The maritime industry is a complex, technologically-driven, asset heavy industrial sector. The barriers to entry are high. Ships are expensive to build, operating costs are relentless, and generally profit margins are low, even in the good times. Disruptive innovation in this type of industrial environment requires sustained capital investment to scale ideas and make them viable options in the market. Joining the dots between price, function, portability, class rules, insurance, safety, legislation, and legacy attitudes to change, requires razor sharp business modelling, knowledgeable investors, and a stout heart. Welcome to the high-stakes world of maritime venture capital.
Introduction
Venture capitalists are a rare breed. Their natural ally is the entrepreneur. Together they hunt down markets that are ripe for a shake up. The risks are usually far higher than other types of private equity investing. Failures and heavy losses are common, but returns can be stratospheric.
A unique feature of the ‘VC’ over most other investors is their attitude to timing. “That’s the way things are done in this business” is a clarion call to a venture capitalist. The most attractive business models are those that don’t yet fit neatly inside an existing vertical or don’t serve a mature market. It’s less often existing demand that motivates them, but getting ahead of the market to generate new demand.
VCs don’t succeed by ignoring wisdom, though. The key to running a successful fund is separating wisdom from assumption and knowing how to spot a startup team with the knowledge and drive to change the game enough to grow rapidly. According to a 2021 CBInsights study, one of the most common reasons that startups fail is because the company does not have the right skills in the team.
Value investors look for solid balance sheets and predictable performance based on a track record. Even when a company is too young to have a multi-year trading history, most investors will want to use a close comparator – a company with similar products and services, serving the same, or closely aligned, markets. VC is different. In pursuit of maximal growth potential, they look for ideas so new that few comparators exist. To some, that makes venture capital more of an art than a science. If a business model is too familiar, it offers fewer prospects for change and may not match a VC’s appetite to profit from disruption.
The maritime sector offers fertile grounds for change. Shipping is the first and still most ubiquitous globalised industry. Around 9/10ths of cross-border trade is carried by sea and the tonne-kilometre efficiency of ocean carriage exceeds all other modes of transport. For example, a large container vessel is 145 times as efficient at moving cargo than air freight.
That doesn’t mean shipping is ‘clean’ though and this offers a colossal opportunity for innovation. Shipping has plenty of problems to solve now and in the near future, but decarbonising is perhaps the most pressing.
There are multiple mandates for change throughout the maritime sector and many of them are already baked into regulatory and legislative frameworks. In addition to climate-related problems, shipping has humanitarian, welfare, and workforce issues to solve, and almost limitless opportunities for digital transformation across its seagoing and shoreside processes.
In short, shipping must move more cargo to meet growing global demand, with less fat, less waste, and a lower reliance on fossil fuels. The multifaceted nature of these challenges has attracted many new startups to the sector, bringing in new capital as a result.
Shipping is a long duration and capital-intensive investment class and so too is the ‘bluetech’ sector that seeks to serve it. Digital solutions providers began arriving in maritime as early as the mid-1990s as computing technology generated new opportunities to digitise business processes. The influx gathered pace once decarbonisation became a mandated aim. The alternative fuels industry has some way to go before it can offer affordable and scalable net-zero fuels that don’t redraw too many contentious political and economic lines, but the opportunity to make paradigm altering improvements to the sustainability of global trade is impossible to resist for many entrepreneurs and investors alike. According to Thetius data, there are at least 1,350 companies that have entered the maritime technology sector since the 2008 IMO greenhouse gas reduction benchmark. That is equal to the number of companies founded over the whole of the previous 155 years.
Capital Trends
It’s no secret that capital is getting scarcer and more expensive. The same mechanics that are increasing mortgage rates for homeowners and reducing the number 0% credit cards available, are also making capital harder to obtain for businesses. The days of negative central bank interest rates and more liberal fiscal policies of the West seem, for now at least, to be in the rear view mirror. VC funding volumes and deal flows have started to level off and valuations have reduced across many sectors as investor confidence aligns with a post-pandemic global economy, war with Russia, crippling inflation, and growth-stymying interest rate hikes.
Capital isn’t disappearing altogether. In 2023, venture capital companies worldwide are expected to have in excess of $500bn USD looking for a home. However, this ‘dry powder’ isn’t as readily available as it sounds. VCs get their money from pension funds, sovereign wealth funds, endowments, family offices etc. In difficult economic conditions, these funding sources can become complicated, with each source subjected to shifting dynamics of their own.
