Investment Notes: Explorate

// Conor Hagan, Alex Ewart (Explorate)

The Logistics of Tech-Enabled Businesses: Our Investment in Explorate

Last week we announced our most recent portfolio company, Explorate, as we lead their $7.5m Series A round. Explorate was built to modernise the Freight Forwarding industry and streamline the workflow for supply chain professionals. The platform includes an Instant Quotes and Bookings service with live pricing. All shipments are tracked in real-time with email notifications flagging issues as they arise. Importantly, the platform becomes the source of truth for logistics information and compliance with documentation storage as a core module. 

The business launched in 2018 and has quickly scaled to over 100 customers, delivering > $75m in gross bookings across 300 port pairings. The business is growing at around 5x YoY, has only ever churned 4 customers and now has 26 employees based in Brisbane.

Our investment in Explorate fits into a trend I’ve been observing lately of compelling tech-enabled, traditional businesses. They are an old economy company, reskinned with technology at its core, from the ground up. This gives the enterprise inherent efficiency advantages against competitors. Often this has led to major pricing and customer experience edges. And regularly these companies can scale FAR beyond the potential of a non-tech led business delivering a comparable proposition. These tech-enabled, traditional businesses are effectively a new form of vertical integration. 

Hnry, one of our NZ based portfolio companies, is a fine example. Hnry is effectively the world’s most efficient tax agency. By building a slick product experience for their customers, integrating into existing banking payment rails and automating an enormous amount of a regular tax agent’s workflow, they have been able to scale to tens of thousands of customers with a minimal service effort. Rather than selling software to tax agents to help them run their company, they are the tax agent, using the software in their own business and competing directly with incumbents.

Explorate is a business that fits squarely with this pattern. Founders Conor Hagan and Alex Ewart have long-standing backgrounds from within the freight forwarding industry. Having observed the status quo of their sector, they have set about improving the industry for all participants. They bring deep domain expertise to the table and seem uniquely positioned to solve the industry’s problems. Not necessarily by providing products in the hands of their customers, but by using technology internally to provide a more efficient and higher quality offering. 

We see Explorate’s product and technology layer to be similar to that of Hnry and other tech-enabled companies. While product engagement is critical for the end customer, this type of business model requires a dedicated service layer that is hard to absolve. Often R&D efforts are as much internally focused as they are building products for the customer. We believe that this type of innovation is sufficient to drive significant venture style returns and believe that Explorate’s exceptional approach to its customers, driven by internally used software, is a key underpinning to its competitive advantage.

We are excited to invest in the business for many reasons. But most of these reasons are predicated on the fact that Explorate is being driven by two individuals with a strong affinity to their customer’s pain points, deep networks to leverage within the market and a level of commitment and passion around their mission that is obvious. With that overlay, here is our thesis:


Global Freight is an Offline, Vast Industry


Global freight is one of the truly large industries, accounting for 12% of global GDP. Freight, generally defined as the transportation of anything that is too heavy for a human to lift, is also one of the least efficient industries. It’s chaotic, highly fragmented, regional, and opaque. Shippers rely on expensive brokers and freight forwarders that coordinate shipments over phone calls and email, using spreadsheets and relying on previous relationships. 

The complexity of delivering a parcel from Australia to abroad relies on dozens of parties (factories, warehouses, trucks, planes, banks, insurers and more) and incredibly complicated standards. This makes the challenge of tracking and visibility significant. Often shippers are only made aware that their container will not arrive as intended after the fact. No human with a spreadsheet can manually optimise all of these criteria. As an example outcome of this milieu, almost 35% of all miles driven by trucks in the US aren’t actually transporting any freight. 


Freight is Complex with an Established Workflow


There are over 40,000 freight forwarders worldwide, managing shipments of $600-700B worth of goods, and creating 12B associated documents each year (bills of lading, invoices, customs declarations etc). Each of these documents requires several iterations of low value manual checking and data wrangling. Transactions often involve completely unstructured data in emailed PDFs & Excel, that are then manually input (multiple times by different participants) into disconnected ERPs. A data network effect should emerge for the player who builds the largest repository of truth across the industry.

The market has operated roughly under the same rules and processes for decades, without a real impetus to change. Given the complex web of participants, it is difficult to digitise multiple stakeholders concurrently. On average, 18 participants are required to ship something from China to Aus. Convincing them all to adopt a new platform simultaneously is challenging. Here is an indicative timeline for a straight-forward import/export delivery involving a single manufacturer.


