Contents

Keytakeaways

Background

VCactivity

GenerativeAIe-commerceVCecosystemmarketmap

Prepurchase

Purchasemedium

Postpurchase

Horizontalplatforms

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EMERGINGTECHRESEARCH

GenerativeAIinE-Commerce

Assessingtheimpact,opportunities,and

challengespresentedbygenerativeAIstartupsinonlinetransactions

PitchBookisaMorningstarcompanyprovidingthemostcomprehensive,most

PitchBookData,Inc.

JohnGabbertFounder,CEO

NizarTarhuniVicePresident,Institutional

ResearchandEditorial

PaulCondraHeadofEmergingTechnology

Research

InstitutionalResearchGroup

Analysis

EricBellomo

accurate,andhard-to-finddataforprofessionalsdoingbusinessintheprivatemarkets.

Analyst,EmergingTechnology

eric.bellomo@

pbinstitutionalresearch@

Keytakeaways

Publishing

DesignedbyJennaO’Malley

PublishedonSeptember6,2023

?VenturefundingforgenerativeAIstartupshasgrownsignificantlysince2019,when$1.9billionwasinvestedacross105deals,to$12.7billionthroughQ12023.

Startupswithinthee-commerceenablementsegmenthavefollowedasimilarupwardtrajectoryandraisedapproximately$1.3billionin2023.

?Customerservice&contactcentertechnologiesleadallcategoriesinfundingbyahealthymargin,attractingapproximately$1.1billioninventurecapitaltodate.Conversationalcommerceapplicationspostedthesecond-highesttotalat$903.1million,followedbyAI-coreservicesat$897.7million.

?GenerativeAI’simpactonthee-commerceecosystemislikelytomaterialize

aheadofitsinfluenceonothersectorssuchasfinancialservices,healthcare,or

supplychain.Amongotherfactors,thisisdrivenbylessregulatoryoversightande-commerce’srazor-thinmarginsthatencourageinnovationandexperimentation.E-commercemerchantsalsositontrovesoffirst-partydatafromagrowing

numberofonlinetransactions.

?Thelong-termdefensibilityofmostgenerativeAIstartupsishighlyunsettled,particularlyincommerceapplications,andmanyincumbentshavea“rightoffirstrefusal.”

?Themostdisruptiveparadigmshiftweseeistheadoptionofindividualized,

autonomousshoppingassistants.Theseagentscouldresearchandtransactonbehalfofaconsumerwhileofferinganalternativetowebsitesandcheckoutfunnelsthathavebeenlargelyunchanged.DuetomyriadtechnicalandUX

challenges,thiscategoryisnascent.

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PitchBookAnalystNote:GenerativeAIinE-Commerce

Background

TheintroductionofChatGPTinitiatedafrenzyofactivity,bothwithinthetechnologyandinvestmentcommunitiesandwithinthebroadersocialzeitgeist,astheworld

recognizedthatrapidlyimprovinglargelanguagemodels(LLMs)andAIcapabilitieswillhaveawide-rangingimpact.AlthoughtheuseofAIine-commerceoperationsisnotnew—merchantshavelongbenefitedfromproductrecommendations,targetedadvertising,customersupportautomation,andmore—thewidespreadaccessibilityandperformanceofLLMsarepushingthee-commerceindustrytograpplewith

theirdisruptivepotential.

E-commercestakeholdershavemanyreasonstobebullish.Inthelongterm,

e-commerce’sshareofretailtransactionswillcontinuetogrowasemerging

marketsembraceonlinetransactionsandB2Bmerchantsdigitizetheiroperations.Merchantswillbeabletostreamlinecustomersupport,accelerateproductdesign,andmovefrompersonalizationtowardindividualization.Additionally,thecostof

creatingadigitalpresenceistrendingtowardabsolutezero.Thoughthebarrier

toentryforane-commerceoperationhasalreadybeendrasticallyreducedby

platformssuchasShopifyandfreelanceservicesonFiverr,thebarriermaysoonbereducedtoasingleprompt.Similarly,consumerswillbenefitfrom“n-of-1”shoppingflowsdesignedfortheirindividualneeds,whilepopularprompts—suchascreatingavacationitineraryorrecipesforadinnerparty—willbecomepurchasesonKayakorInstacart.