As the gravy train of cheap capital starts rolling uphill, VC fund managers are tightening their investment criteria. Jon Sakoda, Founder of VC fund managers Decibel Partners, describes a shift away from company valuations based on ‘growth at all costs’ to one of ‘growth plus efficiency’, stating in an article from September 2022: “Founders might assume that high dry powder rates predict a return to the highest of highs in 2021 for startups. As the VC industry increases its pace in the coming quarters, Decibel Partners believes there may be some substantial differences in how the capital will be allocated.”
Writing in November’s edition of Fortune Magazine, US Venture Capital Leader at EY, Jeffrey Grabow, wrote that there are three characteristics that make businesses attractive in the current capital market:
- offering something indispensable and not discretionary;
- being capital efficient and resilient in strong and weak market conditions, and;
- being linked in a meaningful sense to sustainability and clean energy.
Grabow concluded: “Founders will need a realistic growth plan and go-to-market strategy that shows they are adapting to current market conditions. Pie-in-the-sky projections will be obvious to venture capitalists who are being especially selective with new investments.”
Alternative asset researchers Preqin agree. Speaking at the London Alternative Investment Management Summit in April 2022, their VP of Research Insights, Cameron Joyce, said: “Unless central banks make a complete u-turn on rate hikes, it’s very difficult to believe that the sell-offs we have seen on the NASDAQ, tech, and other parts of the market, won’t continue. This will have to feed through into private markets and venture capital in particular. Given the effective long duration of venture capital, this poses a particular risk to this asset class.”
Joyce predicted a readjustment to VC attitudes, rather than an out and out withdrawal of new capital, saying: “We see early stage becoming more favoured as this area may weather the storm better than other strategies, with longer incubation periods providing a longer runway until the exit environment picks up again.”
In essence, the most attractive companies to VC funding in 2023 will be those that fit more risk mitigating requirements: indispensable goods or services, capital efficient and resilient business models, and skin in the sustainability or clean energy game, plus an exit strategy timed to coincide with improved market conditions further down the line.
Maritime innovation could look particularly attractive through this lens:
- It is indispensable – 90% of the world’s trade volumes need shipping and a fast-growing cohort of cargo owners are demanding cleaner ships.
- It exists to make significant improvements to the sustainability of a polluting industry.
- The scale of the technological, political, and economic challenges faced by bluetech founders means that investment maturity is commonly long-duration.
Shipping itself has attuned to cyclical boom-bust trading cycles over centuries. Freight rates are linked to commodity pricing, regional and sectoral market demand, steel prices affecting scrapping rates, in turn affecting fleet capacity, and so on. Founders that keep a finger on the pulse of the industry they serve should know the importance of building a business model that works across the same boom-bust cycles.
Application Area Trends
According to Thetius data, the largest single investment in a maritime-related digital company during 2022 went (again) to Flexport. Citing the high profile supply chain issues experienced throughout the year, the digital freight forwarder was able to close a colossal $935m USD Series E round led by Andreessen Horowitz and MSD partners, with participation from Shopify, Softbank and others. Flexport continues to attract vast amounts of interest from investors due to its potential to solve many costly and problematic global supply chain challenges. According to the company, they moved nearly $19bn USD in merchandise across 112 countries in 2021. The latest raise takes their market value to $8bn USD.
Another notable 2022 startup investment was announced a month later, with an $80m USD raise by Project44. The company was founded in 2014 and is backed by Generation Investment Management, A.P. Moller Holding, CMA CGM, Goldman Sachs Asset Management, and others. The November raise takes the company’s market valuation in excess of $2.7bn USD.
The funding will be used to develop tools within the platform that can measure ‘scope-3’ emissions across all regions and transport modes. This level of visibility will help users meet new EU and IMO carbon reporting requirements.
Emissions and decarbonisation have led the charge throughout 2022. Of the market signals processed by Thetius AI, the most frequently referenced application area was alternative fuels, accounting for 21% of signal activity. Of note was a $1bn USD contract signed between container carriers ZIM and Shell for the supply of Liquified Natural Gas (LNG) for its new class of LNG-fuelled containerships.