The existing freight workflow

COVID-19 has provided an impetus for changeand accelerated the freight industry’s shift to digital. Managing capacity and the input costs of logistics is now a burning issue for retailers. The delivery experience is fast becoming a core differentiator. Pricing volatility is eroding margins for many. For transport providers, visibility has never been more important.


Network Effects + Logistics = A Journey We’ve Enjoyed Before

We are fortunate to have previous logistics experience via our relationship with Shippit. We first invested in that business when founders Will and Rob were still employed in ordinary day jobs. Some 6 years later Shippit has grown to 100s of staff globally, delivering 10s of millions of parcels in the Australian market each year. We have long held the belief that the logistics space has significant opportunity for software and technology innovation. We were fortunate to invest behind this thesis well in advance of the pandemic that has so obviously accelerated the trend to digital in this particularly category. 

One of the key learnings from the Shippit journey has been watching a flywheel and a range of network effects emerge. We believe Explorate has a similar flywheel starting to turn:

Explorate's Flywheel


Scale Network Effect – The Explorate business benefits from a powerful flywheel that drives scale benefits to all participants (see diagram above/below). As more shippers join the network, the platform is able to better fulfill quotes and drive superior utilisation in its shipping lanes. More volume leads to lower input costs and improved margins. As a result, Explorate can undercut the marketplace, delivering take rates that traditional providers are unable to match. Explorate’s ability to access capital markets also allows it to fund investment into superior technology and customer experience – serving to further accelerate the flywheel by capturing greater share of volume from its customer base.

Data Network Effect – As Explorate becomes the single source of truth, and the central communication hub, dictating its customer’s supply chain, the storage of documentation and data creates material switching costs and long-term reliance on the product offering. Global freight is dictated by a complex regulatory environment that mandates long-term record keeping and consistent submissions and declarations through customs, financiers, insurers and other market participants. As Explorate automates much of this information capture (via API integration) and sharing process, it drives both long term retention but also increases the likelihood its customers pick Explorate to facilitate volume rather than alternative, offline brokers.

Explorate has strong evidence to show that it has the right team and product capability to go after what is evidently a large market opportunity. The next 12 months will be all about customer adoption, both new customers and increased share of wallet from existing shippers, revenue growth and further product development. The team has proven an ability to build strong customer advocacy and product usage and we see these factors as underpinning the next rapid phase of growth. We are pleased to be the capital partner of choice to help to fund these efforts.


The Logistics of Tech-Enabled Businesses: Our Investment in Explorate

Last week we announced our most recent portfolio company, Explorate, as we lead their $7.5m Series A round. Explorate was built to modernise the Freight Forwarding industry and streamline the workflow for supply chain professionals. The platform includes an Instant Quotes and Bookings service with live pricing. All shipments are tracked in real-time with email notifications flagging issues as they arise. Importantly, the platform becomes the source of truth for logistics information and compliance with documentation storage as a core module. 

The business launched in 2018 and has quickly scaled to over 100 customers, delivering > $75m in gross bookings across 300 port pairings. The business is growing at around 5x YoY, has only ever churned 4 customers and now has 26 employees based in Brisbane.

Our investment in Explorate fits into a trend I’ve been observing lately of compelling tech-enabled, traditional businesses. They are an old economy company, reskinned with technology at its core, from the ground up. This gives the enterprise inherent efficiency advantages against competitors. Often this has led to major pricing and customer experience edges. And regularly these companies can scale FAR beyond the potential of a non-tech led business delivering a comparable proposition. These tech-enabled, traditional businesses are effectively a new form of vertical integration. 

Hnry, one of our NZ based portfolio companies, is a fine example. Hnry is effectively the world’s most efficient tax agency. By building a slick product experience for their customers, integrating into existing banking payment rails and automating an enormous amount of a regular tax agent’s workflow, they have been able to scale to tens of thousands of customers with a minimal service effort. Rather than selling software to tax agents to help them run their company, they are the tax agent, using the software in their own business and competing directly with incumbents.

Explorate is a business that fits squarely with this pattern. Founders Conor Hagan and Alex Ewart have long-standing backgrounds from within the freight forwarding industry. Having observed the status quo of their sector, they have set about improving the industry for all participants. They bring deep domain expertise to the table and seem uniquely positioned to solve the industry’s problems. Not necessarily by providing products in the hands of their customers, but by using technology internally to provide a more efficient and higher quality offering. 

We see Explorate’s product and technology layer to be similar to that of Hnry and other tech-enabled companies. While product engagement is critical for the end customer, this type of business model requires a dedicated service layer that is hard to absolve. Often R&D efforts are as much internally focused as they are building products for the customer. We believe that this type of innovation is sufficient to drive significant venture style returns and believe that Explorate’s exceptional approach to its customers, driven by internally used software, is a key underpinning to its competitive advantage.

