VC Investments in Supply Chain: The Real Picture Now & What To Expect in 2023

Although the supply chain industry has always been an essential part of the economy, it has gained more attention from investors and companies recently. The COVID-19 pandemic drove home the importance of a resilient and efficient supply chain. As a result, companies have increased their spending in supply chain, leading to the growth of the market at 10.8% CAGR from 2021 to 2030.

Venture capital (VC) investment in supply chain technology startups has also seen significant growth in recent years. However, according to a report by Business Insider, the investment in supply chain startups took a hit in the third quarter of 2022, with a drop of 12% compared to the previous quarter.

Despite the recent decline, VC investment in supply chain startups is still up more than 100% year-over-year.

The reality?

The supply chain industry is attracting a lot of attention and investment from venture capitalists, and this trend is expected to continue over the years.

The Current State of the Supply Chain Market

The supply chain market is experiencing remarkable growth, fueled by several key factors. Here are some drivers contributing to the expansion of the supply chain market:

• Globalization: The increasing interconnectedness of economies has led to the expansion of supply chains across borders. Companies are sourcing materials and products from different countries, necessitating more complex and extensive supply chain networks.
• eCommerce Boom: The rapid growth of eCommerce has significantly impacted supply chains. The rise in online shopping has created a surge in demand for efficient and seamless order fulfillment, requiring supply chains to adapt and optimize their operations accordingly.
• Customer Expectations: Customers now expect fast and reliable order fulfillment, flexible delivery options, and real-time visibility into their shipments. To meet these expectations, supply chains are undergoing transformation, leveraging technology and process improvements to enhance responsiveness and customer satisfaction.
• Technological Advancements: Technological innovations such as the Internet of Things (IoT), artificial intelligence (AI), robotics, and automation have revolutionized supply chain operations. These technologies improve efficiency, enable real-time data analysis, enhance visibility, and facilitate predictive analytics, enabling supply chains to be more agile and adaptive.
• Sustainability and Ethical Practices: Increasing emphasis on sustainability and ethical practices has prompted supply chains to focus on responsible sourcing, reducing waste, minimizing environmental impact, and ensuring ethical labor practices. This shift is driving the adoption of sustainable supply chain practices and driving market growth
• Supply Chain Resilience: Recent global disruptions like natural disasters, trade conflicts, and the COVID-19 pandemic have highlighted the importance of resilient supply chains. Businesses are investing in robust supply chain management strategies, including risk mitigation, contingency planning, and diversification, to ensure business continuity and minimize disruptions.

Overall, the supply chain management market is expected to continue growing in the coming years, driven by the increasing adoption of advanced technologies and the need for a more resilient supply chain.

VC Investment In Supply Chain – The Real Picture

According to a report by Freightwaves, VC investment in supply chain technology startups exceeded $7 billion for the 3rd straight quarter in 2021. This is a significant increase from the past few years and it’s a clear indication of the growing interest in the industry.

However, the third quarter of 2022 saw a decline in VC investment in supply chain startups, according to a report by Business Insider. The report states that funding for supply chain startups in Q3 was $1.1 billion, a 42% decrease from the $1.9 billion in funding in the second quarter of the year. Additionally, the number of deals also decreased with a total of 97 deals in Q3, compared to 124 deals in Q2. The decrease in funding and deals can be attributed to the overall slowdown in VC investments in Q3, as well as challenges faced by supply chain startups due to the ongoing pandemic.

However, it is worth noting that the average deal size in Q3 was $11.4 million, indicating investment continues but with apprehension. Investors are being more cautious than ever about which companies they invest in and how much – a stark contrast to 2021.

The supply chain industry is attracting a significant amount of VC investment, but the market is currently experiencing volatility due to inflationary pressures. Despite this, the overall trend is still one of growth and the future of the supply chain industry looks promising.

It is important to notice that the supply chain industry is becoming increasingly dependent on technology, which is why the VCs are seeing this as an opportunity for investment and growth. There are many potential startups in supply chain technology that can help optimize the process and make them more efficient and resilient. This is a long-term trend, and the industry will be heavily impacted by technology-driven startups.

Supply Chain Investment Opportunities For Entrepreneurs

With the current market shift, companies that focus on creating real value and solving core business problems will emerge as winners. Startups in the supply chain field can succeed in securing VC investment by honing in on key principles such as building great products for customers, delighting them, and earning revenue.

