Supply chain technology has attracted new venture capitalists. Tiger Global and Softbank are changing the field with bigger cheques and higher values, but mature startups and incumbents are also expanding their M&A capabilities.
In the third quarter of 2021, venture capital investment in supply chain technology startups remained strong, totaling $7.8 billion in the United States and Europe. That figure is down from the segment’s most recent high in the first quarter of 2021, but it is still up more than 100% year over year.
According to Pitchbook’s recent report “Supply Chain Tech Q3 2021 VC Update,” the segment’s growth is increasingly being powered by strong late-stage activity. Deliveroo ($9.3 billion), Berkshire Grey ($2.7 billion), and Xos Trucks ($2 billion) were among the nine $1 billion-plus exits in the quarter. Since 2019, two firms, Alumni Ventures, and Tiger Global have led the list of the most prolific supply chain tech VC investors, with both of their investments concentrated in late-stage rounds.
Earlier-stage areas like drone logistics augmented reality tech for warehousing, and rapid delivery is seeing waves of new entrants at the same time that more cash is pouring to larger corporations.
In the third quarter, $7.8 billion in venture capital was invested in 190 projects. Netradyne’s $150 million Series C led by Softbank, Stord’s $90 million Series D led by Kleiner Perkins at a $1.1 billion post-money valuation, and Interos’ $100 million Series D headed by NightDragon, which turned Interos into a unicorn, were among the notable deals.
However, in the third quarter, the last-mile delivery category led the way with the most supply chain technology investments. Hedosophia led a $1 billion Series H investment for goPuff; Delivery Hero led a $950 million Series C round for Gorillas; Sequoia led a $709 million round for Bolt, and the Bill and Melinda Gates Foundation led a $707 million Series D round for Picnic. Gorillas offer grocery delivery in as little as 10 minutes in 60 locations across nine countries, while GoPuff is part of the developing “ultrafast delivery” specialty.
However, there are other signs that supply chain technology is growing beyond the large headline transactions. Since the beginning of 2019, Alumni Ventures has closed 30 investments in the area, 12 of which were late-stage rounds. Tiger Global Management has overseen 25 investments, 19 of which are in the late stages of development. 8VC has completed 25 deals as well, but they are more fairly divided over the firm life cycle: six angel/seed investments, eleven early-stage deals, and eight late-stage deals. Softbank, on the other hand, is the fourth-most active supply chain tech investor, having invested in 23 deals since the beginning of the year, 22 of which were considered late-stage.
Schematic Ventures, on the other hand, has made 18 supply chain innovation investments since 2019, largely at the seed level, a deal count matched by Maersk Growth, which also invests mostly in early-stage rounds.
Valuations are rising, but late-stage rounds in supply chain technology have seen the largest rise, with median valuations rising from $85 million in 2020 to $120 million as of Sept. 30, 2021. Valuations are influenced by a variety of factors, but in the case of niche venture capital, it’s primarily a reflection of supply and demand for stock in specific types of businesses. Late-stage valuations that are rapidly growing imply upward price pressure due to new capital entering the field and looking for a home at a limited number of suitable prospects.
Significant year-over-year expansion in round sizes, from seed to late-stage, also supports the theory that the quick rise in values is mostly due to an influx of capital relative to the number of firms. In comparison to 2020, median seed rounds in supply chain tech increased by 27.7% to $2.3 million in 2021 through September, early-stage rounds increased by 69 percent to $10 million, and late-stage rounds increased by 94 percent to $24.9 million. Late-stage deals saw the most rapid round size growth, demonstrating that the market is increasingly being supported by new investors writing larger checks.
Exits have also been fueled by strategic mergers and acquisitions. In the third quarter, Descartes and project44 each completed three purchases, while J.B. Hunt and Coupa each acquired two. Another sign of the segment’s maturation is the fact that supply chain tech startups have developed distinctive technology and grew their operations to the point where they’re investable by public firms. The fact that some supply chain technology companies, such as project44 and Coupa, have made M&A an internal competency indicates the ambition and sophistication of the industry’s top players.
