InvestShift Added to SupplyShift's Product Portfolio
In this interview, we learn how InvestShift emerged from SupplyShift. Alex Gershenson is the CEO and co-founder of SupplyShift. Above, watch a short video about InvestShift.
Key Highlights
InvestShift is a new arrow in SupplyShift’s product quiver
Investors are seeing higher returns with ESG-centric startups
SupplyShift will start hiring many more people in January 2022
SCWorks: Welcome Alex. Has SupplyShift shifted to InvestShift, or am I reading too many “shifts” into the occasion?
Alex Gershenson: So we haven't shifted. We have added to our quiver very important distinction. This is not a pivot. This is an expansion.
SCWorks: Tell us more!
Alex Gershenson: Sure. I guess we don't have to go into what SupplyShift does. But fundamentally, it will actually help a little bit. We help buyers understand the environmental, social, and corporate governance (“ESG”) characteristics of their suppliers and help them improve. So it's a supplier engagement and supplier data collection and management tool. As I was raising the first round for SupplyShift, investors started saying, “oh, yeah, my LPs are starting to ask me about this”. And then we squinted a little bit and we saw that the relationship between a buyer and a supplier with respect to ESG data is fundamentally the same as between a private asset manager and a portfolio company.
In that, unlike public markets, you can't just go out and buy data on public companies. There are products that scrape data from reports, and they sell you the ESG data, right? For private markets that doesn't exist. Increasingly, private asset managers are being asked by LPs when they're raising their next fund. And if they're kind of toward the later stage, if they're taking a company public, that company better have an ESG story and be able to report meaningful E SG metrics if it's going to go public. By 2025, over 60% of all mutual funds are projected to have an ESG focus. And we're seeing that. What percent was that 60? We saw Morningstar did a report that during the pandemic, ESG focused funds did 4.5% better than non ESG focused funds.
If you're an investor, one fund does 10% and another does 14.5% Those are meaningful differences. Think: downside protection and resiliency. ESG becomes essentially an indicator of overall business stability and business success. My perspective on it is that if you, as a business, can meaningfully answer the question of “what is your carbon footprint”, then are your books are in order? Are your systems of control are in order? If you don’t understand all aspects of your business perfectly, you can't provide that answer.
For somebody to audit a business, to check all those things would be hard. If you ask “what's your carbon footprint, and provide me with evidence”, a business that says “probably” does not have those controls in order. A business that says, “oh, yeah. Here it is. And here are my reduction targets. And by the way, here are my methodologies for measuring” — bullseye. You better believe they know exactly how many electric power meters they have. You'd be amazed how many businesses have no idea.
So in some sense, it's a metric of enterprise maturity. So given all that, especially during COVID, investors and LPs are saying “wait a second, we have got to know this”. What we see is that relationship of needing data on the one hand, and have a financial incentive to provide data on the other hand. It I s the same between buyers and suppliers, and between private asset managers and portfolio companies. Though this new market is much less mature than the procurement market, the procurement folks have already been working on this for a few years. It is totally an open field.
From a product perspective, it's the same product - InvestShift is the same as SupplyShift. We just reskinned it. And we tweaked the methodologies. But overall, the same problem is being addressed. And so we realized that we have an opportunity to roll out a proven product from a different industry into a new industry. So it is definitely not at all a pivot.
We're actually seeing this as an extension because, really, investors are part of the overall value chain. Right? And investors fundamentally down the road will want to know what's happening, not just in their portfolio companies, but in the supply chains of those portfolio companies. That's where there's a lot of risk (for investors), and as we now know, supply chains are very important.
SCWorks: What's the commercial model?
Alex Gershenson: Very similar model to SupplyShift: buyer pays. In this case, the investor pays. And we will soon release kind of an intro starter solution: a simple and inexpensive product for people to dip their toes in.
SCWorks: Who are your ideal market fit customers?
Alex Gershenson: Private asset manager who's got at least 20 or 30 portfolio companies, probably Series B and above roughly.
SCWorks: How big is that market?
