The firm is in the early stages of consideration. The IPO’s size has also yet to be determined, according to people familiar with the matter. The business group is in talks with banks that could potentially help prepare for the IPO next year, said one of the people. The person asked not to be named as the matter is private.

The unit, which competes with rivals such as Amazon.com Inc. in markets outside China, is one of six parts that Alibaba is splitting into. Valuations for the international business units vary: Morgan Stanley in March priced “international retail” units including Lazada and Trendyol at roughly $29 billion. Meanwhile, a CICC analyst report from the same month valued the firm’s international division at about $39 billion. In recent quarters, however, growth has been volatile in the face of global recessionary fears.

If it goes ahead, the Alibaba unit would join a number of high-profile Chinese firms including fast-fashion leader Shein seeking to tap American capital even as tensions rise between the world’s two largest economies. A listing in the U.S. could help the business — formally Alibaba International Digital Commerce Group, or IDCG — attract global investors wary of putting money directly into China.

Alibaba owns Taobao, No. 1 in the Digital Commerce 360 database of Global Online Marketplaces. The database ranks marketplaces by total value, or gross merchandise value of sales. Alibaba also owns Tmall (No. 2).

Amazon is No. 3 in the Global Online Marketplace Database. It’s also No. 1 in the 2022 Digital Commerce 360 Top 1000 database. The Top 1000 ranks North American web merchants by sales.

Shein is No. 36 in the Digital Commerce 360 2022 Asia Database, which ranks Asia-based retailers by their online sales.

Alibaba empire considers IPOs

Alibaba in March unveiled plans to break up its empire into units such as ecommerce, logistics and the cloud, with each business potentially exploring fundraising and an IPO at an appropriate time. The company will consider gradually giving up control of some of the businesses, CEO Daniel Zhang said at the time, but declined to specify a timeline for any Alibaba IPOs.

IDCG includes:

• Southeast Asian online mall Lazada
• AliExpress, popular in Russia, Latin America and parts of Europe
• Trendyol in Turkey
• Daraz in South Asia
• Business-to-business marketplace Alibaba.com

In the final three months of 2022, the combined orders of Lazada, AliExpress, Trendyol and Daraz grew 3% from a year earlier, led by Trendyol. The international unit accounted for roughly $9.5 billion or 7% of Alibaba’s revenue in the last fiscal year and is headed by Jiang Fan, the former president of Alibaba’s domestic online retail businesses Taobao and Tmall.

Other parts of Alibaba’s empire have already begun moving ahead with spinoffs. Cainiao Network Technology Co., the logistics arm of Alibaba, as well as Freshippo, its grocery chain, have started preparations with banks for IPOs in Hong Kong.

Deliberations around an IPO are very preliminary and the situation may change, the people said. IDCG said in response to queries from Bloomberg that currently, there is no IPO plan.

Alibaba has in the past explored splitting off Lazada. The unit, bought in stages from Rocket Internet SE, is considered one of the Chinese firm’s most high-profile international brands. It competes with Amazon and Sea Ltd.’s Shopee in Southeast Asian markets such as Thailand, Malaysia and Singapore.

In 2022, Alibaba discussed raising at least $1 billion for Lazada before calling off negotiations with potential investors when talks bogged down over its valuation. It had aimed to secure the funding as a precursor to a spinoff. Alibaba has since mothballed the fundraising and injected additional funds into the company instead.

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IoT is a network of physical objects — “things” — that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet.

New research from Avnet Abacus analyzed Crunchbase data for companies listed under the Internet of Things and Industrial Internet of Things to provide insight on the level of investment activity across the sector. Avnet Abacus an electronics distributor that consults engineers when they’re designing new products.

They found that while there had been a 22% drop in total funding within the sector in 2022 — mirroring the trend across venture capital markets — the average funding round for Industrial IoT startups more than doubled in 2022. It was also the highest since 2006 (a year in which there was only one deal on record). IoT companies raising funds in 2022 pulled in $15.9 million on average, up 30% from the previous year, according to Avnet Abacus.

“The amount of funding companies receive in any product category gives an indication of how investors view the future for that technology,” says Avnet Abacus technical director Dr. Sara Ghaemi. “Despite venture capital generally cooling off due to current economic conditions, the research reveals investor confidence is higher than ever for the long-term prospects of companies developing products in the IoT.”

The IoT deal making continues

The Industrial IoT also experienced a record year in 2022. Last year, the average funding round reached $16.1 million. That’s more than double the average investment of $7.3 million in 2021, according to Avnet Abacus.

