Lots of Investor Interest in CTRM and Related Software

This last few months ComTech’s collective phones have been ringing off the hook with VC and PE firms expressing an interest in commodities and the technologies that support the industry. Most often, they are conducting basic research into the space before deciding whether or not it seems like a good place to make some investments though one or two inquiries have been much later stage than that. Indeed, CubeLogic took on a new investor in February in the form of BowMark Capital and many other investments in the related space have also been announced. These included Vesper – a leading Dutch agricultural commodity intelligence platform announced the close of a Series A financing round, STG’s continued investment in the space as Quor acquired Eka, Cultura’s acquisition of Agiboo and others some of which remain undisclosed. What is driving this interest?

Well, plainly there is significant interest in the renewables area and green tech generally. Is some of this spill over into the Commodity Technology space? Perhaps but it seems that most potential investors have a view of a buoyant commodities trading space with significant upside. Interest in our CTRM Market Sizing report has also been spectacular in recent months with multiple sales of what is honestly seen as the gold standard for market size estimates in the space. The last report shows a $2 billion industry just for CTRM and related software. We estimate that commodity management could be several multiple of that larger. Then add in data management, risk management, the potential for AI deployment, digitalization and so on and this becomes an attractive space for potential investors. We are in the process of redoing our market forecast currently and it seems it may have grown faster in the last 18 months than even we had forecast.

The problem is that the devil is in the details.

The complexity and lack of standards in the commodities trading space is routinely underestimated by outsiders. So may times, we have heard the outsider talk down this complexity as ‘imagined’ or ’eminently solvable with the right minds’ – as if the industry itself didn’t employ some of the brightest and the best? I recall one person telling me that he would solve this complexity nonsense in 6-months just like he had in automotive and other industries already (- yes, that didn’t end well at all for him). Briefing calls with these potential investors always sound to me like one long apology from us for this complexity and as we have done more of these calls, we may have got better at communicating this complexity – and lack of industry standards. The fact is that our industry is getting more and more complex – for example in areas like power trading and grid stability. Each commodity has a physical aspect to it that dictates pricing, storage, transportation, handling and so on and as new rules and regulations around essentially traceability, come into play, it all gets more and more complex. Handling all of this complexity has always been the issue at the heart of why are there so many solutions still on the market?

We still count over 100 CTRM and related software offerings. Each year, it increases as 6 guys in a garage with a good idea and hot new tech roll out something new. Yes, some vendors have market share – often largely acquired if the truth be told, but each regional market has its own local suppliers, each commodity has its own specialist solutions, each discipline of risk (credit, market, regulatory etc.), financial, physical, document management, treasury, FX etc. etc. has its own niche suppliers and so on. How big is the total addressable market we are often asked. Well, what market are we talking about is often our answer. What we are really dealing with is a global heterogeneous market – a custom software market masquerading as a packaged software market. That’s not to say that there isn’t opportunity and there isn’t profit to be made – there most certainly is massive opportunities and money to be made but the idea of one single all singing, all dancing software platform that dominates is still as much of a dream today as it was when I started out in this pace in 1996. There are some platforms that can do a lot of things but each of them really is vulnerable to the niche, local solution that is cheaper and faster to implement. Even the advent of the cloud, SaaS and ecosystems hasn’t yet quite solved the problem though it may yet in time.

If you look at even one small part of the industry – like barge trading, for example – you see that a lack of agreed industry standards hinders progress. Take Vakt as an example. Here is an attempt to streamline and standardise industry processes in the area of barge trading managed by what is in essence an industry-backed entity and only now is that effort starting to see real progress and trade volumes rising rapidly. I was involved in standards body POSC early in my career and watched on as GISB emerged – these initiatives never truly produced the sought after standards but made some progress towards that goal. It’s partly this lack of standard approaches that hinders the search for the solution to the complexity.

So, we are happy to talk to potential investors. We tell them of the opportunity and also of the risks involved. Often, we suggest that historical context is a key aspect of understanding the space and so they should purchase our book and read it prior to paying fees for a briefing. After all, so much knowledge packed into the book priced at around $40 – who wouldn’t want to buy it? (You can buy it here).

 

Meanwhile, isn’t it great to have so much interest in our space?

 

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