Ecommerce software funding slows as shoppers pull out

With inflation at its highest level in decades, consumers on a budget are cutting back on discretionary spending.

For retailers, this has translated into fewer buyers for items such as clothing, furniture and gadgets. walmart shares fell earlier this week after the retailer said it had to cut prices to lower trading levels, pushing down profits. Items such as kitchen appliances and fitness equipment that were overdue a year ago are now overcrowded stores and warehouses.

The slowdown has also extended to suppliers of back-end software and services to online retailers. This week, Shopify— the stock market’s banner for the e-commerce boom of 2020 and 2021 — posted a quarterly loss and revised downward forecasts, saying it will cut 10% of its workforce.

Shopify stocks, which are down about 80% from last fall’s highs, are also indicative of broader industry troubles. Others in the field of ecommerce software, including relatively recent entrants to the market, such as: BigCommerce and global-ehave also fallen sharply.

For startup investors in the retail-focused SaaS startups, meanwhile, this is all happening at a particularly inopportune time.

That’s because investments in ecommerce software companies hit an all-time high last year, with more than $4.8 billion in global venture capital funding, per Crunchbase data. This year also got off to a warm start, with a decline in funding over the past few months that only slightly offset a tumultuous first quarter. For perspective, we map the investments in space for the past 5+ years below:

Where did venture investments go in 2022?

Salsify, a provider of tools for retailers and brands to bolster their e-commerce presence, was the largest recipient of equity funding in the space this year, according to Crunchbase data. The Boston-based company closed a $200 million Series F round in April with a $2 billion valuation.

Other major recipients of funding included:

• Lehi, Utah Routea provider of package tracking tools for online orders, raised $200 million in a January Series B at a $1.25 billion valuation.
• Boston based zoovudeveloper of an AI-enabled platform for online customers to find products, increased $169 million in a June Series C.
• Toronto based shoplazzaPresenting itself as a trading platform focused on helping online brands go “boundless,” raised $150 million in a Series C round in January led by SoftBank Vision Fund.

Major financings, in particular, followed several quarters of sharply increasing revenues for financed companies.

For example, Salsify said it generated more than $110 million in annual recurring revenue in 2021, an increase of more than 50% from 2020. Cart.com, meanwhile, said revenue in the year prior to the latest funding round increased by more than 400 million dollars. % grew.

However, market conditions are very different from even a few quarters ago. And the wave of online shopping that began in the early days of the pandemic has since waned.

As CEO of Shopify Tobi Lutke be aware in a letter to employees this week, as the COVID pandemic broke out, nearly all retailing shifted online, and demand for software to help with that shift skyrocketed.

“We’re willing to bet that the channel mix — the proportion of dollars traveling through e-commerce rather than physical retail — would permanently jump five or even ten years ahead,” he wrote. “It is now clear that that bet has not paid off. What we’re seeing now is the mix getting back to roughly where pre-COVID data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful leap five years ahead.”

A similar trajectory will likely apply to venture capital-funded e-commerce software startups. Consumers have not abandoned their online shopping cart. And it’s reasonable to expect steady growth. But the environment now is one in which accelerated growth is likely to be much harder and more expensive to achieve.

Illustration: Li-Anne Dias