Acquisitions of companies in IoT worldwide reached their second highest ever in 2022 with 116 companies snapped up. That’s marginally down from the peak of 117 companies in 2021. In the United States, 48 IoT startups were purchased in 2022. That’s down from an all-time high of 58 in 2021.

While the total amount IoT startups raised globally dropped from $5.6 billion in 2021 to $4.3 billion in 2022, the money invested in early stage startups was on the rise, according to Avnet Abacus.

The investment into early stage IoT startups (those seeking funds in venture rounds A and B) reached the highest amount on record last year at $2.45 billion. That’s up 12% from $2.19 billion the previous year.

Angel and seed investors in the IoT were also proceeding more cautiously last year, providing funds of $261 million in 2022 compared to $404 million in 2021.

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Given her investment banking pedigree — a nearly two-decade stint at Goldman Sachs, where she served as managing director and head of consumer and consumer-tech equity capital markets — she’s well-positioned to evaluate the retail industry and make predictions. And Q1 and Q2 earnings have been rough for a lot of Il Makiage’s peers, she says.

“A ton of direct-to-consumer companies are in a poor cash position, are burning cash, are not profitable — and they’ll need to find alternative sources of funding from outside capital. Or they’re significantly cutting a lot of costs, including their customer acquisition and marketing expenses. As a result, their top line significantly slows or contracts,” says Drucker Mann, who was brought on as the global chief financial officer for the fast-growing brand’s parent company, Oddity, in September 2021. “That’s not our issue.”

Lindsay Drucker Mann, global CFO at Oddity

While other companies are wondering “How on earth are we going to make rent this month?,” Il Makiage and Oddity leadership’s biggest challenge is figuring out what to do with all of their money, she adds. According to Drucker Mann, the brand is completely self-funding, and its cash position is growing. So now, it’s a matter of identifying the biggest opportunities and prioritizing the investments that will have the highest returns. That includes continued nurturing of Oddity’s recently launched wellness brand called SpoiledChild, building — or acquiring — additional new brands to plug into the company’s tech platform and more expansion into international markets, Drucker Mann says.

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Il Makiage, a social media darling that bills itself as “makeup for maximalists,” must be doing something right. The company has found a way to achieve big — and steady — online growth since it burst onto the scene in 2018 and raked in $10.0 million in sales. By 2019, web revenue increased 400.0% to a Digital Commerce 360-estimated $50.0 million. It then tripled, reaching an estimated $150.0 million in 2020. That was despite consumers largely skipping the full makeup routine as the pandemic raged, employees worked from home in loungewear, and social events like parties and weddings were canceled. (Although the widespread lockdowns and subsequent quarantine lifestyle did lead to a surge in online makeup tutorial devotees as consumers tried to stave off boredom with new hobbies.)

Last year, Il Makiage nearly doubled the brand’s online sales to an estimated $293.4 million. (At one point, Oddity confirmed Il Makiage surpassed $260.0 million in ecommerce revenue for 2021, but the company declined to give more specifics since then.) And once again, it topped the list of the fastest-growing retailers in the health and beauty category within the 2022 Digital Commerce 360 Top 1000, a ranking of North America’s biggest online merchants. The brand has occupied a spot on the list of top 10 growers overall — most recently claiming the No. 8 slot behind three other brands — for years, too. It also came in second in 2021 growth among all Top 1000-ranked digital natives.

In January, Oddity announced it secured another $130.0 million in funding at a $1.5 billion valuation. And lately, rumors have been swirling that the company is considering an initial public offering. Drucker Mann declined to comment on the speculation.

But after a decade or more of web-first brands — like eyeglasses pioneer Warby Parker, millennial beauty favorite Glossier and eco-friendly shoe brand Rothy’s — generating a lot of buzz and commanding the attention of the retail industry, Oddity is coming of age at a challenging time for this group. Experts agree that growth is harder to come by, macroeconomic factors like inflation haven’t helped boost consumer spending, and supply chain snafus — a particularly thorny issue for brands looking to scale — have persisted. Additionally, profitability is elusive, funding is drying up, and the path to an IPO has largely disappeared.

Eric Roth, managing director, consumer at MidOcean Partners

Eric Roth, managing director, consumer at private equity firm MidOcean Partners, is one such voice sounding the alarm. This cohort of digitally native, vertically integrated brands, or DNVBs, has “lost its luster” a bit, he says. Many of them relied too heavily on marketing and not enough on product innovation to help them stand the test of time. So as the marketing dynamic has shifted, growth has stagnated, Roth adds. On top of that, with so many DNVBs expanding with wholesale partnerships and physical stores in today’s “omnichannel environment,” they’ve relinquished some of their biggest competitive edge over other retailers: the ability to mine the vast amount of data collected from the consumers shopping and buying directly from them.

