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Welcome to another episode of The 7 in 7 Show with Zack Ellison, which features full length interviews with the world’s leading investors in innovation.
Episode 10 of Season 2 features Liz Ward, VP of ZEBOX America, an international supply chain accelerator focused on connecting large corporations to innovative startups to solve the most pervasive problems impacting global supply chains.
Prior, Liz held several leadership positions at tech enabled freight brokerages such as Transfix and Convoy. Before venture, she was an executive and minority owner at Ward Transport & Logistics, a Top 25 LTL carrier in the U.S. and was a founding member of Price-Tran LLC, an asset-based trucking company revolutionizing the way freight is priced.
Liz launched her career at Booz Allen – where she consulted with domestic and foreign intelligence and law enforcement agencies to disrupt and dismantle illicit supply chains, most notably the global heroin trade. She graduated with honors from Lehigh University with a B.S. in Supply Chain Management and is an active advisor and investor to startups.
In this episode, Zack Ellison and Liz Ward discuss:
- How the ZEBOX Model Solves Vexing Supply Chain Challenges
- Supply Chain Innovation Through Corporate Venture Capital
- Choosing the Right Investment Partners: A Key to Success
- The Future of Work in Supply Chain Management
- Venture Debt: A Minimally Dilutive Financing Tool for Startups
- AI’s Transformative Impact on Global Supply Chains
- Driving Sustainability and Decarbonization in Supply Chains
Transforming The Supply Chain Through Corporate VC With Liz Ward, Part 1
Introduction To ZEBOX And Its Mission
I have with me Liz Ward, VP of ZEBOX. Liz, I love what you’re doing. Tell us about ZEBOX and what you do there.
Thanks for having me, Zach. I love this show, so it’s a pleasure to join. ZEBOX is a supply chain accelerator. Our mission here is to essentially bridge the gap between established corporations and high-potential startups to solve supply chain problems. We’re a little bit different than a lot of accelerators out in the market in the sense that we’re non-dilutive. We’re totally free and non-dilutive to startups. We don’t invest in any of the solutions that we introduce to our partners.
I think that makes us very attractive to startups and helps us on the sourcing side in the sense that what we’re doing is problem-solving all day long. I have found that whenever you invest sometimes in a company, it potentially creates some bias. By not investing and having it totally free helps us be very selective. We’re also very VC-friendly, very incubator-friendly as well. That also helps our sourcing channels. We have a team. Everyone on our team have been operators in the supply chain, whether it be at a brokerage or a trucking company, an early-stage startup, etc.
I think that really helps us go deep with other folks as well. We’re building this ecosystem of supply chain companies. We work with ports, freight forwarders, trains, steamship lines, inland barge companies, etc. As you can imagine, there are all sorts of opportunities within these companies. That’s essentially what we do. We’re connecting them with great solutions.
Walk me through the model. How do companies become part of the cohort and what do you then do once they’re in it for them?
For startups, it’s all based on the problems that we are able to gather from our corporate partners. When we launched in 2022, we would do, and we still do, these really immersive deep dive sessions where we’re on site for a couple of days and we talk to all of the functional teams from HR to ops, finance, etc. We gather all of the problems and these are funny sessions in a way in that you get everything.
I remember one time someone said, “Liz, do you think we could get better coffee cups in the kitchen?” I was like, “I don’t know, but I’ll write it down.” What we do from these exercises is we amass all the things and we help prioritize them with the executives at the company. This helps inform our sourcing. We’ve done this over and over again. We’ve amassed over 250 problems in the last few years, and we have found that 80% of them fall into four categories. It’s operational efficiency. How do I get my stuff there better, faster, cheaper?
The second is the decarbonization of the supply chain. This is a newer category, especially in the US, Europe is very much advanced, but this could be anything from exploring alternative fuels to investing in new infrastructure to ways of calculating your carbon emissions. It’s really like a loaded field. That’s number two. The third is scalable AI, how to automate the back office function. This is where a lot of the AI solutions have come in and are doing really great things, automating a lot of the manual work or the dirty dangerous doll tasks that people don’t want to do.
