Logistics - Focused Investment In A Growing Industry

Fund Fellow Founders Logistics - Focused Investment In A Growing Industry

Logistics startups reach new heights in funding amidst pandemic-induced e-commerce growth and supply chain disruptions. Investors prioritize e-commerce logistics, delivery, and supply-chain visibility, with funding for visibility startups almost tripling in 2021.

Road-freight marketplaces and solutions also attract interest, as startups and investors adapt to changing needs. Incumbents invest to match startup innovation, but inefficiencies in the logistics industry provide entry points for startups. Discover the latest trends and insights in logistics startup funding.

Below you can find key takeaways from the report compiled by McKinsey.

Summary:

The sudden rise of e-commerce and capacity constraints in air and ocean transport highlighted the relevance of supply-chain resilience, and the desire for greater visibility across supply chains. This summary explores the recent changes in funding for logistics startups.

Funding for logistics startups reached a new peak in 2021

At the height of the pandemic, businesses re-evaluated their perception of logistics, investing in their own assets and trying to minimize the share of transportation and warehousing costs in their income statements. This resulted in an inflow of capital to the sector at an unprecedented level in 2021.
Investors in the logistics industry are becoming more aware of the challenges and opportunities for growth, and are investing in new ventures with larger funding rounds.
In the US and Europe, 39% of brands prioritize fulfilment, delivery, and other logistics-related activities over brand strength.

Investors’ focus has shifted even more towards e-commerce logistics, delivery, and supply-chain visibility

The COVID-19 pandemic accelerated e-commerce, and this contributed to greater investor interest in logistics operations, particularly in the largely untapped potential of emerging markets. Certain types of logistics startups have received more funding than others, including on-demand (immediate) delivery for groceries and new last-mile networks.
During the past two years, supply-chain visibility has gained global attention due to ongoing disruption. Funding for startups that address visibility has almost tripled in 2021 compared to 2020, and leading visibility startups have experienced substantial increases in demand for their solutions.
VC investors are interested in road-freight marketplaces and solutions, because of the large number of fragmented providers, specifically trucking companies. However, funding has been concentrated in specific subcategories.

Both startups and investors participating in funding have changing needs

Some logistics startups have scaled up and achieved profitability. The growing group of owner-operators is becoming increasingly dependent on road-freight marketplaces, which can supply shippers with much-needed capacity, while truckers rely on marketplaces for receiving orders.
As anticipated two years ago in McKinsey's startup funding report, startups are beginning to resemble incumbent players in the industry. For example, some startups focused on last-mile networks have built their own extensive infrastructures that resemble those of existing parcel services.
In 2021, venture-backed supply-chain and logistics startups spent $2.7 billion on mergers and acquisitions, a 68% increase from 2019. Several examples include Project44's acquisition of Ocean Insights, ClearMetal's acquisition of Convey, and sennder's acquisition of Everoad.
Private equity funds are also entering the arena and increasing the drive to fast and successful exits, through IPOs, for example.
Among the startups analyzed, 17 larger exits took place in 2021, including two IPOs, the Embark trucks M&A, and buyouts such as BluJay, which was bought by E2open for $1.7 billion.

Incumbents increasingly invest to match startup innovation

Shippers want the ability to book freight quickly and compare among different carriers, modes or port pairs. Startups have brought digital capabilities to the market, and incumbents are investing heavily to catch up and fulfill shippers' requirements for transparent, seamless digital booking.

Outlook: Startups mature; incumbents digitize

Many startups are becoming mature disruptors in their respective sectors, but major competition with existing incumbents is unlikely in the short term. In the long term, only a few winners will emerge in certain industries.
Investors and startups can benefit from remaining aware of market trends, as the startup environment is expected to become tougher in the coming years. Nevertheless, inefficiencies still remain in the logistics industry, which provide entry points for startups.

Full Report: HERE (McKinsey)

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