So how have merchants like Oddity managed to buck the trend? And where do the other DNVBs go from here to avoid becoming a casualty of the bubble burst Drucker Mann anticipates?

How’d we get here?

As a whole, Top 1000 consumer brand manufacturers performed well online in 2021. The group collectively grew web sales 19.9% year over year — the highest rate of all merchant types in the Top 1000 and notably higher than the 15.7% overall jump. That marked a reversal from 2020, when retail chains’ digital revenue swelled 57.7% over 2019 thanks to their big store footprints that allowed consumers to skip crowded public spaces during the peak of the pandemic and still get their goods quickly through omnichannel offerings like buy online, pick up in store, or BOPIS, and curbside services.

In 2020, brands were the second biggest beneficiary of the COVID-19 ecommerce bump, collectively growing digital revenue 45.1%. The same is true when considering the two-year stacked growth, which compares 2021 web sales to a pre-pandemic 2019: Retail chains received the largest COVID-19 boost at 75.9% vs. consumer brand manufacturers’ 74.0%.

An analysis of median growth by merchant type reveals the same trends, meaning 2021 performance wasn’t overly skewed by the financials of some bigger retailers that were growth outliers. Consumer brand manufacturers had the highest median year-over-year jump in web sales last year at 24.8%. Meanwhile, retail chains took the top spot in 2020 with 31.9%.

Zeroing in on the 81 DNVBs in the Top 1000, which historically have increased digital revenue much faster than more traditional brands in the rankings, it’s apparent how much the gap has closed in recent years as the younger cohort has matured. In 2017, DNVBs collectively grew 54.0% — nearly three times as fast as other brands. They continued to outperform their peers by a wide margin until 2020. But during the peak of the pandemic, shoppers gravitated to the recognizable names of bigger brands. That was, in part, due to larger companies with more suppliers being better able to navigate supply chain disruptions than smaller startups like DNVBs. In 2020, consumers spent 46.7% more year over year online with established brands while DNVBs saw just a 29.4% collective increase.

By last year, those trends were less pronounced as the pandemic began to ease, and the digital natives once again outperformed their more established competitors. DNVBs grew online sales 24.6% to other brands’ 19.5% vs. 2020. But that’s still a far cry from the lowest roughly 15 percentage-point advantage DNVBs had in their pre-pandemic heyday.

And 2022 has been less kind. A dozen public DNVBs are ranked in the Top 1000 and break out ecommerce figures or guidance. (Some web-first brands, like Warby Parker, have a large number of stores, and others, like health and wellness brand Hims & Hers, have wholesale partnerships. So not all revenue is attributable to online channels.) Of those, nine do so on a quarterly basis. After this group collectively increased web sales by 21.2% in 2021, it has registered roughly a quarter of that growth — just 5.2% — in the first half of 2022.

Many brands are struggling to maintain growth as the online channel isn’t achieving the same year-over-year performance. And research is showing lower brand loyalty among consumers, according to Bernardine Wu, executive managing director at OSF Digital Strategy. The technology implementation and consulting firm was formerly known as FitForCommerce.

Funding dries up for DNVBs

One aggravating factor is there’s less funding to go around to help fuel brands’ growth.

“With endless amounts of capital, lots of people can grow, but we’re in this transitional period now where a lot of that easy capital is done,” Drucker Mann of Il Makiage says.

Up until this year’s secondary funding raise, private equity group L Catterton had been the only outside investor in the company, investing $44.0 million since 2017. And as far back as 2020, the brand mentioned it was profitable — a milestone that has become a big sticking point in retailers’ quest to raise money more recently.

“You’ve seen investors rotate away from some names. They’re just focused now on profitable businesses as opposed to businesses that have great dreams of being profitable in the future but are (blowing through) cash in the near term,” Drucker Mann says. “The funding environment for that is gone. Maybe it comes back some day, but for now, it’s gone.”

Polly Wong, president of direct-to-consumer marketing agency Belardi Wong, agrees. She says investors have been burned by many digitally native brands that have not managed to scale profitability. And that poor track record — combined with economic instability — is impacting the funding available today. Most of the private equity firms Belardi Wong currently work with want to see $8 million to $12 million dollars in profit before investing.

“This puts smaller, emerging (direct-to-consumer, or DTC) brands at risk of running out of money before getting the funding they need,” Wong says. “This could negatively impact the landscape for DTC in the next three years. It’s very possible consumer demand will outpace investor demand.”

