Tech crisis hits ecommerce startups but there are positives

Dvir Cohen credit: Nir Slakman
Dvir Cohen credit: Nir Slakman

As the world marks Cyber Monday, StartPlan CEO Dvir Cohen analyzes the opportunities and challenges for investing in ecommerce software companies.

Since November has long been the official holiday month for ecommerce stores, this could be an ideal time for an analysis of the sector's future. As a result of reports of massive layoffs at Amazon, which occurred after the first loss-making quarter in many years, following Black Friday and Cyber Monday, as Alibaba refuses to reveal its Chinese Singles' Day sales figures for the first time ever, as well as the global recession that has prevailed here since the beginning of the year - all of these raise questions about the strength of ecommerce startups and veteran tech companies. What role does the marked decline in online sales in 2022 in general, and November in particular, play in investors' interest in software companies?

Our discussion of software companies in the ecommerce industry primarily involves companies developing technological tools to improve the customer experience on ecommerce sites, as well as companies that develop software to optimize websites for improved financial performance, among other things by boosting the number of customers who make purchases after entering the site.

Our research and those that we have studied indicate that investments in ecommerce software companies have undergone a clear change in trend. Until recently, we only talked about ecommerce software companies in terms of rapid and significant investment growth. Retail chains were the most common investors in these software companies, but they weren't the only ones.

Our data shows that while investment in companies that develop e-commerce technology amounted to $740 million in 2017, in 2021 that investment jumped to $4.83 billion. However, in the first half of 2022, the crisis was already felt, and fewer investments were made in ecommerce software companies. Even in this reality, software companies involved in ecommerce are still far from the numbers before the 2021 high-tech boom. Despite the fact that ecommerce software companies raised $2.77 billion during the first half of 2022, more than they raised in all of 2020 and in all of 2019, the trend is evident that investments are declining.

It is clear that this is a market that the crisis is not passing by and there are well-founded expectations of further declines in investments in the coming year. Essentially, entrepreneurs in this field must be much more cautious and thoughtful, but there are also new opportunities that are opening up that were not present during the boom.

These opportunities are evident in several recent market studies, which showed that investors in startups that develop ecommerce software have increased significantly in a number of countries precisely now, when the market is less stable. For example, investments in ecommerce startups in the Indian market that are in the seed funding stage climbed to a record $132 million in the second quarter of 2022 - 3.7 times the corresponding quarter in 2021, and 1.5 times the last quarter of 2021, considered a record quarter for the whole industry.

Dvir Cohen is CEO of StartPlan, a business consultancy company for startups.

Published by Globes, Israel business news - en.globes.co.il - on November 28, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Dvir Cohen credit: Nir Slakman
Dvir Cohen credit: Nir Slakman
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