We are excited to invest in the business for many reasons. But most of these reasons are predicated on the fact that Explorate is being driven by two individuals with a strong affinity to their customer’s pain points, deep networks to leverage within the market and a level of commitment and passion around their mission that is obvious. With that overlay, here is our thesis:


Global Freight is an Offline, Vast Industry


Global freight is one of the truly large industries, accounting for 12% of global GDP. Freight, generally defined as the transportation of anything that is too heavy for a human to lift, is also one of the least efficient industries. It’s chaotic, highly fragmented, regional, and opaque. Shippers rely on expensive brokers and freight forwarders that coordinate shipments over phone calls and email, using spreadsheets and relying on previous relationships. 

The complexity of delivering a parcel from Australia to abroad relies on dozens of parties (factories, warehouses, trucks, planes, banks, insurers and more) and incredibly complicated standards. This makes the challenge of tracking and visibility significant. Often shippers are only made aware that their container will not arrive as intended after the fact. No human with a spreadsheet can manually optimise all of these criteria. As an example outcome of this milieu, almost 35% of all miles driven by trucks in the US aren’t actually transporting any freight. 


Freight is Complex with an Established Workflow


There are over 40,000 freight forwarders worldwide, managing shipments of $600-700B worth of goods, and creating 12B associated documents each year (bills of lading, invoices, customs declarations etc). Each of these documents requires several iterations of low value manual checking and data wrangling. Transactions often involve completely unstructured data in emailed PDFs & Excel, that are then manually input (multiple times by different participants) into disconnected ERPs. A data network effect should emerge for the player who builds the largest repository of truth across the industry.

The market has operated roughly under the same rules and processes for decades, without a real impetus to change. Given the complex web of participants, it is difficult to digitise multiple stakeholders concurrently. On average, 18 participants are required to ship something from China to Aus. Convincing them all to adopt a new platform simultaneously is challenging. Here is an indicative timeline for a straight-forward import/export delivery involving a single manufacturer.


The existing freight workflow

COVID-19 has provided an impetus for changeand accelerated the freight industry’s shift to digital. Managing capacity and the input costs of logistics is now a burning issue for retailers. The delivery experience is fast becoming a core differentiator. Pricing volatility is eroding margins for many. For transport providers, visibility has never been more important.


Network Effects + Logistics = A Journey We’ve Enjoyed Before

We are fortunate to have previous logistics experience via our relationship with Shippit. We first invested in that business when founders Will and Rob were still employed in ordinary day jobs. Some 6 years later Shippit has grown to 100s of staff globally, delivering 10s of millions of parcels in the Australian market each year. We have long held the belief that the logistics space has significant opportunity for software and technology innovation. We were fortunate to invest behind this thesis well in advance of the pandemic that has so obviously accelerated the trend to digital in this particularly category. 

One of the key learnings from the Shippit journey has been watching a flywheel and a range of network effects emerge. We believe Explorate has a similar flywheel starting to turn:

Explorate's Flywheel


Scale Network Effect – The Explorate business benefits from a powerful flywheel that drives scale benefits to all participants (see diagram above/below). As more shippers join the network, the platform is able to better fulfill quotes and drive superior utilisation in its shipping lanes. More volume leads to lower input costs and improved margins. As a result, Explorate can undercut the marketplace, delivering take rates that traditional providers are unable to match. Explorate’s ability to access capital markets also allows it to fund investment into superior technology and customer experience – serving to further accelerate the flywheel by capturing greater share of volume from its customer base.

Data Network Effect – As Explorate becomes the single source of truth, and the central communication hub, dictating its customer’s supply chain, the storage of documentation and data creates material switching costs and long-term reliance on the product offering. Global freight is dictated by a complex regulatory environment that mandates long-term record keeping and consistent submissions and declarations through customs, financiers, insurers and other market participants. As Explorate automates much of this information capture (via API integration) and sharing process, it drives both long term retention but also increases the likelihood its customers pick Explorate to facilitate volume rather than alternative, offline brokers.

Explorate has strong evidence to show that it has the right team and product capability to go after what is evidently a large market opportunity. The next 12 months will be all about customer adoption, both new customers and increased share of wallet from existing shippers, revenue growth and further product development. The team has proven an ability to build strong customer advocacy and product usage and we see these factors as underpinning the next rapid phase of growth. We are pleased to be the capital partner of choice to help to fund these efforts.