SA国际传媒

With inflation running at multidecade highs, budget-strapped consumers are cutting back on discretionary spending.听

For retailers, this has translated into fewer buyers for items like clothes, furniture and gadgets. shares tanked earlier this week after the retailer said it is having to cut prices to reduce merchandise levels, which brings profits down. Items like kitchen appliances and exercise equipment that were backlogged a year ago are now overflowing stores and warehouses.听

The slowdown also has extended to providers of backend software and services to online retailers. This week, 鈥攖he stock market poster child for the e-commerce boom of 2020 and 2021鈥攑osted a quarterly loss and downwardly revised forecasts, and said it will cut 10% of its workforce.

Shopify shares, down about 80% from highs last fall, are also emblematic of broader sector woes. Others in the e-commerce software space, including relatively recent market entrants like and , are also down sharply.

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

That鈥檚 because last year, investment in e-commerce software companies hit an all-time high, with more than $4.8 billion in global venture funding, per SA国际传媒 data. This year started hot as well, with a decline in funding in the past couple months only slightly offsetting a rollicking first quarter. For perspective, we chart out investment to the space for the past 5+ years below:

Where did venture investments go in 2022?

, a provider of tools for retailers and brands to beef up their e-commerce presence, was the largest equity funding recipient in the space this year, per SA国际传媒 data. The Boston-based company closed on a $200 million Series F round in April at a $2 billion valuation.听聽

Other big funding recipients included:

• Austin-based , developer of an analytics platform for brands to accelerate online growth, was another big funding recipient, raising $240 million in a February debt and equity round.

• Lehi, Utah-based , a provider of package-tracking tools for online orders, raised $200 million in a January Series B at a $1.25 billion valuation.
• Boston-based , developer of an AI-enabled platform for online customers to find products, raised $169 million in a June Series C.听
• Toronto-based , which pitches itself as a commerce platform aimed at helping online brands 鈥済o borderless,鈥� raised $150 million in a January Series C round led by .

Notably, big financings followed several quarters of sharply rising revenue for funded companies.

Salsify, for instance, said it generated over $110 million in annual recurring revenue in 2021, up over 50% from 2020. Cart.com, meanwhile, said its revenue grew over 400% in the year leading up to its last funding round.

Market conditions, however, are sharply different from even a couple quarters ago. And the swell in online shopping that began in the early days of the pandemic has since receded.听

As Shopify CEO in a letter to employees this week, when the COVID pandemic set in, almost all retail shifted online, and demand for software to help with that shift skyrocketed.听

鈥淲e bet that the channel mix鈥攖he share of dollars that travel through e-commerce rather than physical retail鈥攚ould permanently leap ahead by five or even 10 years,鈥� he wrote. 鈥淚t鈥檚 now clear that bet didn鈥檛 pay off. What we see now is the mix reverting to roughly where pre-COVID data would have suggested it should be at this point. Still growing steadily, but it wasn鈥檛 a meaningful five-year leap ahead.鈥�

For venture-funded e-commerce software software startups, it鈥檚 likely a similar trajectory will apply. Consumers haven鈥檛 abandoned their online shopping carts. And it鈥檚 reasonable to expect steady growth ahead. But the environment is now one in which supercharged growth will likely be much harder and costlier to achieve.

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