Of the 23 Top 1000 retailers that raised funds (excluding debt-related rounds) in 2021, nine are DNVBs, according to a Digital Commerce 360 analysis of data from funding tracker Crunchbase. Digitally native brands accounted for 39.1% of the group that year. That’s compared to 2019, when of 30 retailers that raised funds, 14, or 46.7%, were DNVBs. And analysts and consultants say there’s bound to be an even bigger drop-off in 2022.

MidOcean Partners’ Roth says tech investors will have a much higher bar in the next six to 12 months. When interest rates are very low, high-growth companies that need a lot of cash to grow have a better profile because the cost of capital goes down and the value of the business is in the future. With interest rates expected to continue to climb, high future growth companies will be less attractive to investors than more mature businesses whose value lies more in the five- to six-year range, he adds.

The omnichannel tradeoff

A number of well-funded DNVBs have embraced more traditional sales channels as part of their growth strategy, straying from their digital roots. Eco-friendly shoe brand Rothy’s, which raised the largest non-debt funding round of all Top 1000 retailers in 2021 with $475.0 million, according to Crunchbase, opened eight stores and has previously partnered with Nordstrom Inc. And after launching its lines in Target Corp. stores in late March 2020, Hims & Hers went public in January 2021 via a merger with a special purpose acquisition company, or SPAC, and raised $75.0 million that year. In the first half of 2022, the brand’s wholesale revenue more than tripled year over year, bringing in $13.3 million.

Glamnetic, a digitally native cosmetics brand known for its magnetic false eyelashes that launched in mid-2019, found similar success in placing its products in stores. And founder and CEO Ann McFerran says DNVBs must become omnichannel to survive in 2022 and beyond.

“To continue to grow past a certain point, you want to cross over into brick-and-mortar stores,” she says. “We were a DTC brand first, and that’s where we were able to build our first customer base and get momentum. When we were able to land space on store shelves, though, is when we knew we had real staying power.”

Without any outside capital, Glamnetic pulled in $50 million in online sales in its first year. By 2021, the brand also secured a partnership with Ulta Beauty, entering into 1,000 stores, and started selling on Sephora.com and Nordstrom.com.

“Even major stores like Target, Ulta and Walmart are embracing newer and smaller companies,” McFerran says. “There are great opportunities for brands to land valuable in-store placement while maintaining the thriving DTC aspect of their business.”

McFerran declined to comment on the specifics of her brand’s growth through different channels.

It’s worth noting that although wholesale has been a popular pivot for DNVBs in the last handful of years, the move doesn’t necessarily translate into higher growth. Digital natives selling their products through third-party retailers had a median web sales growth in 2021 of 19.3% vs. 28.2% for DNVBs without a wholesale segment. It is true that DNVBs that have scored wholesale partnerships are likelier to be bigger brands — their median Top 1000 rank is 363 vs. 454 for their purely digital counterparts — and revenue growth is harder to achieve as the base dollar figure gets larger. But that’s still a sizable disparity.

A smaller — but present — disparity exists for DNVBs that opened stores. One-third of the 81 DNVBs in the Top 1000 operate at least one physical location, with the median being eight. The median increase in 2021 web sales for digital natives with a brick-and-mortar presence was a little lower than that for DNVBs without a store footprint — 22.6% vs. 25.9%.

Oddity has no plans to take Il Makiage down the wholesale or physical store path, Drucker Mann says.

“It would be so easy for us to open up retail distribution and just — poof — massively increase our revenue and profit, but in the long term, we see a consumer who is at least 50% digital,” she adds. “And if you want to win at 50% digital, you can’t chase easy money in a physical wholesale format. You’ll miss the prize.”

Drucker Mann acknowledges that Il Makiage’s predecessors — the “incumbent” cosmetic brands like Estee Lauder and L’Oreal — created so much value in a brick-and-mortar wholesale model that it’s hard to opt out. But a brand looking to grow via a third party — whether that’s through department stores or a Sephora or Ulta — is missing the opportunity to really understand what shoppers want, she says.

“They don’t have control of the data, they don’t have the ability to create those tools that really work to drive acquisition, repeat retention, etc. — all of those things that we’re maniacally focused on,” Drucker Mann says. “They give up control, and the retailers become more powerful as they cede those capabilities over.”

Roth is of the same opinion. The ability of DNVBs to mine data is “a wild advantage” — one they surrender by wholesaling, when any visibility into the consumer gets lost, he says. Data analytics allow direct-to-consumer brands to go beyond oversimplified demographics and dig into psychographics to figure out how to serve shoppers better.