Methanol also received a good deal of interest. Danish renewables developer European Energy raised €53m Euro from the Danish Green Investment Fund (DGIF) for further expansion of its e-methanol plant in Kassø and Bill Gates-backed fund Breakthrough Energy Ventures made a $37m USD investment in Danish startup Blue World Technologies to help it scale up production of green methanol for use in shipping.
The second most talked about application area was environment and asset management with 11.5%, closely followed by connectivity with 11% of signal traffic.
Copenhagen-based maritime technology company ZeroNorth closed a notable $50m USD Series B funding round led by PSG Equity. Their platform helps vessel owners and operators optimise voyages, vessel operations, and bunkers to reduce CO2 emissions and drive decarbonisation in shipping.
Technology Trends
Throughout 2022, maritime satellite communications technology attracted the most amount of reported investment at $4.3bn USD. Of those, ICEYE, a search and rescue (SAR) data provider and expert in natural catastrophe solutions, was the single highest, closing a $136m USD series D round in March. Led by space sector VC Seraphim Space, the round attracted new investment from BAE Systems and others, bringing total investment in the company to $304m USD since its launch in 2015. ICEYE now owns and operates the largest constellation of SAR satellites, completing 16 satellite missions since its first space launch in 2018.
Maritime data and analytics technology attracted the most number of signals on the Thetius intelligence platform, accounting for 13% of all signals. This was followed by artificial intelligence and cloud computing, both accounting for 9% of signals respectively.
The largest single investment in data and analytics technology went to Kpler who raised $200m USD in April 2022. The company provides data and analysis to commodity traders. The round was led by Rothschild fund Five Arrows and Insight Partners, who both now have a minority stake in the company. Impressively, this was the first external raise since the company was founded in 2014. The company earmarked the money to significantly increase its headcount and develop its offering in physical commodities, the energy transition, and adjacent markets.
The largest single maritime artificial intelligence raise went to SparkCognition in January 2022. The enterprise AI solutions provider closed a $123m USD Series D round bringing its valuation to $1.4bn USD, officially branding the 2013 company unicorn status.Other notable maritime AI investments were awarded to supply chain visibility platform Altana, who closed $100m USD in October, and ShipIn Systems, who closed a $24m Series A round led by Silicon Valley-based Zeev Ventures.
Maritime Venture Capital Funds
theDOCK
Founded: 2018 Location: Israel
Startup: Harbor Lab
Founded: 2020
Harbor Lab is a platform for shipowners, management companies, charterers, and third-party outsourcing resources. They aim to improve operational efficiencies, digitise the process, and provide full transparency to all participants across port cost management. The Athens-based startup raised €6.5m Euro ($6.9m USD) in seed funding in December 2022 from a consortium of institutional investors, including theDOCK, Signal Ocean, Motion Ventures, TecPier, Innoport, Charge VC, and others. Thetius subscribers can access our Advanced Company Report on Harbor Lab HERE
Startup: Conbo.ai
Founded: 2018
Conbo’s mission is to improve port operational efficiency, safety, and security by utilising existing camera systems, transforming traditional marine terminals into smart facilities overnight. Founded in 2019, the company was the first to receive a contract from the Israeli Security Agency Accelerator, which partners with Tel Aviv University’s TAU Ventures to springboard startups that develop advanced technologies with security and defence applications as well as commercial potential. Conbo received $2m USD in seed funding in December 2021 from an investor consortium that included theDOCK, Microsoft for Startups, and NVIDIA.
Startup: Hoopo
Founded: 2016
Hoopo is a global provider of tracking solutions. Their mission is to help businesses track and manage their logistics operations more efficiently and cost-effectively by providing real-time data and analytics. The Israel-based company raised a $10m USD Series A funding round led by theDOCK and ZIM in August 2022.
Startup: Wisor
Founded: 2021
Wisor is a software-based price-quoting solution that uses artificial intelligence and natural language processing to improve the freight forwarding process. The company’s tool automates manual pricing processes. Thetius subscribers can access our Advanced Company Report on Wisor HERE.
Startup: DockTech
Founded: 2017
DockTech is a water depth prediction platform for ports and waterways, offering a real-time view of berths and water channels. Their technology enables ports to plan maintenance dredging activities in a cost-effective way. Their solution is based on connecting every echo-sounder-carrying service vessel to a cloud-based service, collecting and combining depth data, and processing with image processing and AI algorithms. Thetius subscribers can access our report on the state of maritime digital twin solutions HERE which provides some further insight on DockTech.
