The decline in post-pandemic logistics funding persists. After peaking at an unprecedented $25.6 billion in 2021, venture funding for logistics start-ups plummeted to just $2.9 billion in 2023, marking a nearly 90 percent drop over two years and the lowest funding level since 2015. Venture capitalists (VCs) and logistics entrepreneurs are now facing the reversal of trends that fueled the COVID-19-era boom.
According to McKinsey, several factors contribute to investors’ sharp pullback, including high interest rates (which generally reduce venture investment), a global slowdown in the shipping industry (as consumer spending shifts from physical goods to services), and a market with excess capacity among cargo carriers driving down freight rates. Globally, VC funding across all industries fell by about 35 percent from 2022 to 2023, according to McKinsey. Overall, confidence remains that logistics sector funding will return in the long run, given that it accounts for 10 percent of GDP.
Logistics start-ups were particularly hard hit, accounting for just 0.8 percent of total venture investments in 2023, down from roughly 3 percent in the previous five years. This decline reflects the industry’s struggle with reduced e-commerce growth, falling trade volumes, and volatile freight rates.
Much of the industry’s venture capital is now directed toward last-mile companies. Between 2022 and 2023, last-mile start-ups increased their share of total logistics funding by five percentage points. Leading the pack in funding are:
- Zipline, a US-based on-demand drone delivery service, received $330 million.
- XpressBees, an Indian express logistics provider, which raised $120 million
- Delhivery, another logistics provider from India, which secured $114 million.
Software and systems start-ups have also seen an increase in their share of VC funding over the past two years. Despite this segment’s relatively small market size, the rise is largely driven by the logistics industry’s growing demand for digitalization and AI solutions. Start-ups with software-based business models, especially those generating transparent revenue from subscriptions, are becoming increasingly attractive to investors.
Source: McKinsey