Since 2014, The Bowery Capital team has published their perspectives on software verticalization in a piece titled “Opportunities In Vertical Software.” We recently released the 5th edition and are highlighting some of the verticals covered in the report. In this post we will be looking at the first vertical in the report, Transport & Logistics.
The rise of e-commerce during the COVID-19 pandemic placed a magnifying glass on the entire supply chain. The turbulence of the pandemic and geopolitical tensions exposed the fragility of global supply chains. As issues were made clear to consumers and businesses alike (slower than expected delivery times, limited inventories, etc.), investors turned their attention to the space as well. Funding for logistics startups skyrocketed, doubling in 2021 from 2020 numbers. The competition to build last-mile delivery solutions continues to remain fierce. Outside of the shipping and handling of goods from point A to point B, we see warehouse automation technology having the potential to boost labor productivity, increase warehouse efficiency, and reduce shipping times. We see the revamping of and investment in supply chains to make them both more resilient and cost-efficient as a decade long opportunity, and so do buyers in the space.
Growth & Funding
Companies are continuing to buy software solutions in an attempt to resolve these issues, with spend growing from $31.4B in 2017 to $41.3B in 2021. The Council of Supply Chain Management Professionals’ 33rd annual State of Logistics Report reported that logistics costs jumped 22.4% last year to $1.85 trillion. Inventory carrying costs increased 25% ($502 billion) as the supply and demand balance for warehouse space continues to be a problem.
Investors in the space are looking at companies with solutions across the supply chain, from delivery to logistics to visibility. The number of funding rounds from 2017 to 2019 remained relatively constant (192, 200, 206) across transport & logistics, but jumped 50% to 312 rounds in 2021. So far in 2022, investors have put $7 billion into supply-chain focused startups, which is on pace to equal 2021 (a record year with over $10 billion invested). Almost a third of the funding this year has been in early stage rounds.
The pandemic accelerated new solutions in delivery services, ride hailing, and micro mobility. Venture funding inside of transport & logistics focused on mobility-related startups. Autonomous vehicles, EV’s, and micro mobility represented the spaces with the largest volume of deals completed within the broader transportation space.
There is persistent competition to match Amazon’s e-commerce speed and efficiency across the vertical. We are seeing more founders presenting decks citing that they will “even the playing field with Amazon.” Evening the playing field is not only happening between companies in the United States and Amazon, innovators are pursuing opportunities to bring first-world supply chain technology and last-mile delivery to developing countries.
A third of supply chain leaders say the most strategic decision they will face five years from now is adapting to new technology. Gartner released the top 8 supply chain themes for 2022 - hyper-automation 2.0, next generation robots, autonomous things, digital supply chain twin, analytics everywhere, security mesh, ecosystem collaboration, and sustainability tools.
Bowery Capital POV
We continue to see a lot of innovative solutions at the seed stage in this space. While not only the overall market is large, we are excited about solutions across a variety of sub-sectors (transparency, logistics, freight, and many others). As was illustrated in our report, we believe transport & logistics still has high investment potential even and the data certainly suggests that we are not alone in that thinking. With funding pouring into the space, we expect more competitive solutions. As a rising tide lifts all boats, we believe that continued modernization and strong competitive landscape will hopefully solve many of the problems supply chains still face.