Despitethisoptimism,headwindsexist.Legalandregulatoryconcernsare

percolatingaslawsuitsexaminingintellectualpropertyandcopyrightriskremain

unsettled.Uncertaintyaboutthelong-termdifferentiationoftheseservicesand

thedurabilityofcompetitivemoatsalsoexists.Geopoliticaltrendsmustalsobe

consideredaftertheEUandChinaintroducedlegislationtoimproveAItransparencyandItalybannedChatGPTinApril2023overprivacyconcerns(thoughthebanwaslaterlifted).Theecosystemmayalsonecessitatearethinkingofuser-experience

paradigmstofitAI-firstservices.

VCactivity

OurQ12023ArtificialIntelligence&MachineLearningReporttracked$12.7billionindealvalueforgenerativeAIthroughQ12023.VCinvestmentintogenerativeAItoolswithe-commerceapplicationshasincreasedhealthilyovertheprevioussixyears,jumpingfrom$277.3millionin2018to$2.5billionin2022.Customerservice&contactcentertechnologiesleadallcategoriesinfundingbyahealthymargin,

attractingapproximately$1.1billioninventurecapitalthusfar.Conversational

commerceapplicationspostedthesecond-highesttotalat$903.1million,followedbyAI-coreservicesat$897.7million.

2

$1.3

$3.8

$4.7

$3.0

$6.0

$10.6

$5.0

$5.5

$8.0

$10.2

$20.0

$16.0

$38.0

119

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PitchBookAnalystNote:GenerativeAIinE-Commerce

Notabledealsinthissegmentinclude:

?GupShup,aconversationalcommerceplatform,raiseda$340.0millionlate-stagedealinApril2022,bringingthecompany’stotalraisedto$386.4millionata$1.5billionvaluation.

?ScaleAI,aplatformfordatalabeling,syntheticdata,andenterpriseapplicationdevelopment,raiseda$325.0millionlate-stageroundinApril2023ata$7.5

billionvaluation.

?Builder,anAI-poweredapplicationdevelopmentservice,raiseda$250.0millionSeriesDinMay2023.MerchantsusingBuildercanbuildorcustomizeappsforinventorymanagement,ordermanagement,billingsoftware,andmore.The

companyhasraised$445.0millionata$553.0millionvaluation.

GenerativeAIe-commerceVCdealactivityGenerativeAIe-commercemedianpre-money

valuationanddealcount

$0.0

3

$0.0

9

$0.0

17

$0.1

24

$0.1

35

$0.1

68

$0.3

77

$0.5

104

$1.0

133

$2.4

188

$2.5

193

201220132014201520162017201820192020202120222023*

Dealvalue($B)Dealcount

Source:PitchBook?Geography:Global*AsofAugust18,2023

ShareofgenerativeAIe-commerceVCdealvalue($M)bysegment*

Horizontalplatforms

$1,461.9

Postpurchase

$1,033.2

Purchasemedium

$1,501.7

Prepurchase

$1,822.0

Source:PitchBook?Geography:Global*AsofAugust18,2023

188192

133

35

104

68

77

9

24

3

17

201220132014201520162017201820192020202120222023*

Medianpre-moneyvaluation($M)Dealcount

Source:PitchBook?Geography:Global*AsofAugust18,2023

GenerativeAIe-commerceVCdealvalue($M)bysubsegment*

$1,033.0

$903.1

$897.7

$598.6

$492.2

$462.1

$459.5

$335.3

$297.8

$234.6

$104.7

$81.2

Customerservice

&contactcenters

Conversational

commerce

AI-coreservices

Websites&

applications

Contentmarketing

Search

Analytics,research

>M

Videos

Images

Copy,writing&SEO

Salesenablement

Feedback

&reviews

Source:PitchBook?Geography:Global*AsofAugust18,2023

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PitchBookAnalystNote:GenerativeAIinE-Commerce