“Knowing who’s buying and why they’re buying as best as you can or better than the competitors — that’s hugely challenging when you have other channels,” Roth says. “Bucketing someone as a millennial is using a pretty broad brush. There’re all kinds of overlays. You gotta look at are they men or women? Are they affluent? Educated? Are they rural or urban?

“Understanding that better is going to enable those folks — over this probably more rocky period in the market — to have higher confidence of where those pockets of customers are,” he adds. “When DTC businesses sell through wholesale channels, they have no idea who’s buying or what to do for them.”

Data and product innovation

Oddity co-founder and CEO Oran Holtzman has long said technology is the main driver of Il Makiage’s success, pointing to the size of their tech team — data scientists and engineers make up more than 40% of the total employee head count. And that group spent more than two years developing its machine learning and color-match quiz, called PowerMatch, in house. The algorithm can pair an online shopper’s foundation shade to one of 50 hues without seeing her face with more than 90% accuracy, according to Il Makiage. Formulas are fueled by data from more than 30 million shoppers who have used interactive features on the brand’s site.

Drucker Mann says that’s exactly why Oddity conceives of itself as a consumer technology platform rather than just a cosmetics brand. IlMakiage.com users give the company a constant stream of information on their beauty routines, how they use products, ingredients they care about, what’s missing from the brand’s offerings and more. This data infrastructure is Oddity’s competitive moat, Drucker Mann says.

The company’s new brand SpoiledChild, a beauty line with rapid recovery haircare and anti-aging skincare products as well as supplements, was developed based on data collected on IlMakiage.com. After launching in February 2022, SpoiledChild had “an extraordinary first six months — really just an incredible early performance,” Drucker Mann says, declining to share more specifics. And Oddity will continue to either develop additional complementary brands or “look opportunistically” for acquisition targets to add to its portfolio and address unmet needs, she adds.

Glamnetic’s early digital insights are the “golden ticket” that allowed for better product evolution, according to McFerran. She expanded her line, too, branching out beyond magnetic lashes with magnetic eyeliner and press-on nails, which have sold out more than 10 times.

Roth thinks that’s a good move. In his estimation, too many DNVBs operated more like marketing vehicles, with their products being a secondary side of the business. And when more popular marketing channels got crowded, that’s left them in a lurch.

“(DNVBs) didn’t necessarily innovate in their core areas as much as they should have,” he says. “Product innovation and potentially product adjacency — I think that’s gonna be the key going forward.”

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The combined entity will be handling about 50,000 orders a day, a scale that makes it profitable, founder Muhammad Omer Khan said without disclosing a value for the deal. The acquisition gives PostEx delivery operations in 500 Pakistani cities, compared with its previous base that consisted of just the three main ones.

“While others are going on the backfoot and slowing down, we plan to become even more aggressive,” Khan, who is PostEx’s CEO, said in an interview in the southern city of Karachi.

Pakistan has a population of about 230 million, making it the world’s fifth-largest nation. The majority of the population still hasn’t switched to online shopping. That provides room for the sector to grow and transactions to reach $10 billion before 2025 from about $6 billion now, Khan estimates.

More than 90% of Pakistan’s ecommerce deliveries are paid with cash. That results in long delays before the merchants receive the proceeds for the sale. PostEx offers these businesses upfront payments before deliveries, giving them liquidity. The financing services help PostEx stand out from the region’s other delivery companies, Khan said.

Khan started PostEx in 2019 with a friend. They went door-to-door to small shops to convince them to allow the company to handle their deliveries. The acquisition more than triples its number of employees to 2,400.

PostEx funding

The country’s startups raised more than $350 million in 2021, a record, with several global venture funds investing for the first time. PostEx raised $8.6 million last year in one of Pakistan’s largest early-stage funding rounds.

Pakistan’s ecommerce industry has lured the most investment in the recent funding rush. The majority of the population still hasn’t switched to online shopping, providing room for the sector to grow and transactions to reach $10 billion before 2025 from about $6 billion now, Khan estimates.

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The use of short-term credit, most notably via supply chain finance, has become a lifeblood to companies dealing with a range of issues from COVID 19-related lockdowns to rising input costs in an inflationary environment. With few tech entrants into the sector — and the spectacular failure of Greensill Capital — the industry remains dominated by established lenders such as Barclays Plc and HSBC Holdings Plc in the United Kingdom and Deutsche Bank AG in Germany.

Pure-play BNPL firms have seen their valuations crash this year. This comes as rate rises across the world challenge the viability of their business models. But plenty say the ease of use such upstarts can bring to age-old credit products will prove a winning formula in this part of the market.

