After a Year, Amazon’s $1 Billion Logistics Venture Fund Is Off to a Slow Start

Investors and entrepreneurs took notice of the fund’s size and Amazon’s ambitions to pour it into companies that could bolster Amazon’s dominance in the field.

Just over a year later, the Amazon Industrial Innovation Fund has made only a few new investments and has deployed roughly $110 million, according to people familiar with the matter. Venture funds typically aim to invest their capital into new companies within five years.

The slow pace has been due in part to disagreements over which team—corporate development or the venture team assembled to help manage the fund—had the final say about whether to write a check to a startup, the people said. That led to deals getting done with less-than-ideal terms or deals falling through, leaving the fund lagging behind the typical pace at which funds of its size deploy capital, the people said.

An Amazon official disputed internal politics have negatively affected the fund, adding it is deploying capital in step with the broader market, which has seen slowed investing over the past year and a half. Amazon teams, including the company’s venture unit and corporate development unit, have worked collaboratively, the official added.

The fund’s slow start comes as the e-commerce industry is locked in a hypercompetitive race to offer faster shipping in part by adopting new technology to streamline complex supply chains and transform goods transport. Amazon has led the way in this field, but it relies in part on its fund to remain ahead of the curve as a crop of young startups introduce tech such as artificial intelligence into the field.

“In the year since its launch, Amazon has made a number of successful investments through the Industrial Innovation Fund, and we’re excited by the pace at which we’re finding and supporting great companies that use new technologies in ways that reimagine customer fulfillment, logistics and the supply chain," the company said in a statement.

Companies ramped up supply-chain-focused venture efforts in the years leading up to 2022 and accelerated them when the pandemic wreaked havoc on global logistics. In 2021, companies participated in $28 billion worth of global supply-chain-related venture deals, up 83% from 2019, according to analytics firm PitchBook.

Corporate investing in logistics has since tapered along with the broader market. Last year, corporations participated in global deals worth $15 billion.

Another factor working against Amazon’s logistics bet: Venture units in corporate behemoths have historically struggled to move as fast as traditional venture firms. Many corporate venture initiatives, including Amazon’s, draw capital directly from their parent company’s balance sheet and don’t have outside investors. That has left these funds susceptible to shifting economic winds or strategy changes of their parent companies.

Nevertheless, Amazon jumped into the venture arena in April 2022 when it said it was launching the investment program to spur innovation in customer fulfillment, logistics and the supply chain, in part to increase delivery speed.

“We see an opportunity to look beyond our own experience and empower companies that are developing emerging technologies in customer fulfillment operations, logistics, and the supply chain," Alex Ceballos Encarnacion, Amazon’s vice president of worldwide corporate development, said in a blog post.

Amazon disclosed it completed five investments through the fund when it announced the vehicle’s launch, including Agility Robotics, an Oregon-based startup developing a two-legged robot that can carry and walk packages to front doors. Amazon said in announcing the fund it would target startups of all stages.

But since the launch, the fund has completed only a few more deals, in part because Amazon’s venture unit and corporate development unit dueled over how to deploy its capital, the people said.

The venture unit, which reported to Amazon’s robotics division, wanted to target startups that were at their earliest stages and that were developing tech that didn’t necessarily have a business proposition fully fleshed out.

The corporate-development team, which has traditionally had authority over Amazon’s investments and acquisitions, wanted the fund directed at more mature companies with customer and product traction, according to the people.

One deal pursued by Amazon was emblematic of the fund’s struggle, one of the people said.

In May 2022, the venture unit identified Natilus as a promising startup that could bolster Amazon’s airfreight ambitions. The San Diego-based company is developing autonomous airplanes it says will be able to transport freight at a fraction of current costs. A prototype will be ready to fly in 2024, the company says.

After calls with Natilus’s chief executive, the venture unit brought in Amazon Robotics’ chief technologist to evaluate the startup, according to the person. Then, an investment committee consisting of senior Amazon robotics leadership and members of the venture unit gave Natilus an indication of investment interest, according to the person. The notices are nonbinding but are usually honored.

But when the corporate-development team learned of the deal, its director, Matt Peterson, said the deal would need to go through his team’s own investment process, according to the person.

Communication with the startup’s CEO quickly fell off and the deal fizzled out, the person said.

Amazon declined to comment on Natilus, and said it evaluates many startups that it ultimately doesn’t invest in. Natilus didn’t respond to requests for comment.

In the fourth quarter of 2022, disagreement over which unit should control the fund escalated to the higher ups in each unit, according to the people, and in November it was decided corporate development had full control over the fund. Four months later, Amazon laid off some of the relatively small team running the fund as part of mass layoffs, the people said.

Write to Marc Vartabedian at marc.vartabedian@wsj.com