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An Insight Into the Supply Chain Crisis

To our Valued Investors:

As hard as it might be to believe, the Covid-19 virus is approaching its second birthday. Apart from the fear, the confusion, and the uncertainty that pervaded the mood of the first months of 2020, one unforgettable circumstance was the sudden shortage of certain items. Hand sanitizer and surgical masks topped the list, of course, but very quickly it was impossible to find jugs of bleach, rubbing alcohol, or baby wipes. Food items like milk, eggs, and beef soon followed. Much of the disruption (particularly of the edible stuff) resulted from processors being closed due to positive Covid tests among workers, but sanitizing materials and paper goods disappeared from the shelves thanks to excessive hoarding. Evidently, a large number of our neighbors believed that the nation was on the verge of unprecedented mayhem, and the remedy for such a disaster was a couple of years’ supply of toilet paper stashed in the basement.

By the beginning of summer, things had balanced out fairly well. The initial panic had lessened, inventories were replenished, and compulsive shoppers didn’t have any need to add to their collections of doomsday provisions. Still, random spot shortages began popping up. One week, chicken was out of stock across wide regions, then the next week it was paper towels, and then laundry detergent. On the surface, this new irregular pattern of shortfalls defied logic. Perhaps the best explanation was that we were witnessing the early stages of a larger supply chain crisis that has since evolved into a matter of global concern.

Overall production stalled in the first half of 2020. With “zero tolerance” workplace policies across the world and notably in China, the places that are known for making a lot of stuff simply were not cranking anything out. Meanwhile, the long-term closure of restaurants, movie theaters, and sports arenas shifted family budgets. Without an opportunity to spend on services, people began to splurge on goods, mostly purchased online. What’s more, with widespread home schooling, working from home, and general in-house isolation, home improvement projects suddenly became much more popular. Curtains, furniture, and appliances were snapped up virtually. Video game consoles, laptops, and other electronic media items were upgraded. Meanwhile, the United States was confronted with a parallel crisis --- a shortage of laborers that continues to this day. About twenty months into the overall pandemic saga, about 43 million participants are absent from the work force in comparison to 2019 numbers. Due to day care center and school closures, many are unable to return to work. With trillions of incentive money having been distributed, millions of lower-wage earners are finding it economically more prudent to stay at home and hold the sofa down all day rather than toil for a paycheck. The initial disruption in manufacturing, the spike in demand for goods, and the decrease in the number of people engaged in overseeing distribution have combined to produce an unfortunate cascading effect. The global cluster of bottlenecks has an increasing number of cargo ships stalled outside of the ports of Los Angeles and Long Beach on the west coast and the ports of New York and New Jersey on the east coast. Particularly troubling to many are the shortages in computer chips, automobiles, and iPhones, all of which are related. All in all, it’s a tangled mess with no apparent relief on the immediate horizon. To make matters worse on the other end of the deal, meanwhile, empty shipping containers are being sent away from our ports, causing major issues for American exporters.

Even though Halloween is only a few days behind us, the most proactive holiday shoppers have crossed off the majority of the items on their gift lists. For everybody else, another lingering unpleasant circumstance of the great pandemic may be in the wings.

One observer has seemingly identified a silver lining around the supply chain crisis cloud. Phil Levy told The San Francisco Examiner, “If you were going to pick a place that has uniquely benefited during this tough period, it would have to be the Bay Area. For us, this is a moment of opportunity.” It would make sense that Levy might feel this way, though, as he is the chief economist for the supply-chain company Flexport. For San Francisco-based Flexport, the global challenge is a bit easier to digest because their business is all about optimizing the supply chain and lending their expert insights to thousands of interested and deep-pocketed parties. This year, Flexport has bucked the trend by actually hiring hundreds of new employees, and their revenue has doubled to about $1.7 billion.

Palo Alto’s Orbital Insight is also an accidental beneficiary of an unfavorable situation, but they are perhaps less vocal about it than Mr. Levy. Orbital’s specialty is leveraging satellite data to paint an extremely detailed picture, and an insightful interpretation, of what’s happening on Earth’s surface. Their data-compiling algorithms are adept at assembling an elaborate history of activity around shipping ports worldwide. RBC Capital Markets’ Port Heat Map, which serves as the go-to resource for monitoring shipping containers in ports worldwide, relies on Orbital Insight for its data. Orbital also has a method for revealing the rises and falls in numbers of workers around the ports, and it’s quite creative. Orbital’s systems can monitor cell phone activity (anonymized and stripped of identifying data to protect privacy) and compare it to trends from other time periods. Last month, this measure showed a dismaying statistic of a 30% decrease in laborers around the Long Beach ports as we’re supposed to be ramping up for the holidays.

In case one is tempted to believe that Orbital is essentially a vessel that delivers bad news related to the pandemic, it should be noted that they have also illuminated some rays of hope. Two weeks ago, Bloomberg UK relied on Orbital data to report that the City of London has regained half of the foot traffic that had vanished at the beginning of 2020, and nearby Canary Wharf has welcomed back 59%. Of course, Orbital’s applications span much more broadly still. Unparalleled levels of data and insight pertaining to oil reserves, crop health, urban renewal, military development, and an ever-expanding list of other fields add up to mountains of information. The smart money recognizes the value of such information --- In-Q-Tel, Google Ventures, CME Ventures, Sequoia Capital, Lux Capital and Bloomberg Beta have all participated in Orbital’s funding rounds. Clearly, the VC professionals with the highest success rates love this company. After several raises, Orbital Insight is one of the most well-capitalized companies in the geospatial analytics industry. Internally, things are humming along as well. Since 2018, Orbital’s year-over-year revenue has been increasing by about 50%.

The Information Age began decades ago, and Orbital Insight is steering it into exciting and unexpected places. Unfortunately for most, the company’s shares are not yet available to the investing public. It is privately held, not for sale at the stock exchange, but your friends at Iron Edge VC can deliver your piece of this promising enterprise through our fund before the masses have the opportunity drive the stock price toward the satellites that keep Orbital at the forefront. Demand for ownership is quickly heating up in this name, but now it is still early enough in the game to beat the rush. If you would like to learn more, or if you know of anybody else who would, do not hesitate to contact us by clicking “Get in Touch” below.

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All the Best,

Paul Maguire
Founder & Managing Partner

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