Economic Divide in Action: Unraveling 2023's financial landscape for the rich and the poor
struggling retail sector took a hit in 2023 as funding slowed down significantly.
In 2021, investments skyrocketed, with venture-based funding rising 111% year over year, according to CB Insights. However, this surge soon fizzled out in 2022, with global funding plunging by 35% to $415.1 billion. Retail venture capital deals in the U.S. also plummeted by 28%, based on data from PitchBook.
By January 2023, the funding outlook for the year already seemed bleak. As Andrea Hippeau, partner at Lerer Hippeau, explained to Retail Dive, "I think the longer it stays bad, the worse it gets. It becomes a little bit of a systemic issue versus just kind of a blip or a moment in time."
Here's a peek at how the first half of 2023 shaped up and what may be in store for the rest of the year:
By the numbers
The data from the first six months of 2023 doesn't paint a pretty picture. Global venture capital funding for the first half of 2023 only reached $130.2 billion, a far cry from the $421.2 billion year-end total in 2022.
Median deal size globally has also taken a tumble in 2023 across all investor categories. It seems like it's a case of the haves and have-nots, with only the very best brands and companies getting funded. If you're not top-tier, funding becomes increasingly difficult.
Looking at retail tech, global funding during the first and second quarters combined reached $9.5 billion, a steep 76% drop from the same period in 2022. The number of deals also plummeted by nearly 50% for the retail tech sector.
In the broader retail sector, funding as of June 23 was at $12 billion globally and $4.2 billion in the U.S., according to Crunchbase data for the segments Retail Dive follows, such as apparel, consumer goods, and cosmetics. In comparison, retail funding during the first half of 2022 reached $42.9 billion globally and $14.6 billion in the U.S.
The funding process is also taking significantly longer compared to previous years, Hippeau noted.
"We're telling companies it's going to take twice as long, and you're going to have to talk to twice as many people as you did in the previous cycle for fundraising," Hippeau added.
Brands managing to secure funding
Despite the challenging market, some companies are still raising capital. One of the biggest retail deals so far this year was Kim Kardashian's Skims brand, which secured a massive $270 million Series C funding round in July. The brand's valuation reached a staggering $4 billion.
Other brands that managed to secure funding in a down market include activewear brand Ten Thousand, children's brand Lalo, and direct-to-consumer retail platform Leap, which raised $21.5 million, $10.1 million, and $15 million respectively.
Some food brands, such as Fly By Jing and Momofuku Goods, also secured funding, raising $12 million and $17.5 million respectively, both in March.
What's ahead for the rest of the year
There may be another wave of funding rounds, with lower totals and lower valuations, as brands run out of options for capital. Hippeau expects the slow market could also lead to forced acquisitions and companies going out of business as money becomes scarce.
"We haven't seen that yet because of the companies that didn't have to raise. Maybe they raised a big round in 2021 or were very close to being profitable and were able to eke out a few more months before they had to raise," Hippeau said. "Those companies are going to have to come to market unless they've been able to flip to profitability."
Keep up with the story. Subscribe to the Retail Dive free daily newsletter.
- Space technology markets witnessed a decline in funding opportunities, with investments dropping by 67% from 2022 to $44.2 billion in the first half of 2023.
- A significant shift in science and research funding policies was observed in the first half of 2023, due to the slowdown in global venture capital markets.
- The TV and sports industries have been impacted by the funding crisis, with investors shifting their focus towards more profitable sectors, such as AI and finance.
- In an effort to bridge the funding gap, some businesses are exploring innovative options like crowdfunding and peer-to-peer lending for certain investments.
- The prolonged funding crisis has a ripple effect on trade and investing, as struggling businesses in the retail sector may struggle to pay their suppliers, potentially leading to bankruptcies and job losses.
- Governments and financial institutions are collaborating to develop measures to stimulate investments and provide emergency relief to ailing businesses in crucial sectors, such as retail and technology.
- The second half of 2023 may see an increased emphasis on strategic partnerships and mergers and acquisitions as businesses in various industries try to stay afloat amidst shrinking funding opportunities and intensified competition.