“These B2B BNPL companies can easily win over market share from slow-moving traditional banks,” said Lily Shaw, an early-stage investor at North American venture capital firm Omers Ventures, which is not currently invested in the sector but is actively looking at the space. “Banks’ risk profiles are set up in such a way that they can’t move fast enough.”

Berlin base for B2B BNPL

Billie and Mondu are approaching the model through a B2B BNPL lens. They’re offering small businesspeople a similar experience when buying office equipment as a fashionista would when buying a Gucci handbag using Klarna or Afterpay.

“If a typical transaction on business-to-consumer BNPL is about 80-to-90 euros, our typical transactions are about 10 times that size,” said Aiga Senftleben, co-founder of Sequoia-backed Billie.

The Berlin-based firm works with banks as financing partners and operates currently in Germany, Austria and Sweden. It was valued at $640 million in its last funding round.

Mondu co-founder Malte Huffman said that it is hoping to make inroads into the trade finance space, especially given that more and more business transactions are being conducted online.

“We believe there’s a $200 billion market opportunity for B2B BNPL just in Europe and the U.S.,” he said.

In Germany alone, for example, ecommerce business transactions surpassed 200 billion euros ($204 billion) in 2021.  That compares with 86.7 billion euros of business-to-consumer ecommerce, according to data by Statista, a research firm.

Growing pains

Despite their stark valuation declines, BNPL companies such as Klarna, Afterpay Ltd. and Affirm Holdings Inc. have shaken up the ecommerce sector. Their customer-friendly apps and popularity with 18-24-year-olds force many traditional banks such as Natwest Group Plc to launch competing offers.

The advantage these B2B BNPL startups have is that traditional banks may step back from this sector amid the deteriorating economic outlook. They will thereby reduce the competition, according to Jeff Tijssen, head of global fintech at consultancy Bain & Co.

“It does solve some important cashflow issues for businesses, and you have some big investors such as Sequoia and Klarna involved,” he said. “The slowdown in the economy will give them opportunities but could also have a negative impact. It’s still early days.”

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A case in point is ChemDirect. ChemDirect features tools aimed at making chemical purchasing transactions much faster for both buyers and sellers. For sellers, the new marketplace platform enables them to put up a storefront that features an “About Us” section. It lets buyers view products categorized to search by industry, price, grade, application, purity, container type, and form. For buyers, the new ChemDirect.com platform provides new planning and purchasing tools to view and share product links, reorder past products, and receive order-status updates in real time.

ChemDirect is expanding into a new arena

It has about 2,000 buyers and about 90 sellers using its platform. ChemDirect’s expansion comes with assistance from Schneider National Inc., one of the largest trucking, transportation and logistics companies. In 2021, Schneider had $5.60 billion in sales and more than 8,500 customers. Schneider is investing in ChemDirect and assuming a stake in the business, Ellison says.

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More important, Schneider is working with ChemDirect on a new program, ChemShip, expected to debut in the fourth quarter. Specifically, Schneider is helping ChemDirect launch ChemShip as a new commerce-driven logistics program for chemical companies. Schneider also provides truckload, intermodal and logistics services.

Most B2B marketplaces are focusing on the user experience and the customer-facing side of digital commerce, Ellison says. But in the chemical industry, there is a new digital business opportunity in helping chemical companies with supply chain management, product fulfillment, logistics planning and delivery, he says.

Schneider, which has expertise in moving and shipping chemical products, will help ChemDirect build Chem Ship into a digital and physical logistics planning, supply chain management, and fulfilment and delivery service. Schneider says the service will let chemical companies research, purchase and book transportation at a price they want to pay.

“There are companies who want delivery as fast as possible,” Ellison says. “And companies that want other options based on their needs.”

Schneider will provide trucks for shipments booked through ChemDirect and manage logistics with other companies, including rail-truck intermodal operations, says ChemDirect.

“We are encouraged by the efficiency ChemDirect brings chemical shippers and the industry,” says Shaleen Devgun, Schneider’s executive vice president and chief innovation and technology officer. “With over 500,000 products readily available online and real-time credit terms, ChemDirect is the competitive differentiator today’s chemical buyers need to navigate supply chain challenges successfully.”

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Digital Commerce 360: How much investor capital will flow into new and existing B2B ecommerce companies in 2022 vs. 2021?

Straub and Brown: What we see at our own firm and then what we are hearing is that there has been a refined focus on the later-stage market. The early stage is also still exciting. On the later-stage investment deals, there is a renewed focus on take rates, net income and earnings before interest, taxes, depreciation, and amortization (EBITDA), and overall balance sheet and profitability. We are just not seeing the gross merchandise volume (GMV) growth at all costs work for the investor class anymore.

