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| Hey Insiders, Today we are bringing you an analysis of Veho's expansion strategy and VC funding for semiconductor startups. Scroll down for some quick hits, then let us know if you'd like to see more in future issues! Karan
p/karan-chafekar |
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| 1 | | Veho's chief revenue officer, Brian McDevitt, acknowledged that the logistics startup is being "more thoughtful" about its expansion into new markets, having realized the high costs associated with expansion last year. The Boulder, Colorado-based startup raised nearly $300M from VCs between the end of 2021 and early 2022 to fund its expansion plans. Veho intended to bring its services to 50 cities across the U.S. by the end of 2022. However, the firm learned firsthand about the struggles of scaling a logistics startup and later scrapped plans to venture into Los Angeles and other West Coast cities. Additionally, it faced backlash from existing clients over the cost of its returns service. Now the firm is focused on existing markets in hopes of turning a profit. 
Veho's struggles outline the difficulties faced by logistics and fulfillment startups. Challenges have amplified due to hyper-competition and curbed customer spending due to rising inflation. Additionally, logistics startups often require high upfront investments and are notoriously difficult and expensive to scale. Bain Capital Ventures partner Ajay Agarwal says, "You have to embrace the fact this is going to be a lower-margin business." Veho's peers AxleHire and Pandion have faced similar struggles. Startups handling specialized or time-sensitive deliveries, such as meal-kit or clothing rental subscriptions, have met the most challenges as delays can be damaging to future repeat orders from clients. Due to the hyper-competition, clients can choose to work with multiple service providers in the same region, often allocating more deliveries to the cheapest service in the area. Shyp is one of the startups that had to shut operations as it underestimated the economics of the business. The shipping logistics startup had raised $62M from investors like Kleiner Perkins before its shutdown operations in 2018. Founder Kevin Gibbon acknowledged the firm's high overhead costs due to storage warehouses and on-demand doorstep pickup services. 
A drop in VC funding has further complicated matters for several supply chain and logistics startups. VCs started increasing their capital deployment into supply chain and logistic startups at the onset of the COVID-19 pandemic, expecting the demand to sustain. However, as nations emerged from the pandemic and inched closer to a pre-pandemic state of functioning, the demand for supply chain and logistics services started to drop. As a result, VCs curbed their investments in the sector. VCs halved their investments into logistic startups in 2022 to $12.9B, down from the record-setting total of $25.4B in 2021, per a McKinsey report. The VC funding pullback affected three logistic sub-sectors the most: distribution and fulfillment, first- and middle-mile brokers, and digital last-mile platforms. VCs are now focused on investing in logistics tech startups that are working on supply chain visibility and management, robotics, and 3D printing solutions. Before the global VC funding slump, Veho was able to nab $125M in Series A funding from General Catalyst in December 2021 and another $170M in Series B funding from SoftBank and Tiger Global Management in quick succession in February 2022. The firm used the funds to fuel its expansion. Although it fell short of its objective of expanding into 50 regions, it could still venture into 32 markets. The firm is now focused on profitable expansion into new regions that are within its acceptable cash burn and risk parameters. To curb costs, the firm laid off 10% of its staff last September. |     |
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Global semiconductor startups secured $2.3B in VC funding through 168 deals in Q1 2023, per Crunchbase. Funding remained robust for global startups despite the VC funding retrenchment. At the current rate, VC funding for global semiconductor startups will likely match or come just a "tick below" $7.9B total from 2022 at this year-end. The data shows that semiconductor startups defied the global pullback trend last year as funding remained relatively consistent compared to the record-setting investments of $8.3B seen in 2021. The deal count increased from 263 in 2021 to 349 in 2022. While funding remained robust globally, the same cannot be said of U.S.-based semiconductor startups, which witnessed nearly a 30% drop in VC funding. Funding slumped from $2.4B from 69 deals in 2021 to $1.7B from 57 deals in 2022. So far this year, chip startups in the U.S. have raised $262M from 17 deals. Crunchbase forecasts that at this rate funding total at this year-end will "hit its lowest total since 2019." In 2019, there were 60 deals inked worth $712M. Global funding remained consistent in 2022 due to large funding rounds by Chinese semiconductor startups. So far this year, Chinese startups have raked in four of the largest VC deals within the sector. Chinese semiconductor startup SJ Semi nabbed $340M in Series C extension funding from Legend Capital, Goldstone Investment, Jade Stone Venture, Shang Qi Capital, Leafoison Capital, TCL Capital, China Fortune-innovation Capital, and GLP-C&D Capital in early April. The fundraising brings its total raised to date to $1B. SJ Semi was valued at $2B at the recent round. Santa Clara, California-based 5G chipmaker EdgeQ secured a $75M investment from Strategic Development Fund, EDBI, Iron Grey, and ST Engineering. This is the largest round for a U.S.-based semiconductor startup so far this year. Only a select number of investors invest in semiconductor startups in the U.S. due to the complexity of the technology and its ecosystem. "This is not a generalist's area," claims Sutter Hill Ventures' managing partner Stefan Dyckerhoff. Sutter Hill is one the prominent VC investors in the semiconductor industry and recently backed startups Astera Labs and SiFive. Despite the dip in funding for U.S.-based semiconductor startups, deployment is expected to increase due to the introduction of the CHIPS and Science Act of 2022. The Biden administration has earmarked $50B for semiconductor chip manufacturing in the nation. The CHIPS Act will direct $280B in spending over the next 10 years. Investors are also optimistic about the role that AI would play in the development of the semiconductor industry. Since AI applications, especially generative AI startups, require substantial computing power to run the AI models, funding is expected to flow into chip startups, especially those specializing in the AI ecosystem. | | |
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| 4 | | Quick Hits: - Meta Platforms, formerly known as Facebook, agreed to liquidate its majority stake in business software startup Kustomer by selling it to VC firms Redpoint Ventures, Battery Ventures, and Boldstart Ventures. Tthe VCs are investing $60M each, giving the startup a valuation of $250M. Meta, which acquired Kustomer for $1B last year, will retain a passive minority stake in the firm.
- Chinese VC firm Qiming Venture Partners held the final close of its seventh renminbi fund at $940.4M (6.5B yuan), making it the largest renminbi-denominated fund to close this year. The firm typically backs early- and growth-stage startups across technology, consumer, and healthcare sectors.
- Cloud infrastructure company ServiceNow committed $1B to its VC division, ServiceNow Ventures, to make strategic investments into AI and automation startups with enterprise use cases. The funds will arrive by 2026.
- SEC filings seen by Technical.ly show that Zeal Capital Partners is planning to launch a $120M VC fund in the summer. The fund's size is nearly twice its predecessor, which closed at $62.1M in 2021. Zeal primarily backs early-stage fintech and future of work startups.
- Irish VC firm Elkstone roped in Irish Strategic Investment Fund (ISF) as the anchor investor for its €100M ($107.9M) fund.
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 | Analyst | | Karan Chafekar is a Management Consultant, Business enthusiast, and Licensed Pilot. | | This newsletter was edited by Aaron Crutchfield |
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