Rose Rocket CEO Justin Sky says his company was able to nearly double its undisclosed valuation from its last financing, when it raised US$25-million in mid-2021.Christopher Katsarov/The Globe and Mail
Justin Sky and his co-founders at Rose Rocket Inc. built their transportation management software by trying to solve any problem their customers in the trucking industry asked them to address. “We just said ‘yes’ to everybody and tried to figure it out and chased every dollar as capital efficiently as possible,” the chief executive of the Toronto company said in an interview.
That approach can be a trap for young software companies as they chase too many customers with bespoke requests, straining resources and limiting their ability to scale up. Instead, the eight-year-old startup has managed to stitch together what could be a first for the transportation industry: a one-size-fits-all online operating system that could become the logistics system of record for the sector.
Rose Rocket’s customer count has increased to between 1,000 and 1,500 from 600 in mid-2021, while the number of companies that plug into its network, often to track shipments handled by a Rose Rocket client, has grown 47-fold to 27,000-plus. As more industry players see the software work, many become clients: One quarter of the software company’s business comes via word-of-mouth. Revenues, which have grown by more than three times in the past two years, now exceed US$10-million annually.
Now, amid its brisk growth, Rose Rocket has raised US$38-million in venture capital. Silicon Valley venture capital firm Scale Venture Partners led the financing, announced Tuesday, which was also backed by existing investors Addition Capital, Shine Capital, ScaleUP Venture Partners, Funders Club and Y Combinator.
In an interview, Scale general partner Alex Niehenke said that such a system of record used broadly by sector players is rare in the transportation industry. “It’s one of the last frontiers of cloud software that hasn’t been solved by a single defined incumbent,” he said. “That’s what I pitched my partners: somebody is going to build a company to own this market.”
To Mr. Niehenke, Rose Rocket looked like the company that could address all the main segments. That, plus its rapid growth since 2021, “checked the box for Rose Rocket and helped us get very enthusiastic and lean in,” he said.
Mr. Sky said his company was able to nearly double its undisclosed valuation from its last financing, when it raised US$25-million in mid-2021. That’s a rarity at a time when companies that are able to raise money typically hold their previous valuations at best, or more typically accept money at a fraction of their previous worth. Mr. Sky said the process was competitive, with multiple financiers submitting terms despite the brutal state of the funding market for startups.
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The deal did not come with complex or disadvantageous terms for Rose Rocket or early investors, which financiers have increasingly demanded from cash strapped startups to improve their own returns when the companies sell. Mr. Sky said Rose Rocket also did not reach for an inflated valuation when it last raised, as many other fundraising startups did when investor interest in tech peaked. That made it easier to raise this time around.
“This has never been a value-optimization project,” Mr. Sky said.
Mr. Sky co-founded Rose Rocket in 2015 with fellow serial entrepreneurs Justin Bailie and chief technology officer Alexander Luksidadi, two of whom had previously worked in transportation logistics. They were keen to build a software platform for the transportation industry on par with offerings that were popping up to serve other industries, sold by subscription, hosted on the cloud, offered online and easy to use.
By contrast, the industry was and remains served by a highly fragmented patchwork of dated software vendors each catering to each subsegment, such as brokers, third-party logistics providers, long-haul transporters or last-mile delivery providers. Most vendors typically offer dated programs used only on company premises and that specialize in serving individual segments of the market.
Rose Rocket’s offering is a modern, streamlined system which integrates existing transportation industry solution and allows customers to manage logistics and operations, including automating order entry, sending quotes, dispatching and tracking drivers, and instantly sharing digital documents as loads are picked up and delivered.
They can also let their partners peer into their system to track deliveries in progress. “There aren’t many software providers that can do what Rose Rocket has done,” said Matt Cohen, a company director and investor through his venture capital firm, Ripple Ventures.
Mr. Niehenke said his firm looks “for companies to become large stand-alone businesses with a potential to go public, to be category leaders” and that he’d been looking for an investment in the trucking software market “for close to a decade now” that could emerge as the giant in a fragmented market. “We see that opportunity here at Rose Rocket.”