The fourth is future work, and how we think about future work at ZEBOX is not just your relationship with your employees but with your customers as well. This could be everything from safety to thinking through better eCommerce solutions, meeting the customer where they are, making it easier for them to work with you, and all sorts of things in that category. We focus on those four and that’s really how we resource the startups.
For the startups, it’s like they’ve got to just hang out until we have something for them. We talked to companies a lot that are really cool and interesting, but they’re just not a fit on the corporate side yet. It’s like, hang out, attend our events. If you want to, you can be a part of the community, but hang tight in terms of commercializing and introducing you to folks.
Liz, just to take a half step back in terms of the bigger model, is the program funded by corporations that are involved in the supply chain? How does it work?
How Corporations Fund The ZEBOX Model
Yes. These companies normally sign up for three-year agreements. As I said, we’re going in, doing these immersive guides, and explaining what the problems are. As you can imagine, on the corporate side, we’re really an extension of their innovation team, or in some cases, we are their innovation team. We’re able to go through the stack of startups that are reaching out to them or to find startups to introduce them but take the burden of all the sourcing and the due diligence and the evaluation off the table, off their hands, which is a huge time savings. It frees up those resources to really focus on distilling what projects are most important for that organization now, and also the execution part. Introducing a startup is no small feat inside a large organization.
If I were to summarize, I think of it as corporations that are involved in the supply chain have a lot of problems that they’re trying to solve to make their businesses better and to make more money.
Opportunities.
A lot of opportunities and then, with that, problems as well. They come to you and they fund this program and then ZEBOX goes out and finds amazing startups that can help solve these specific problems that you’ve identified that the corporations have. They’re basically saying, “We’ve got these issues that we need a solution for involving innovation and technology.” You’re basically finding all the companies that can solve those problems.
Yes, perfect.
That’s a great model. In terms of what ZEBOX gets out of it, how do you guys benefit from all of this?
Tweets: Don't underestimate the amount of money you’re going to need or the time it will take to reach your goals. Too much, too soon, too fast can be dangerous. Share on XWe benefit by working with awesome companies. That plays a big role in our supply chain. One incremental improvement in one of those organizations has a far-reaching impact on the entire chain. That’s one huge benefit. I also think that we’re in a really great position in that we’re like Santa Claus for startups because we don’t take equity and it’s totally free, and we’re selective, which means that we have all sorts of founders in our network that are just amazing people building awesome companies. To watch that on the sidelines and then also make the connections with the corporations and then you see the company evolve even more, it just feels good to do something that’s more pure. There’s no hidden agenda here. We want to connect really great companies with others to move things forward.
I think it’s a great model and you have a unique skill set for it. Let’s dive into your background and how you got here.
You might not believe this, but I first started out my journey in the supply chain working with the government on illicit supply chains. The flow of like cocaine, heroin weapons, we viewed it, I know it’s really bad, but it’s run pretty damn well. Maybe there are some things we can learn from that. Looking back, I don’t know, I had one of the highest clearances as at age 23, like it was wild.
That was my first job out of college. I did that for several years. I actually grew up in a family trucking company. When I was doing the consulting thing, wrapping up with the government, I thought, “I want to get back into business.” I grew up with it all my life. That’s when I entered trucking. I started a trucking company with my brothers. It ultimately failed. Looking back, I’m so proud in many ways of that whole experience because I think failure is the best teacher that there possibly is, even though it’s incredibly painful.
From there, I have seen the pain of how hard it was to run a trucking company and the devastation of having to fire a lot of people at once and all the things. I really wanted to do something that was going to promote jobs. At that time, that’s when a lot of the VC venture dollars were being poured into the supply chain trucking space. I was very early at Convoy, which was the first Uber for trucking startup.
I thought this was a great way to create, like keeping the trucks full, keeping companies in business, and keeping things moving with the connectivity of the phone. It was just a really interesting business model that was perfect for the time because in many ways, the smartphone, all of a sudden, became free at all these AT&T and Verizon wireless stores. Truck drivers bought them. Immediately, they had a way to connect to a broader ecosystem of freight and business through the app. I did that for a while.
In terms of the model that Convoy used, just for folks that don’t know, how would you summarize their model in simple terms?
The Convoy Model Explained
It’s really Uber for the trucking industry. Let’s say a shipper has something to move, a load to move. They go on Convoy’s system, they put it in, and it then goes out to all these truck drivers that are using the app.
