Supply Chain funding shifts to solving enterprise problems

Earlier this month Pitchbook released their Q3 supply chain report with a headline about how venture investment continues to decline in the sector. While this is true - deal count declined by 37.7% and value by 67.9% quarter over quarter – we think it is worthwhile to unpack the funding data given the wide scope of what counts as supply chain.

Just looking at the aggregate numbers does not reveal the trends within the sector. Historically, fundraising in supply chain has been dominated by the last mile segment. Food delivery and e-commerce drove the funding boom as the rails were in place for these companies to grow: a proliferation of mobile devices provided access to enormous end markets, and the delivery model already had strong product-market fit. Venture dollars backed a “growth at all costs” mentality with the belief that profitability could be achieved once these businesses reached scale.

While questions remain on the profitability of these models, the result is clear. Last mile companies raised a total of $159B according to Pitchbook. This represents just under 40% of total venture funding in the Supply Chain space.

As of Q3 '22, last mile company funding still dwarfed the other sectors - over $13B was raised in the trailing twelve months ending September 2022. This is almost twice the next largest segment, enterprise supply chain management, which raised $7B in the same period.

However, a shift may already be happening. Funding is moving away from last mile companies into other opportunities. As the food delivery space matured (the largest players are now public) and interest wanes in quick commerce (the Gorillas acquisition hints at the start of consolidation), we expect to see the pace of funding slow in last mile startups.

When broken down, the supply chain funding decline is not universal across every sector.

Simultaneously, the technology rails needed to spur innovation in other supply chain segments - AI/ML, edge computing, Web3 - continue to mature. We are beginning to see companies that apply these technologies to solve different supply chain problems such as network optimization, visibility, and collaboration. Technology innovation combined with the focus on supply chains created by the pandemic has resulted in many early-stage companies that we expect to grow over the next several years.

Analyzing funding data over the last year suggests that this shift is already underway. Total funding to last mile dropped by 28.5%, outpacing every other sector. Warehouse technology dropped by 16.7% whereas enterprise supply chain management and freight funding remained stable.

In 2023, we expect to see last mile delivery command a smaller share of the total funding as other sectors, specifically enterprise supply chain management, continue to attract capital to create a new supply chain architecture.