Pitchbook analyst: Supply chain startups may do fairly well despite COVID-19

Supply chain startups should expect “moderate” impact from the coronavirus as venture capital firms pull back. But the sector is better positioned to weather the crisis, as well as its longer-term recessionary impacts, than are other technology segments, including the once red-hot micromobility and mobility sectors.

These are some of the takeaways outlined in a Pitchbook report released Friday on the impacts of the coronavirus on technology startups. Another report, also from Pitchbook, focusing on the supply chain sector, will be released April 2.

In advance of that release, FreightWaves spoke to Pitchbook analyst Asad Hussain, author of the supply chain study, about COVID-19 impacts on supply chain companies. He also touched on mobility and micromobility, where investor and public infatuation was on the wane even before the coronavirus struck.

“The pandemic has highlighted how valuable personal vehicles can be,” Hussain said. “You drive to a grocery store, and you don’t have to worry about sharing the vehicle.”

Source: Pitchbook

The norm, not the exception

When it comes to supply chain technology startups, “there is no doubt going to be disruption and contraction,” Hussain noted. But, like many observers, he also said disruption will define the future — whether it’s a viral outbreak, geopolitical event or natural disaster, supply chain shocks are becoming the norm, not the exception.

“What this pandemic really shows is the next time some kind of demand or supply chain shock happens, it can be really useful to have technology that can give you visibility into where your products are and where components are coming from,” as well as automated solutions that reduce reliance on labor, he said.

Add to that the fact that the market for these startups is enormous, and “all these things should offset some of the near-term impacts and could potentially be a catalyst for long-term growth,” Hussain concluded.

Past performance

The outbreak and virtual shutdown of the economy are unprecedented events in American history. However, past performance does provide some guidance as to what course of action investors might pursue in the coming months.

During the Great Recession, VC investment declined 28% from the prerecession peak, according to Pitchbook. But whereas overall investment declined significantly, the number of deals only fell by 5%, according to Hussain. Early stage deals were especially resilient, as seed and angel investors tend to take a long-term view. 

And while venture-backed startups are particularly vulnerable to recessions and economic slowdowns, the growth and maturity of today’s VC ecosystem, along with federal stimulus efforts, could also work in startups’ favor. “The ecosystem is larger than it was back then — there is so much more capital now,” Hussain said.

As he pointed out, the funding environment for tech startups had already started to tighten up before the outbreak — as evidenced by WeWork’s failed IPO and lackluster public market performance by Uber and Lyft. For months now, investors have been reevaluating capital-intensive business models, placing a greater emphasis on profitability over growth, Hussain said, and that has “hopefully” translated into leaner, stronger companies that are better equipped to weather supply chain shocks.

Drilling down further into the supply chain space, Hussain agreed that investors are pulling back from companies that own trucks and other asset-heavy startups. But on the flip side, software businesses offering visibility and automation solutions remain on surprisingly solid ground.

“It’s tough to see the data points, but what I’m hearing anecdotally is a lot more interest by companies even in this environment,” he said.

“Management teams always looked at automation to save labor costs. Today it’s more about maintaining continuity of labor, so if I lose half of my workforce during disruption, I can still deliver to customers on time.”

Reflecting VC activity in past recessions, Hussain expects many investors to act opportunistically and invest in supply chain tech — assuming that many of the coronavirus impacts are transitory, admittedly a huge unknown.

The solo economy

Mobility companies are in for a tougher ride.

The past year saw the demise of car-sharing pioneer Car2Go in the U.S., a canary in the coal mine for car-sharing companies, as well as layoffs in the e-scooter rental industry, a sector that seemed unstoppable last year.

Coronavirus has only worsened the situation. This past week e-scooter startup Bird laid off 30% of its workforce, while Lime, another e-scooter outfit, is expected to see its valuation plummet by 80%. And whether Americans will be eager to hop on shared bikes and scooters, much less jump in an Uber or Lyft, post-coronavirus is an open question.

Many of the mobility and micromobility companies were funded by the original equipment manufacturers, Hussain added, which are now under tremendous pressure to focus on their core business models.

“Overall what we’ll see is significant shakeout of the industry,” he said.