Any of those truck drivers could basically say, “I’m go pick up that load.”
Yeah, it was so much faster than having to call, email or fax and all the things. Also, it benefited the truck driver because they got paid so much faster than if they were to wait around and submit their paperwork manually and all these things. It was a fantastic business model and these types of companies, with the VC dollars being poured into the trucking supply chain space, brought in a lot of great talent that was much needed.
At its peak, I think Convoy had a valuation of $4 billion-ish, if I’m not mistaken.
I think it was like $3 billion. It was really high. That was an interesting company. I was an employee 40 there and they grew to upwards of like 1,000 people. They scaled really quickly, but they had a very smart team. The two founders came from Amazon. No real experience in the supply chain trucking space, but really smart guys. They brought on a lot of A-list investors from Jeff Bezos, Bill Gates, Marc Benioff, and even Bono from U2 invested. It was like the coolest thing that happened when that happened but not necessarily the best investors for Convoy. I say this to founders. It’s like, “Vet your investors.” This is so important because just because they have money doesn’t mean they’ll be a true partner in the future.
Supply Chain: Focus on the customer, stay true to why you exist. The train might be moving fast, but don’t lose sight of the core.
It’s such a good point, but I actually get into that. We’re coming back to it because I want you to finish your story in terms of how you got here and then we definitely need to dive into how to choose investors. After Convoy, what did you do after?
I worked for a couple of other VC-backed companies, growing functions, being more of this entrepreneur but scaling them very quickly in growth and more growth-oriented roles. I did my own consulting for a while. That’s whenever ZEBOX came up and I thought it was just such a smart business model because there’s just a lot of startups out there and there’s just not enough buyer’s homes for these startups. I thought it was an interesting concept and one that was more sustainable.
Before we move on, let’s go back to two things we were just talking about. One is when you started that trucking company with your brothers, and you learned a lot of lessons from that experience, what were the key takeaways?
One of the key takeaways was don’t underestimate the amount of money that you’re going to need and the time is going to take you to get there. This concept of too much, too soon, too fast. I think a lot of founders are getting that rhythm, that momentum of like, “It’s working. This is really picking up traction. I got to go,” and they lose sight of the core, which is like the customer and why you exist because it’s so easy to get caught up in all the other things once the train has left the station.
I would say focus was one of the biggest things. Also, when you’re running a trucking company, it just doesn’t stop. It’s one of the hardest things I’ve ever done in my entire life. There’s no perfect day in the supply chain, which makes me giggle in a way when I hear about full autonomy and full automation. I’m like, “Do you people realize that there’s really no perfect day in this space?” It’s really hard to automate perfection. I would say that my biggest takeaway is not enough money, not enough time. Thinking about the focus, staying focused, and not entertaining any other external distractions.
There are so many things that I learned from that whole experience. About cash, how to manage cash. I remember so many times it was like, “How am I going to make payroll on Friday?” Cash is king. Cash management is truly no joke. I think many startups have been spoiled to a degree because they’ve raised a lot of money and been incentivized to spend that money quickly so they can raise the next tranche of funding. That’s not a very healthy way to grow a business, in my mind.
This is a great segue into the current state of the VC ecosystem. It’s very difficult for founders right now to raise capital. A lot of that, in my view, has to do with what happened at the peak of the market in 2021. Talk about the current state and then how the peak is affecting us now.
Zack, you know better than anyone what happened back in 2021, especially with the supply chain space, because there were so many disruptions. We saw so much more capital being raised and the number of funds dramatically increased. That’s a good and a bad thing. Why it was good that all the COVID disruptions amplified the importance of the supply chain and the need for innovation, coupled with the Fed’s favorable monetary policy at the time, made it just like a really ripe time for people to funds to raise money. They did.
It’s interesting, that you look at the numbers from 2021 to 2023, the average deal size, like the check size was cut in half. The number of funds was cut in half like everything was cut in half. That’s a good thing though, because it made the industry a bit more focused in a way, but it led to a bloated ecosystem. The more funds, the more investment in 2021 just led to a surplus of startups. In the space I’m in, a surplus of startups in very saturated categories. That makes it tough on the corporate side because all of these founders are knocking on the same doors and want a shot.