Startup: Wave BL
Founded: 2015
Established in 2015, WAVE BL is a blockchain-based digital courier platform that mirrors the traditional process for transferring original paper documents electronically. They claim to enable instant, encrypted and authenticated transfer of Bills of Lading and other unique digital documents. Ocean Network Express announced a contract awarded to Wave BL in October 2021 and Thetius has tracked investments totalling over $15m over the last 3 years. Other investors include ZIM, Maersk, and US tech accelerator Techstars.
Startup: Orca AI
Founded: 2018
Since 2018, Orca AI has been developing its AI-powered marine collision avoidance system that provides real-time insights that are aimed at supporting bridge team decision making. Orca combines data and deep learning that they claim provides a powerful awareness system and smart alarms, to reduce collisions and save lives. In September 2022, the company announced a contract awarded by Maran Tanker Management (MTM) to provide their navigation safety platform to the Maran fleet.
Startup: AiDock
Founded: 2018
Founded in 2018, AiDock applies an artificial intelligence enabled document exchange platform that they claim allows couriers, freight forwarders, postal services, and customs authorities to apply “novel business practices that boost productivity”. AiDock’s ‘virtual assistants’ automate all paperwork-related tasks in the export and import of goods.
Thetius subscribers can access a report on the state of maritime artificial intelligence HERE which provides some further insight on AiDock.
Startup: Loginno
Founded: 2014
Loginno is growing a smart shipping container infrastructure by partnering with shipping companies to equip their container fleets with IOT. The patented low-cost device fitted to the containers mines cargo and voyage data. Information access is granted through a cloud- based service to carriers, cargo owners, freight forwarders, insurers, customs and other interested parties. Thetius subscribers can access a report on IoT in Ship Management HERE and a report on five IoT companies transforming container operations HERE, both of which provide some further insight on Loginno.
Motion Ventures
Founded: 2021 Location: Singapore
Startup: Greywing
Founded: 2019
Greywing is a provider of cloud-based risk management systems for maritime shipping. It offers web-based software that aggregates multiple data sources to present only data that is relevant to the voyage, vessel, and routes. Its features include routing, interactive reports, and data sharing with others. Thetius subscribers can access a report on people analytics HERE which provides some further insight on Greywing.
Startup: FreightFlows
Founded: 2018
FreightFlows harnesses cutting edge machine learning models to help companies track, analyse, and predict vessel behaviour, port activities and market performance.
Startup: ShipsKart
Founded: 2017
ShipsKart is a supply chain e-commerce solution for the Maritime and Offshore domain. ShipsKart is an online marketplace where vessels, vessel owners/managers, ports, shipyards can purchase marine products, consumables, equipment and service products required for the uninterrupted and efficient operations. Thetius subscribers can access an article on how cloud platforms are impacting ship management HERE which provides some further insight on ShipsKart.
Startup: Everimpact
Founded: 2016
Everimpact is a startup fighting climate change with innovative solutions that can scale. Their vision is a planet where global warming is under control. Their mission is to make it easier for cities and companies (including shipping companies) to measure greenhouse gas emissions, identify opportunities to reduce emissions and finance needed investments.
Startup: Expedock
Founded: 2019
Expedock is an automation company in the freight market that can guarantee 99.97% data entry accuracy or their customers’ money back. Expedock trains and conducts quality assurance Artificial Intelligence (AI) to automate accounting processes. By eliminating manual work for their customers’ teams, their operators can now re-allocate their time to focus on and improve customer service and operations.
TecPier
Founded: 2019 Location: Germany
Startup: Closelink
Founded: 2016
Closelink is a cloud-based purchasing platform for marine lubricants that allows buyers and sellers to work on the same page. RfQ’s and orders are transmitted, discussed and confirmed online.
Startup: NautilusLog
Founded: 2017
NautilusLog have developed a smartphone application to digitise ship documents. NautilusLog is adapted to the needs of the maritime industry and combines mandatory reports and tracking with innovative technology. The digital tools replace all the paperwork like clipboards to logbooks which the company claims increases efficiency.