As a founder in the logistics and supply chain industry, it’s easy to get caught up in the noise and distractions, but remember to always go back to first principles. Building a great product, delighting customers and earning revenue is what will set you apart and lead to success in this ever-evolving industry

– Maia Benson Managing Partner, Forum Ventures

Here are some key opportunities in supply chain entrepreneurs can leverage:

1. Sourcing

One area of opportunity that presents itself is in sourcing. Small to medium-sized companies still face challenges in accessing high-quality and affordable sourcing options, particularly due to the disruptions caused by the Covid-19 pandemic. Democratizing and diversifying sourcing is a key opportunity for startups to address.

2. Transportation

Another area of opportunity is in transportation. High-quality, affordable transportation remains a challenge, and there is a need for third-party logistics providers (3PLs) that can not only deliver great service and greater economics but also differentiated cultures and infrastructure.

3. Omnichannel Fulfillment

Startups have the opportunity to address problems in the areas of omnichannel fulfillment and rationalizing customer data across different channels. As eCommerce continues to grow and consumers demand seamless, personalized experiences across multiple channels, startups that can effectively orchestrate and coordinate delivery promises and rationalize customer data will be well-positioned for success.

4. Process Optimization

There are still challenging problems to be solved in the areas of demand forecasting, inventory allocation, and order routing. With the increasing volatility in the market, these areas are becoming increasingly important.

There are many opportunities for startups to create value and solve problems in the supply chain and logistics space. Venture capitalists are bullish on companies that focus on key principles and tackle these challenging problems head-on.

Key Advice for Founders of Supply Chain Startups

Embarking on the path to establishing a successful supply chain startup might initially appear daunting, like navigating an uphill battle. With the right strategies in place, you can overcome any challenge.

Here are some tips to help you lay the foundations of a successful supply chain start up:

1. Surround Yourself with the Right Advisors:

One of the critical factors for supply chain tech startups’ success is having a strong team of advisors. Seek advisors with deep industry knowledge and experience who can guide you through the challenges and help unlock opportunities faster. Their expertise and networks can make a significant difference in the growth of your startup. A well-funded company may still struggle to win deals if they do not have the right advisors in place.

The advisors that a founder attracts and chooses is a direct reflection of their value set.

As a founder, understanding that the right advisors are key to unlocking opportunities and achieving success is a foundational principle. And, in order to attract the right advisors, one must be open to asking for help and being mindful of the value of partnerships in the logistics ecosystem

– Maia Benson Managing Partner, Forum Ventures

2. Build Strong Industry Partnerships:

Forge strategic partnerships with key players in the supply chain ecosystem. Collaborate with logistics providers, industry associations, and technology providers to leverage their expertise, networks, and resources. These partnerships can open doors to new opportunities, enhance market reach, and validate the value proposition of your startup. As we are all operating in new territory in the logistics and supply chain industry, founders with the DNA of asking for help are naturally outsized winners.

3. Stay Agile and Adaptable:

The supply chain landscape is dynamic, and technology is constantly evolving. As a founder, embrace agility and adaptability. Be open to market feedback and adjust your strategy accordingly. Iterate and refine your technology solutions to meet the evolving needs of customers and the industry. Agility will give you a competitive edge and help you stay ahead of the curve.

4. Focus on Scalable and Impactful Solutions:

In the supply chain tech space, scalability is crucial. Develop solutions that can be easily integrated into existing infrastructure and can scale with growing demand. Seek solutions that address critical pain points, offer tangible benefits, and have a significant impact on the efficiency, visibility, and sustainability of supply chain operations. By focusing on scalable and impactful solutions, you can attract customers and investors alike.

5. Stay Informed and Anticipate Trends:

Stay abreast of the latest trends, emerging technologies, and regulatory changes in the supply chain industry. Attend conferences, engage with industry experts, and participate in relevant forums to gather insights and anticipate market shifts. Being proactive in understanding industry trends will enable you to position your startup strategically and capitalize on emerging opportunities

Need Help Kicking Off Your Supply Chain Startup Project?

The logistics and supply chain industry is a vital and rapidly growing sector that requires innovative solutions to keep pace with the demands of modern commerce. As a founder or an

aspiring leader in this field, it’s essential to understand the importance of having the right advisors in place. The right advisors can be the difference between success and failure, and it’s crucial to attract and select advisors who align with your value set and can help unlock opportunities faster.

If you need help validating your supply chain start up idea, building your network or need to find the right investors, book a call with our team. We can help you validate your idea, find the right product-market fit, establish industry partnerships, and more.

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