“In the past it was growth at all costs,” said Paul Hsiao, a partner at Portola Valley, Calif.-based Canvas Ventures. Mr. Hsiao said until recently it was considered OK for a startup to churn through $10 million a month, but “the appetite to burn at that level is much, much less now.”

Venture firms concluded more than 110 logistics deals in both 2021 and 2022, distributing funds totaling $2.1 billion annually, more than double the deal values in each of the previous three years, according to PitchBook Data. Many of the investments were focused on startups that brought new digital tools and automation to logistics operations, offering the potential to untangle snarled supply chains and get goods moving faster and more reliably to consumers. 

So far this year, firms have concluded 21 logistics funding deals for a total $400 million, putting the sector on track to be closer to the annual investment levels of 2018 and 2019, before the Covid-19 pandemic sent consumer demand and interest in supply-chain technology surging. 

Jonathan Poma, co-founder and chief executive of Loop Returns, a Columbus, Ohio-based e-commerce returns management software company, says he saw a change in mood between investor meetings that raised $65 million in the summer of 2021 and sessions that raised $50 million in December 2022. “I think that there was far less willingness to invest in ambition and a much higher burden of proof that performance was there,” Mr. Poma said. 

The tight funding environment is hitting startups across a swath of industries. Venture-capital fundraising overall slowed to a nine-year low at the end of last year, according to data firm Preqin.

It is a sharp turnaround from 2021 when surging freight volumes, a historic bull market and a slew of companies going public through mergers with special-purpose acquisition companies, or SPACs, fueled strong interest and high valuations for supply-chain technology companies. 

Startups today are being squeezed from several sides. 

Investors have soured on SPACs, which allow companies to go public without the scrutiny of conventional public offerings, after a string of those companies struggled or went out of business. High interest rates have raised the cost of borrowing and banks have tightened lending. Slowing consumer spending on goods and economic uncertainty are cutting into profits and reducing companies’ appetites for risk. 

Venture investors say slimmer valuations for startups reduce the backing that young companies can raise and crimp their ability to add staff. 

“It’s sort of a two-step gut punch,” said Julian Counihan, general partner at San Francisco-based Schematic Ventures. “You have to perform as well as you thought you would, but you have to do it with a much smaller team and that has been really hard for a lot of companies.”

Seattle-based Convoy, which raised $260 million in a Series E funding round in April 2022 that valued the digital broker at $3.8 billion, laid off workers over the past year, as did New York City-based Transfix, which like Convoy uses digital tools to match loads to available trucks. Last year, Transfix postponed a planned SPAC merger that the startup hoped would raise up to $375 million. Instead, the company pursued a private funding round that raised $50 million, according to PitchBook.

A spokesman for Transfix declined to verify the reported funding round. Jonathan Salama, co-founder and chief executive of Transfix, said in a statement, “This is a sector that should always have investor interest.”

Investors say companies that focus on software and robotics and that rely on fewer workers are faring better. But investors are growing more cautious even in those areas. “Investors are more purposeful,” said Nate Jaret, a partner at Tel Aviv, Israel-based venture fund Maniv Mobility. “They’re making fewer bets, but they’re sometimes making large bets when they do build the requisite conviction.”

Zipline, a California-based drone delivery startup, raised $330 million in a Series F funding round at the end of April, according to PitchBook. Keller Rinaudo Cliffton, the company’s co-founder, declined to comment on the reported funding round, but he said the scrutiny startups face today is a sign of a return to normal after the pandemic era when investors lavished funding on companies.

“Investors are always going to want to see financials and positive unit economics,” he said. “It’s just weird there was a [period] when that didn’t happen.”

Source: www.wsj.com