On the early-stage side, you are still seeing seed and series deals done at the same pace as prior years. We have not seen a huge slowdown even as the market matures. There are still so many problems in the industry cloud segments that B2B ecommerce can solve. We are early, and firms are just waking up to the theme.

DC 360: What areas are attracting the most money? Which ones not so much?

Straub and Brown:  The areas that have been attracting the most amount of money is transport/logistics marketplaces (Flexport, Convoy, and ShipBob) and then retail marketplaces (Faire, Ankorstore, and Fashinza). Of all the markets, these are two of the largest with a volume of legacy vendors, minimal digitization, and a real need for process improvement. In spaces like retail, you have an emerging “IT (information technology) buyer” that is digitally native and just will not put up with the old way of doing things. This, combined with how large these spaces are from a TAM/ spend standpoint, is a major trend of why you see these types of companies growing so fast and getting funding. [Editor’s note: TAM stands for total addressable market.]

The one area that we are seeing major challenges in are labor and staffing marketplaces and labor-related marketplaces in B2B. These segments are highly verticalized (Workrise/RigUp in exploration and production — E&P in the energy market — is the most visible, as an example). There are challenges we have observed, and we pass on most of the stuff we see in these industry cloud segments. First, they usually grow very locally and regionally, which presents challenges on the demand side. Second, the supply side is a tricky “customer.”

They do not always cooperate with the rules and regulations, try and shift the conversation outside the marketplace, and usually are acquired at an excessive cost. What we see is fast growth early on into the tens of millions of GMV and then a real struggle to scale outside of one or more geos. We are seeing a new wave of these businesses funded in recent years in areas like health care staffing, field maintenance staffing, and agricultural staffing. We continue to track this trend and are curious how the new crop is going to grow.

DC 360: How are inflation, supply chain disruption and the war in Europe impacting how investors are feeling about deal making?

Straub and Brown: On inflation and supply chain disruptions, we think that digitization is helpful to this problem. Software purchasing becomes deflationary in a sense. If a company can increase efficiency or make more money by shifting to a digital platform — recession or no recession — they are going to do it over time. This is obviously a broad statement. But the CIO surveys from Gartner, Forrester, Goldman Sachs and elsewhere support increased spending. There are areas of spend that are going to see slowdown as budgets get tighter, but the business ecommerce area does not feel like one to us.

DC 360: How many B2B ecommerce companies are attracting capital this year and how many last year?

Straub and Brown: The best data we have is Crunchbase. If you look at B2B ecommerce companies that raised a round in 2021, the number is 119. As of the end of May, we are already at 63 (52%) companies funded. So, it is on pace to last year. We saw quite a few $100 million and $200 million rounds last year. It does not look like this is letting up. I would say the deal announcements are much larger than last year’s. Flexport ($935 million in January), Ankorstore ($283 million in January), Faire ($450 million in February), Moglix ($250 million in January), Convoy ($260 million in April) and Material Bank ($175 million in May). Investors just keep going.

DC 360: B2B marketplaces continue to acquire capital. What trends are driving this? How long will this trend continue, and why?

Straub and Brown: First, many of the maturing companies in B2B ecommerce have a plan in place to become a “full stack” ecommerce business. The ambitions can be distilled down to being a multi-offering company. Not necessarily multiple products. Offerings within the core product. Two important things to understand. First thing: B2B marketplaces connect supply and demand online and allow for transactions on that online marketplace. That is the core idea.

But as the marketplace matures, founders and executive teams begin to contemplate additional offerings to better serve their customers. They launch a financing product to support the buyer. They will manage shipping by picking it up from supply and delivering it to demand. Then they will oversee analysis and business intelligence of a company’s purchases. I am just giving the reader some ideas. That is what we mean when we say, “full stack.”  That is the most important trend we are seeing.

Second thing. Depending on the industry, once you reach a certain level of scale, the “pull” by your existing customer base becomes a capital problem. What I mean is marketplaces service large multinationals. For example, if you run a steel marketplace and do a decent job helping Arcelor Mittal get rid of their excess steel grades at their Calvert, Alabama, foundry through your platform, they are going to ask you to expand into their other market. They put excess steel grades from their foundries in their European Union (EU) markets. That is where these marketplaces are going.

Companies are looking to grow internationally as quickly as they can to service their customer base. That is tough to do unless you invest in product, engineering, logistics, payment, and beyond resources. Mostly, it is a capital problem. Summarizing this, these two things are costly to build, which is why the scale-stage players are attracting so much capital.