Startup: Signol
Founded: 2017
Signol is a software platform that draws on insights from behavioural economics to encourage employees to make more efficient decisions. Signol provides personalised feedback through multiple communication channels, as well as data analysis for managers. For maritime, Signol has developed their STEAM (Sustainability Through Efficient Actions in Maritime) system that uses insights from behavioural science to “nudge” employees towards more efficient behaviour, which can simultaneously lower emissions and operating costs.
TMV
Founded: 2017 Location: USA
Startup: Nautilus Labs
Founded: 2016
With new carbon regulations coming up, the ability to predict future outcomes becomes even more important. Nautilus Labs offers ship operators a collaborative voyage optimisation solution that they claim increases profits and drives decarbonisation.
Startup: Portcast
Founded: 2017
Portcast aims to improve supply chain profitability by accurately predicting container arrival times and forecasting cargo demand.
IMC Ventures
Founded: 2021 Location: Singapore
Startup: BeeX
Founded: 2018
BeeX is a developer of unmanned underwater vehicles and surface vessels. Its features include hover, robotic and autonomous marine capabilities for underwater inspections. It integrates with a software platform so that owners and service providers can collaborate on inspections.
Signal Ventures
Founded: 2017 Location: Greece
Startup: Shipergy
Founded: 2022
Shipergy is a new bunker procurement company within the Signal Group that consolidates bunker volume and supplier credit. Their team of bunker buyers focus on the cost effective procurement of marine energy.
Startup: DeepSea
Founded: 2017
DeepSea Technologies offers vessel monitoring powered by artificial intelligence. They have developed two AI engines: Cassandra for technical fleet optimisation, Pythia for ship performance routing, and offer their own IoT cloud and sensor swarm called Neuro.
Startup: DryBulkX (DBX)
Founded: 2020
DBX has developed a platform for dry bulk commodity trading. The company claims that their platform integrates real time data that is provided ahead of official national, company, and customs data releases, advanced analytics, and comprehensive market coverage.
Startup: OilX
Founded: 2017
OilX enables traders and analysts to gain fact-based intelligence and draw conclusions faster through intuitive, accurate, real-time oil data analytics and market intelligence reports that facilitate confident decision-making.
Startup: Shiplex
Founded: 2021
The result of a demerger from Best Practice Consulting, Shiplex offers an ERP system, crew planning portal, and digitalised vessel forms.
Startup: Storm Glass
Founded: 2019
Storm Glass offers weather forecasts and historical data from the world’s most trusted meteorological institutions in a single API. Access is sold on subscription and operates on the JSON programming language.
Startup: Seafair
Founded: 2019
Seafair is a crewing platform that aims to make seafarer employment safer and more transparent for both shipping companies and crew members. Their first pre-seed investment round closed in Q2 2020, launching initially into the Ukraine market. Seed stage was closed in Q2 2021 and a few months later the company reached its first 30,000 users.
Conclusion
Venture capitalists (VCs) thrive on their willingness to take on higher risks in search of potentially high returns. They are often attracted to business models that challenge existing markets or that have the potential to generate new demand. A key factor in the success of a VC fund is the ability to identify startups with the potential for rapid growth and a skilled team to execute their vision. The maritime industry, with its many challenges and opportunities for innovation and digital transformation, has attracted a significant number of startups in recent years, particularly those focused on decarbonisation.
The maritime sector offers a unique and promising environment for VC investment. Shipping is a vital and globalised industry, with around 90% of cross-border trade being carried by sea. However, the sector also faces numerous challenges, including the need to decarbonise and address humanitarian, welfare, and workforce issues. The multifaceted nature of these challenges has attracted entrepreneurs and investors who are eager to bring about positive change and drive innovation. According to Thetius data, at least 1,350 companies have entered the maritime innovation space since the 2008 International Maritime Organization greenhouse gas reduction benchmark. This is equivalent to the number of companies founded in the sector over the previous 155 years.
In Europe, VC deal values kept pace with those of 2021, despite widespread erosion in economic confidence among investors, but volumes have started to fall as predicted in the latter half of the year.
While it is true that capital is becoming scarcer and more expensive, this trend does not necessarily spell doom for startups seeking investment. VCs are increasingly looking for more mature companies with proven track records and the ability to generate revenue. This means that startups must differentiate themselves and clearly articulate their value proposition in order to stand out in a competitive market. However, for those startups that are able to do so, the potential rewards are great. The maritime industry is ripening for disruption in many areas, and investors who are able to identify and support the right startups have the opportunity to be part of these game-changing developments.