Alex Gershenson: In the US, it's still very much wild west. In Europe, there are regulations that are coming next year that are going to require private asset managers to be able to track some of this stuff. So some of it is going to be regulatory, and some of it is LPD driven. Right now, what we have is very much an enterprise level product because it mirrors the supply shift enterprise level product. Using a bicycle as an example, we are hearing from the market many investors think they need a bicycle. In comparison, InvestShift is like a specialized Tarmac SL $77,000 carbon race bike. Investors want to essentially first try a bicycle. Which is why we're going to release a much paired-down version in the next couple of months — a kind of starter package — to allow private asset managers to get a first taste of ESG across their portfolio. And then, of course, with our entire suite of solutions, they can grow into more sophisticated levels of management and more sophisticated engagement with their portfolio.
SCWorks: Levels of entry was a successful model for SupplyShift, right?
Alex Gershenson: Yes. With SupplyShift, a lot of our Fortune 100 companies generate customized assessment methodologies. Our smaller customers use what we call “SupplyShift Essentials”. So this again, mirrors that same principle. SupplyShift Essentials are standardized assessment methodologies developed by our partners. Investor methodologies are developed together with Sustainable Accounting Standards Board (“SASB”) — one of the three leading methodologies for corporate assessment around ESG for the financial market.
SCWorks: How did SupplyShift do during 2020?
Alex Gershenson: The first couple of months, Spring of 2020, was challenging. Some of our business relied on companies doing onsite audits of facilities for labor violations, et cetera. That all went away. Still, nobody is doing onsite labor audits, which is potentially problematic. Right. And then another part of our business relied on apparel was a big sector before the pandemic for us. And the apparel industry took an 80% revenue hit as an industry because nobody was buying. The only folks that were making money were pajama companies!
So we closed one of the biggest sleepwear conglomerates out there during the pandemic. We took a sizable hit up front, but after a few months of dust settling, we drastically expanded our presence in the grocery and retail sector.
SCWorks: Does it seem that most industries are back into the swing of things now?
Alex Gershenson: I think a lot of companies right now are focused very much on the day-to-day aspect of supply chain disruption. I think 2022 is going to be a massive year for us. So in August 2021, Gartner released a supply chain hype cycle. SupplyShift is right at the top and 97% of procurement officers are saying that they're going to be making a purchasing decision in our industry in the next 18 months. We own it.
SCWorks: Talk to us about work life balance in Santa Cruz, hiring people locally, anything that impacts local community.
Alex Gershenson: One thing that we saw was that SupplyShift has always been very much remote friendly. We had employees all over the country. We now have a SupplyShift UK limited company subsidiary. We have people all over Europe, so we've always been remote friendly. We have just over 60 employees, about half in the US, and half outside of the US. But one thing that we saw was a lot of people actually left Santa Cruz to work remotely where rents are cheaper. I think five or six folks moved from Santa Cruz to San Francisco during the pandemic because the rents are cheaper… for now. Well, they have rent control…very tenant friendly. And so folks moved up there to lock in the low rents. Yeah, because Santa Cruz rents didn't move during the pandemic because everybody moved to Santa Cruz, who was not in Santa Cruz, and other people moved to Southern California, other places. So we are now a minority Santa Cruz company. For us moving to remote, it was almost a non-event. And we shut down the office a week before California SIP. We basically said, look, grab your laptops. If you want your desk, grab your desk and hopefully we'll see you in a couple of weeks. We thought that we'd be done by April of 2020.
Yeah, for us, that shift was a non-event because we always had systems. Even when we were in the office, people work from home part of the week anyway, because that made sense for them. The other thing is that because we work in all sorts of time zones. It's not reasonable for somebody to be taking Europe calls from the office because that's six or 07:00 a.m. In that sense, we were minimal. But it has challenges. It's hard, obviously, without a personal connection, without a physical being able to go grab lunch or grab a beer. Lots of thought has gone into how do we stay connected on a personal level when we can't be in person for a while? We held parking lot beers. Everybody bring a lawn chair, stay 6ft away outside, and we have our giant parking lot that was completely empty. So, hey, why not?
SCWorks: Planning on hiring more employees soon?
Alex Gershenson: We are hiring many starting in January 2022. We will contact Santa Cruz Works in late December with some exciting news.