Maritime tech startups face coronavirus cull


A year ago, the stars were aligned for ocean-shipping software startups.

Vessel owners espoused the need for software solutions, touting concepts like “Smart Shipping” and satellite-coordinated fleets acting as “freight factories at sea.” Venture-capital (VC) managers with huge sums to deploy began looking at maritime tech in earnest.

The industry championed “green” investing standards and decarbonization as it prepared for IMO 2020 low-sulfur fuel rules. The pitch du jour was that transparency and technology would make vessels more efficient, save fuel and save the environment (a great pitch to attract young startup employees as well).

Fast forward to today. VC funding has suffered a double whammy: first, last fall’s refocus on profitability in the wake of the WeWork fiasco, and second, this spring’s coronavirus calamity.

Shipping industry customers are now preoccupied with surviving the crisis, not test-driving new software solutions. The price of fuel didn’t surge as a result of IMO 2020 as predicted; instead, it collapsed on falling demand. Decarbonization has effectively been put on the backburner.

To understand how this extreme turn of events affects maritime startups, FreightWaves interviewed Evan Efstathiou, CEO of software and demurrage-calculator company Burmester & Vogel and founder of Boston-based SkySail Advisors, which has curated an online “landscape” map of maritime technologies since 2009.

Coronavirus hurdles

The oil-price collapse has completely erased IMO 2020 fuel-price risk for shipping; in fact, marine-fuel pricing is down 40% year-on-year despite the environmentally friendly low-sulfur mandate.

Given previous expectations for higher fuel prices, “there had been tremendous enthusiasm for the performance-management part of the [maritime startup] landscape,” explained Efstathiou. “But the whole IMO 2020 story has now changed.

“From my own experience, back when oil spiked to $150 per barrel, I tried to start up a fuel-efficiency consulting firm, and when the oil price collapsed, everyone who had been calling and saying they needed to save money suddenly had amnesia. I bet that’s happening right now.”

If interest was represented by a heat map, he said, the performance-management field of ocean-shipping startups “has gone from dark-red hot to light-blue cold.”

Meanwhile, startups whose model requires placement of a monitoring device on customers’ ships are currently blocked from doing so. Coronavirus restrictions are so severe that vessel operators can’t even get mandatory inspections done.

B&V CEO Evan Efstathiou. Photo credit: John Galayda/CMA

“Any software that requires onboard ‘stuff’ must be a nightmare right now,” Efstathiou said. “I couldn’t even imagine how you could get someone on board a ship to install a little box that monitors equipment.”

Yet another coronavirus-era challenge: The entire staff of a potential customer is working from home and worried about their families’ health. “Any product that is heavy on business processes and requires you to deal with multiple departments in an organization or multiple offices around the world is going to be very challenged,” he said.

“With all this disruption, companies have a finite capacity to work on systems and business-process optimization. They’re focusing on the tried and true.

“In general, many customers are delaying or postponing any kind of purchasing decision right now. They’re saying, ‘It’s too disruptive, we’ve got to run the ships, we’ll talk to you in a month.’”

And then there’s the funding shortfall.

“People are going to be challenged to raise money if they haven’t raised it yet, and for those who have their Series A funding, they’ve got payrolls and expensive engineers and they are burning through cash fast,” said Efstathiou, adding that original investors may be “shellshocked” by huge losses and may no longer be willing to inject more capital.

Crisis strategies

Desperate times sometimes call for desperate measures. If necessary, “cut staff to the absolute minimum to deliver the product,” Efstathiou advised. If social distancing makes it impossible to source new customers, “mothball your sales and marketing function.”

If there’s budget available, focus instead on building out the product for the time when it can be marketed again in the post-coronavirus period.

On the funding front, seek interim capital from existing investors. “Start talking to them early,” said Efstathiou, who also highlighted the risk of taking emergency debt as opposed to equity, given that debt can sharply diminish the future value of common shares.

“Another option for startups who have their Series A funding and have founders who are making six figures is to ask the founders for a voluntary reduction in their salary in return for more common shares,” he continued. “Typically, in a Series A, a number of the common shares are reserved to issue to the staff. If you have less staff [because of layoffs], there’s more available.”

Post-coronavirus opportunities

“We are in a strong-will-survive moment over the next 12-18 months,” Efstathiou said. “This will really test which of these solutions are truly adding value and which are part of the hype cycle. There is going to be a winnowing of the field,” he warned.

He expects that the “fake it till you make it” companies “are just not going to be there anymore” and “the strong will become stronger,” with the winners being those whose products are “intuitive and easy to use.”

“If you can survive this time as a startup, you’re going to be well placed for growth at a faster pace, because people will start looking at digitalization again and at the changes that will happen as a result of coronavirus,” he predicted.

What will change and what will stay the same? “The people who own the ships might be different [after coronavirus] because some will go bust, but the ships are still going to keep moving so people will still need software,” he said.

There is likely to be some deglobalization as countries look inward. “My personal view is that deglobalization will affect a number of supply chains for [containerized] manufactured goods, but we will continue to see growing trade flows for bulk commodities,” Efstathiou said.

He believes VC funding will recover but it will be different. “I think founders are going to have more realistic expectations on valuations, which will make VCs feel better about deploying capital and will enable more deals to get done.”

He also expects future shipping businesses to focus on being more prepared for another coronavirus-like event. Systems and software will be geared toward managing a more distributed workforce.

“People are realizing the structural pain of not having key systems and data at their fingertips. Everything will have to be cloud-based. It will have to be the kind of system where if your laptop falls in the ocean, all you have to do is pick up another one and connect it to the network.

“Actually, if you think about it, shipping had one of the first distributed workforces in the world,” he added. “It developed the ability to manage remote assets traveling around the world since back when communications were by telex.” Ocean shipping has a head start on other industries: It is already partway to the distributed workforce model that software in the post-coronavirus era will have to accommodate.

“If you have fragmented knowledge across an organization, the knowledge transfer that normally happens when you’re sitting in an office doesn’t happen naturally anymore [in a distributed workforce]. The cumulative knowledge and know-how of organizations is going to have to be captured better in the systems and processes — because collaboration will still be the key to survival in shipping.” Click for more FreightWaves/American Shipper articles by Greg Miller

Newly updated SkySail Advisors maritime-tech landscape. Image credit: SkySail Advisors