The corporates, oftentimes, innovation is like their side hustle, and they have a totally other job inside the organization but it’s hard to go through these companies and probably vet them. How do if this company is better than this and it’s a lot of work. That’s where ZEBOX comes in. I think it’s a good business model, one that’s going to stick around for a long time but it all has led to this. We’ve seen so many supply chain disruptions from, of course, COVID, causing all sorts of things, all the lockdowns, the port closures, emphasizing the importance of our just-in-time inventory and the need for a better just-in-time inventory system.
We’ve seen infrastructure issues like the Suez Canal. I don’t know if you remember that whole debacle back in 2021, when I think it was called the Evergreen ship, but it was one of the largest container ships that got stuck in the Suez Canal. The ripple effects of just that because it’s one of the key arteries for a lot of these steamship lines. That’s a small thing. The Francis Scott Key Bridge, which is so sad. That’s so devastating to the Baltimore economy, the Port of Baltimore. There are all sorts of things happening every single day. The need is there. I feel like we’re just at the start of the innovation, really digging into innovation, solving problems with meaningful solutions and products and founders. It’s really exciting, actually.
I think you’re in a very good spot in terms of the stage of companies that you’re working with, partially because of what happened with the peak market. Peak market syndrome is what I’m going to call it, right?
One incremental improvement in a supply chain organization has a far-reaching impact on the entire chain. Share on XRight.
Where there was so much money, and it led to a lot of companies and startups raising capital. Quite frankly, they didn’t deserve it because they actually didn’t have business models that could reach profitability with any likelihood for the most part. There was so much money flowing everywhere that people with a decent pitch deck and a halfway decent idea raised a lot of capital at high valuations that almost none of which will be reached. Even good companies are not going to probably reach their valuations in 2021.
You’re so right. When you really grasp the valuations, 95% of them are impossible.
What I think is already happening is actually a lot of zombie companies. What I mean by that is if you are a startup that raised a lot of capital at an absurd valuation in 2020, 2021, first half of 2022, and you say a Series A, B, or C company that didn’t really have a viable business model truly proven yet. When I say viable business model, I mean a business that generates profit.
What? Profit?
Wait, what? Profit? That’s what we did in 2021. It just came back into Vogue in 2023.
I’ll have to Google that term. No, I’m kidding, or else.
I think a lot of founders and VCs need to Google it.
Yeah.
Essentially, what I think has happened is that we had a lot of companies that had such a low bar to clear that they raised a lot of money. To your point earlier, there’s this pressure to grow the top line at all costs, or there was at that time. They weren’t profitable. They weren’t going to be profitable, probably for many years. When the spigot really turned off in the back half of 2022 and all of 2023, a lot of these companies realized, “I’m never able to get external capital on decent terms going forward and so I need to figure out how to run a profitable business.”
Unfortunately, they didn’t really know how. They had never learned. They had a lot of bad habits. A lot of those companies that were in series A through C had not yet reached profitability and a truly sustainable model. I think most of them are going to go out of business. I really do. I think a lot of them have been doing inside rounds with their existing investors, trying to hold on, hoping to bridge to better days, hoping the market will open back up or our rational exuberance will poke its head up again as it has in the public markets. It just hasn’t happened and I don’t think it’s going to.
I wanted to get your thoughts on this because, ultimately, it means a whole generation of startups is going to be lost. The real opportunity is probably in identifying companies that didn’t go through that peak market in the sense that companies now have a much higher bar to clear. They have to come in on day one and have a viable business model in order to attract capital. I wanted to get your thoughts on that, given you talked about how it always takes longer to build a startup than you think it’s going to. You always need more capital than you think. How do you think about the market now for those zombie companies, but also for the new breed?
Understanding your customer’s pain is the holy grail of business. Know your customer inside and out, and success will follow. Share on XIt’s interesting to see what happens to the zombie companies because they’re not all bad. Some of them just don’t know how to run businesses, but they’ve built great tech.
Good point.
Zombie Startups And New Opportunities
I almost see there’s an opportunity for a pseudo-PE Motion to happen inside this zombie apocalypse that I think is interesting. As I said, you have to trust that people have invested in these companies, they’ve seen something in them. I think it’s easy for us to say, “These are just all like companies that just deserve to fail.” Like I said, a lot of them just aren’t business people, but they’re great technologists.