DC 360: We have written about the $300 million Mirakl attracted and their plans for growth. Are there any other prominently announced deals of late such as this one?

Straub and Brown: I would highlight two areas. As I mentioned above, transport/logistics supply chain marketplaces remain hot. They are excellent businesses and easy digitization plays. Flexport raised $935 million in January and continues to march toward domination within that side of the industry. Convoy raised $260 million in April. ShipBob raised $200 million in June last year for ocean freight. The list goes on. Retail supply chain disruption is also exciting. Ankorstore raised $283 million in January, Fashinza raised $100 million in May, and Faire raised $450 million in February. Similar companies but different geographies. This is another space attracting capital.

DC 360: We have written about ACV Auction’s IPO. Are there any others like these or already public companies? What are their similarities and differences? Is there a disconnect between the public and private investors?

Straub and Brown: Xometry is really the only other pure-play B2B ecommerce comparable. Xometry completed their IPO in mid 2021 and priced at $44 but debuted at around $70 and stayed in that range for the first month or so. It has since fallen $50% to $33/share.

ACV Auctions went public in 2021 at $30 per share and their stock price has fallen 70% since IPO. ACVA’s stock has been trending downward since reaching a high of $37 per share in April 2021, primarily due to the company being accused of “shill bidding.” There were also general manager (GM) issues, but we think it is more the news on shill bidding. In 2022, while still losing value, the stock has started to stabilize around $9 per share. Both companies have solid fundamentals with low nine figures revenue, are growing 50% to 80% year over year, and are trading at a $1 billion to $2 billion market capitalization range. [Editor’s note: Shill bidding refers to the practice of placing bids on a marketplace or other auction items to drive up the price.]

They both “take out” the go-between or broker, which is a classic B2B marketplace theme. One difference worth noting is Xometry is much more managed and assigns a price to a job that comes in and posts it for anyone on the supply side to claim (XMTR has internal tooling to estimate a cost that will be accepted by the market but profitable); ACVA is much less managed and runs traditional auctions to match buyers and sellers.

On the disconnect, it is still early days. Who knows where it ends? We have two public companies to speak of and not much of an IPO pipeline right now. There are rumors but, in the pipeline, right now you only have Farmers Business Network and Transfix that have public news reports talking about their IPOs. Faire was next in line to go out but raised a significant amount of money privately, so will stay out of the public markets.

One theme we have been thinking a lot about is, there is an explosion of these B2B marketplaces in recent years. Most would not go public because of their unit economics, prior funding-round valuations, and ability to raise capital in the private markets. So, what is the merger and acquisition market like if these companies cannot really sell to a strategic organization? I say this because if a B2B marketplace sold to a strategic, they would lose the independence.

We saw this with many of the players launched in the 1990s and early 2000s. Supply and demand shift off the marketplace back to an analog format or they gravitate to a new marketplace. Part of our conclusion is that these may remain private equity specials – ThomaBravo, for instance, has been a prolific buyer of B2B ecommerce companies. One other thought or trend is sovereign wealth or permanent capital. You have been seeing this with some of the recent fundraises in B2B ecommerce.

Michael Brown is a founder and managing partner at Bowery Capital and based in New York. Loren Straub is a general partner at Bowery Capital and based in San Francisco.

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JT Garwood CEO and co-founder, bttn

Bttn launched in March 2021 to help meet the demand from health care professionals and facilities for pandemic-related personal protective equipment, or PPE. The company says it now has more than 7,000 customers and offers more than 2.5 million products from such brand manufacturers as 3M, Abbott, Cardinal Health and Medtronic.

Now bttn, which is on the web at bttnusa.com, is primed for further growth after receiving $20 million in funding last week. That brings its valuation to $110 million, the company says.

“Bttn was founded with the mission to deliver a modern, digital approach to buying medical supplies, ultimately meeting a much-desired need in this highly antiquated market,” says JT Garwood, CEO. He co-founded bttn with Jack Miller, the head of product. “The Series A investment will help us scale and accelerate growth.”

The funding was led by Tiger Global, with participation by prior investor Fuse.

In April, bttn added eight distribution and fulfillment centers to its supply chain. That helped bring its average order delivery time to within three days, the company says.

Bttn says it specializes in serving “alternate-site” health care providers that operate outside of hospitals, including dermatologists, dentists, physicians and professionals at long-term care facilities.

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Sign up for a complimentary subscription to Digital Commerce 360 B2B News, published 4x/week. It covers technology and business trends in the growing B2B ecommerce industry. Contact editor Paul Demery at paul@digitalcommerce360.com and follow him on Twitter @pdemery.

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