Prepurchase

Overview

Startupswithintheprepurchasesegmenthelpshoppersdiscoverrelevantproductsacrossshoppingchannels.ForgenerativeAIplatforms,thissegmentincludes

searchproviders,imageandtextgenerationplatforms,andcontentmarketing

services.Thissegmentisdatadrivenandintenselycompetitiveasstartupscompetewiththeenormousdatagraphs,networkeffects,andcapitalofincumbentssuch

asGoogle,Amazon,andOpenAI.Merchantscontinuetograpplewithrising

customeracquisitioncosts,privacychanges,andshrinkingmargins,allofwhich

havethepotentialtobeimpactedbygenerativeAI.Inthenearterm,marketingandcontentgenerationaretopusecasesformerchantstoimproveproductdiscovery,conversion,andpersonalization.1Inthelongterm,weexpecttoseetheaccelerationofB2Badoptionandtheemergenceofindividualizedshoppingexperiences.

Theprepurchasesegmentcontainsthefollowingcategories:

Contentmarketing:Startupsthatsupporttheoperationsofcontentcreation,incorporateanalytics,orprovidemodality-agnosticcontentacrossavarietyofdistributionchannels.

Images:Pretrainedmodelsandapplicationsthatcreateimagesbasedonuserprompts.

Videos:Platformsthatcreatevideos,whichcanbepersonalizedbaseduponuserinputs.

Copy,writing&searchengineoptimization(SEO):Servicesthatgeneratetextorcopyforusers’searchengines,orotheraggregators,toimproveproductdiscovery.

Search:Componentsthatplugintoawebsite,operateasstandaloneplatforms,oringestinternalcontenttoaccelerateproductdiscovery.

Opportunities

Targetedproductdiscovery:Searchexperiencesremainlargelybroken.Conversionratesarestuckinthelowsingledigitsandmorethan70%ofthetop200

e-commercewebsitesrequireexactterminologytobeusedinthesearchbarforthesearchtowork.2,3Near-termdisruptioninsearchwillmostlikelybenefitmediumtolargeretailersthathavesufficientproductandqueryvolume.Generalizedsearch

experienceswilllikelybedominatedbyincumbentsthatpossessunrivaleddata

graphs.Shopify’sintegrationofChatGPTintoitsShopappisanotherexampleof

improvedproductdiscoveryforsmallandmedium-sizebusinesses(SMBs)ornicheproducts.Consumerscanalsobenefitfromindividualizedshoppingassistants

thatturnpopularprompts—suchascreatingadinnermenu—intotransactions

1:“ReadyforLaunch:HowGenAIIsAlreadyTransformingMarketing,”Bain&Company,JeffKatzin,LauraBeaudin,andMaxWaldron,May23,2023.

2:“2023EcommerceConversionReport,”DigitalCommerce360,March2023.

3:“E-CommerceSearchUX,”BaymardInstitute,n.d.,accessedAugust23,2023.

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PitchBookAnalystNote:GenerativeAIinE-Commerce

withgrocersorInstacart.Vertical-specificapplicationstargetingacademic

research,healthcare,andlawarealsoemerging.Emergingtechnologies,likevectordatabases,Sensory’simprovedvoicerecognition,andCoactive’simprovedvisualsearch,offerdisruptivepotential.However,theabilityofthesestartupstobuild

defensiblebusinessmodels,ratherthanincumbentsintegratingopen-sourcemodelsoracquiringcompetitors,remainsunclear.