Stuff to leverage there but I go back to understanding, maybe obsessing with the customer and their pain. For me, that’s the holy grail of business. If you’re in business and you’re looking to sell a service or a product, like know your customer inside and out, know your competition and your place in the competition, like get in it. What frustrates me sometimes, Zack, is that I hop on these calls with startups, and they’re eager to show the demo. They’re eager to show the thing and they’re so elated that they figured out a way to develop this product feature or that product feature.
You’re like, “What’s the business? You give me these crazy TAM charts and it’s so irrelevant.” It’s like, “Give me quotes. Who have you talked to? What are they saying? How painful is what you’re doing? Is it so painful that they’re going to switch what they’re doing in addition to all the other things that they have to do on the corporate side? Are they going to put yours the number one because it’s that painful?” I see startups just get into, they just buy their own bullshit in many ways and they miss out on the fun of it.
I see the same thing even with later-stage companies that have already raised a couple of rounds of equity capital and they still have these decks that are leading with the total addressable market, the TAM, as you said. A bunch of big numbers that are totally irrelevant. I think that’s changing, though, because there is a huge push coming from the VCs and other capital providers to really find companies that are solving real problems, like you said.
I 100% agree. That’s the number one thing I think we should be looking for as investors in this space. Do these companies solve problems that matter to customers? That’s number one. If you can do that, then there’s the possibility that if you do a lot of other things, too, you can get to a sustainable, profitable enterprise.
It’s understanding the problem, understanding the competition, what the competition is offering, and then finding the gaps. That is the success of it. In addition to hiring great people, managing investor expectations, getting properly funded for your growth, not getting way ahead of your skis, and thinking you’re going to 3X your revenue expectations the following year. That stuff scares me. It’s too much, too soon, too fast. You look at companies that are in their second year or third year and you’re like, “You should still be figuring a lot of these things out.” It’s okay. Give yourself the grace and the time to do that properly and set up yourself for a strong foundation moving forward because I think that is just time well spent doing that.
To your point a minute ago, there are some really good companies that did raise capital at very high valuations in the peak market. They are viable businesses, but they’re still struggling because their valuations are nonetheless still down considerably. They’re still at risk of having to do down rounds. They’re looking at other types of capital, namely debt capital or venture debt, people would call it, to try to either extend their runway, bridge them to the milestones that they’re trying to reach, or potentially your equity raise or some other type of exit. How do you think about a venture debt from just the founder’s perspective?
I think it’s a wonderful funding vehicle to consider, and it’s non-dilutive because it’s essentially a loan that you’re asking for. I think this is a great way for founders to preserve their equity but while getting the capital that they need to grow their business at the right time, folks like ARI are perfect options for that. I see founders are getting a lot smarter just overall on the equity piece in thinking about who their investors are and who they want them to be, hiring really good advisors, really good investors that are going to know, can you help them get to the next level that understand fluctuations in their business. Also, exploring different funding vehicles like venture debt. I think venture debt is a wonderful one that we’ve seen and is very popular across startups.
I want to dig into this idea of vetting your investors and vetting your LPs as a startup. I think this is incredibly important. As a fund manager, it’s also important for us as well because what I’ve learned is not all money is created equal.
I see that.
Supply Chain: The best investors aren’t just about money—they’re true partners who open doors, share wisdom, and help you grow in the right direction.
Sometimes, the smallest checks come with the biggest headaches. Actually, most often, I would say the smaller the check, the bigger the potential headache. How do you think about startups vetting their LPs? They do need money and some money is usually better than no money, but it’s not always positive in the long run. How do you think about it?
I think their track record is number one. I would look at their portfolio companies and look at the success of their portfolio companies, what their role has been, at which phase of their journey. If they’re in it to win it, or if it’s just like one investment. What you don’t want is an investor looking at you as a pony, like another pony to bet on. I think you want a true partner, preferably one with operating experience inside this space that you’re in and that could open up doors for you, and open up connections to other potential customers, great vendors, and great teammates.
