Tech crisis hits ecommerce startups but there are positives

November has for some time been the official festive month for ecommerce stores, so there could be no better time than this to examine where this sector is going. With reports of huge layoffs at Amazon, after the first loss making quarter for many years, just after Black Friday and during Cyber Monday, as Chinese giant Alibaba is unprecedentedly refusing to disclose its sales figures for Chinese Singles’ Day at the start of the month, and of course, given the atmosphere of global recession that has prevailed here since the start of the year – all raise growing questions over the strength of ecommerce startups and veteran tech companies. Does the marked fall in online sales in 2022 in general, and during November in particular, also tell us something about the attractiveness of software companies in this field in the eyes of investors?

When discussing software companies in the ecommerce sector, we are mainly referring to companies that develop technological tools for improving the customer experience on ecommerce sites, as well as software companies that develop technology for optimizing sites in order to improve their financial performance, among other things by increasing the percentage of the number of customers entering the site who actually make purchases.

From research that we have conducted and those that we have studied, there is a clear change in trend in everything related to investments in ecommerce software companies. Until recently we spoke about ecommerce software companies only in context of rapid and significant growth in investments. Most of the investors in these software companies were retail chains, but not only.

For example, while investment in companies whose main involvement is the development of e-commerce technology amounted to only $740 million in 2017 – data we gathered found that in 2021 investment in these companies jumped to $4.83 billion. In the first half of 2022, on the other hand, the crisis was already felt, and we saw fewer investments in ecommerce software companies. But even in this reality, software companies involved in ecommerce are still very far from the numbers before the boom period experienced by high-tech in 2021. It is true that ecommerce software companies raised $2.77 billion during the first half of 2022, more than they raised in all of 2020 and all of 2019 but it is still clear that the trend reflecting a decline in investments cannot be ignored.

The conclusion is that this is a market that the crisis is not passing by and there are also well-founded estimates that speak of a further decline in investments over the coming year. The significance of this is that, on the one hand, entrepreneurs in the field have to be much more careful and thoughtful, but there are also new opportunities that are opening up that were not here during the boom that took place.

Examples of these opportunities that Cohen is referring to were seen in several recent market studies, which showed that there are a number of countries where investments in startups that develop ecommerce software have increased significantly 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 in the second quarter of 2022 to a record of $132 million – 3.7 times the corresponding quarter in 2021, and 1.5 times compared to the last quarter of 2021, which is considered one of the record quarters of the entire industry in recent years.

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

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

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