Generativeadvertisingtechnology:Brandscanconceivablygenerate

individualized,n-of-1shoppingexperienceswithuniquecopy(offeredbystartupsJasper,Anyword,andPersado),visualassets(offeredbyTreat,StableDiffusion,

andMidjourney),orproductrecommendationsbaseduponeachshopper’sjourney.A/BtestingcanalsobeautomatedbystartupslikeEvolveAItooptimizeconversionflowsandjourneymapping.AnalyticsstartupslikeCleverTaparecombiningcohortmanagementandLLMstotailormessagingforshoppers.Finally,digitizingB2B

operationsisalong-termtailwindtothee-commerceecosystem;B2BvendorswillintegrateAIservicesandtransitionfromstaticoraccount-basedmarketingtowardpersonalizationaswell.

Challenges

Legal,regulatory,andprivacyrisk:LitigationsurroundinggenerativeAIisa

materialheadwind.GettyImagesfiledsuitagainstStabilityAI,whileMicrosoft,

GitHub,andOpenAIfieldedaclass-actionlawsuitoncode-completiontools.

Someincumbents,suchasAdobe,havealreadyestablishedsafeguards,but

smallerstartupsmaynotbeabletoinsulatethemselves.4,5Additionally,terms

andconditionsvaryacrossplatforms,anditisunclearhowmuchcontentmust

bechangedfromanLLM’soutputtocircumventlegalrisk.ChatGPTwasalso

temporarilybannedinItaly,andUSlawmakersaredeterminingifSection230,a

lawthatexemptsonlineservicesfromliabilityforthecontenttheyhost,extendstogenerativeAIproviders.ChinaandtheEUhavealreadypassedregulationtargetinggenerativeAI,andnongovernmentalorganizationshavecalledforapauseon

AIdevelopment.Enterprisesarealsohighlyprotectiveofproprietarydata,and

SamsungbannedemployeeuseofChatGPTafterdiscoveringsensitivecodewas

uploadedtoitsdatabase.Additionally,theprovidenceoftrainingdataforfoundationmodelsisemergingasagrowingconcernforenterpriseadoption,accordingto

ourconversationswithstartups.Thisambiguityhasnotmeaningfullyslowed

investmentactivity,perourconversationswithinvestors,butbrandsandretailersareexpressingtrepidationindeployingfunctionalitytoproductionprocesses.

Defensibility,economicviability,andmoats:Thelong-termdifferentiationand

profitabilityofmanygenerativeAIcompaniesisunsettled.StabilityAI,creatorofStableDiffusionandanearlymoveringenerativeAI,isquicklyburningthrough

cashreserves.6Manyapplicationsusesimilartrainingdatasetsandfundamentallylackdifferentiation.MultipleinvestorswespokewithpositedthatmissingOpenAImeantmissingthesingularwinnerofthisstartupwave.Overtime,proprietary

4:“AdobeIsSoConfidentItsFireflyGenerativeAIWon’tBreachCopyrightThatIt’llCoverYourLegalBills,”FastCompany,ChrisStokel-Walker,June8,2023.

5:“AdobetoSellaNewAISubscriptionWithCopyrightServices(2),”BloombergLaw,BrodyFord,June8,2023.

6:“StabilityAIIsonShakyGroundasItBurnsThroughCashandLooksataManagementOverhaul,”Semafor,ReedAlbergotti,April7,2023.

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Lastfinancing

founded

raised

LastfinancingLastfinancing

PitchBookAnalystNote:GenerativeAIinE-Commerce

modelsmayalsoconvergeinperformancewithopen-sourceofferingsintroducinggraduationrisk.Forstartups,generativeAIadoptionmayfollowasimilarpathofcloudapplicationswhereinearlycloudadoptionwasacompetitiveadvantage,

butultimatelyallapplicationsmigratedtothecloud,erodedthisdefense,andfacedcommoditization.

Diligence:Startupsareapproachinginvestorswithminimaltraction,which

complicatestheevalua