To help spread your word because I’ve always said that the best marketing channel is word of mouth. I think really good investors, they do that. We see that in the supply chain space. In that folks, they align themselves with investors that get what they’re doing because it’s not linear. You look at the freight markets. It ebbs and flows every day, every month. If you have it, more of a traditional investor, that’s just looking at your top-line revenue growth, they might not be the best fit in those softer times.
Why A Diversified Capital Table Is Crucial
I agree with everything you’re saying. The way I think about it, just to add to what you’ve said is having a diversified cap table, I think, is really important. When I say diversified, having some VCs, of course, but also having other types of long-term patient capital that might come from family offices, which I think is a great source of capital or ultra-high net worth individuals. I also think the investors should have, once they’ve reached a state where they can service debt, have enough revenue and cash flow to pay the interest and then pay the loan down.
They should definitely have some debt in their capital table, but not too much. The way I think about it is that once a company is generating sufficient revenue, and this is a huge generalization. I think most companies in the startup space, once they’ve reached that, call it Series A through Series C stage, but they’re generating revenue typically. Venture lenders like to see about $10 million per year in revenue or more. Once they’ve reached that stage, I think companies should have about 25% of their capital being from debt and then 75% roughly from equity. What the debt does is it provides less dilutive capital than you already talked about.
It’s also a lot cheaper because you’re paying the cash interest, but all in the IRR or the total expected return that lenders need to achieve is a lot lower than equity investors. Lenders don’t really have nearly as many losses. Most of their investments wind up paying off. They have a couple of course, that will struggle, but generally, they’re hitting a lot of doubles. On the other hand, equity investors realize that a lot of times, they’re going to strike out, and then sometimes, they’re going to hit a home run. I think having some debt is key, but also, on the equity side, really diversifying across different types of investors, some of whom should have strategic expertise or some strategic benefit.
For instance, if you, Liz, were investing in a supply chain-related company, they’d be getting not only capital but also incredible expertise and connectivity. They’d be getting that almost for free. That’s worth more than the capital itself in many ways. The way I think about it, just to sum it up, is to have a diversified cap table, debt equity, and then different types of investors on the equity side. Not just VCs that are all or nothing, but others that are happy with a 2X return over 5 or 10 years.
I think there are more boutique VCs, too, that are just really focused on X. The focus thing we talked about with the founder, how important that is. I think the VC focus is so important.
Go into that a little bit.
For instance, I’ll give this one. There’s a VC called Venture 53 in our space. Everyone who works there has been an operator in the trucking space, the brokerage space, etc. They’ve been very successful founders that have exited recently and they have some cash to spend. Imagine the mentorship that comes with a Venture 53 investment, if you’re a founder. Imagine the connectivity and then the advice that you got like, “This actually isn’t work.”
The Value Of Focused Venture Capital Investors
I’m telling you X, Y, and Z reasons why, but let’s go in this direction. This is a small VC out of Richmond. They’re just starting, I think their first fund was 20 million or so, but there are a lot of these really great, more boutique ones out there, Dynamo Ventures out of Chattanooga, Iron Spring Ventures. A lot of really great smart people, but extremely focused and able to pick because they’re able to pick really good winners.
I 100% agree in the sense that having VCs that are experts in the space that have been operators can really add a lot of incremental value. Just to summarize what we just talked about. A diversified capital table is key. That means some debt, maybe 20% or 25% of your total capital. On the equity side, having a diversified base of some long-term patient capital that could be family offices or high net worth individuals typically. Also, having a lot of strategic investors who have operating experience or connectivity in the space can help you operationally.
The other thing I’ll mention, too, that I think is very overlooked, very surprisingly, is you should have a CFO. If you’re going out and doing a capital raise, you should have a good CFO. If you don’t have one internally, go out and pay to hire one for that raise because I’ve dealt with some companies recently that have raised over $100 million in equity, mostly at the market peak. They don’t really have any idea what they’re doing in terms of their capital structure.
They really don’t. To me, if you don’t have the right capital structure, your business is going nowhere. That’s foundational. If you sell too much equity at an early stage, for instance, your company’s toast no matter what. You’re not able to attract later equity investors because there’s not enough meat on the bone. If you over-leverage the company, you have too much debt and you’re not able to service that debt. I think having a very good CFO who understands how startups should optimize their capital structure is really important.