob: Thank you.