Investors Have Stopped Feeding The Supply Chain

For a number of years, one of startup investors’ favorite activities involved writing checks to companies in the supply chain management sector.

From 2018 till the end of 2022, investors across the globe poured more than $50 billion in seed through growth financing into supply chain-related companies, per Crunchbase data. Several startups raised billions, including cold chain logistics company Lineage Logistics, freight-forwarding platform provider Flexport, and Hong Kong-based Lalamove.

As with all venture bets, it will take time to see what runaway success stories might emerge from this tremendous capital expenditure. Already, however, it’s clear some big wagers haven’t worked out.

This past week, Seattle-based trucking logistics startup Convoy, once a high-flying unicorn, announced it is shutting down operations, citing a “massive freight recession.” Previously, the 8-year-old company had raised more than $800 million in venture funding and $250 million in debt financing.

In a letter to employees, Convoy co-founder and CEO Dan Lewis blamed the combination of an unprecedented freight market collapse, rising interest rates and tepid investor appetite for unprofitable late-stage private companies.

Supply chain investment plummets

Crunchbase data confirms the declining interest from investors. So far in 2023, U.S. funding for supply chain startups barely surpassed a billion dollars — less than one-fifth the total raised in the same period last year.

By both investment totals and round counts, 2023 is on track to be the most sluggish environment for supply chain startups in years. For perspective, we chart out U.S. funding activity for the past six calendar years below:

Global tallies show a similar pattern. It looks like investors are just no longer intent on supplying capital to supply chain startups:

Funding declines come as the global freight industry is weathering broad pricing declines. After the COVID-19 pandemic brought a spike in demand from homebound customers for physical goods, trends subsequently reversed. Recent global container freight rates are at a fraction of the 2021 peak. U.S. trucking volumes and revenue have also declined in recent quarters.

Not just Convoy

Convoy isn’t the only supply chain disruptor who’s fallen on hard times.

San Francisco-based Flexport, a global freight-forwarding and logistics platform, announced this month that it is laying off approximately 20% of its workers in what it described as part of a strategy to “get back to profitability.” The company previously raised over $2 billion in venture funding from SoftBank Vision Fund and others, hitting a peak valuation of around $8 billion. That figure, like many peak-era valuations, has reportedly come down considerably.

Uber Freight also reportedly carried out layoffs this year. And operations of Deliverr, a supply chain unicorn acquired by Shopify last year for $2 billion, were sold to Flexport earlier this year in a deal that valued them at a fraction of the former acquisition price.

In the failed startup history books, meanwhile, there’s also Katerra, the one-time unicorn that set out to disrupt construction supply chains. After raising close to $2 billion, the company famously imploded, filing for bankruptcy protection in 2021.

Beyond the known struggles are scores of startups still quietly chugging along that last raised capital during the much more upbeat funding climate of 2021. While those startups may still have capital to operate, eventually most will need fresh funding. If the current constrained funding environment persists, many won’t be able to secure it.

Some deals getting done

Even with funding down, some sizable supply-chain related deals are getting done. Standouts so far this year include:

Austin, Texas-based Cart.com, a logistics delivery platform for brands and e-commerce sites selling direct to consumers, raised a $60 million Series C in June at a valuation of $1.3 billion.
Fulfil Solutions, a Redwood City, California-based provider of automated pick and pack technology for online grocery fulfillment, picked up $60 million in Series B financing in February.
Everstream Analytics, a provider of supply chain risk management analytics tools, secured $50 million in April and acquired container data provider BlueNode.

What we’re not seeing, however, are the kinds of rounds in the hundreds of millions that we saw in 2021 and 2022. Seems investors, like everyone else, would like to see supply chains that function at the highest levels technology can deliver. These days, however, there’s only so much money they’re willing to sink into the attempt to turn that vision into reality.