Investment in online marketplace startups

Investment in online marketplace startups

When you want to create a successful marketplace, you need a significant amount of money to turn your idea into reality. But if you believe that the amount of money, which you have is not large enough for your online marketplace, then you should consider raising investments.

Fact: Many people have great ideas, but only a few of them manage to persuade others that the project is worthy of financing and manage to raise money to develop their idea.

Marketplaces are now one of the top priorities for investors. Let’s look at investment trends in 2018 and what 2019 promises.

Investments in top online marketplaces in 2018

#1 Karma

Karma is a Stockholm-based marketplace, whose goal is to reduce food waste, has raised $12 million in series A round of funding led by Swedish investment firm Kinnevik, with participants from Bessemer Venture Partners, Electrolux, and E.ventures, among others.

#2 Printify

Printify, an online marketplace startup from Riga, Latvia, has raised $1 million in seed funding led by Google AdSense pioneer Gokul Rajaram as it looks to expand its services in the U.S. and build out its team in Latvia.

#3 Fat Llama

Fat Llama, a London-based peer-to-peer marketplace for renting almost anything, has raised $10 million in Series A funding in a round led by Ophelia Brown’s recently outed Blossom Capital, with participants from Niklas Zennström’s Atomico and Y Combinator.

#4 Delegate

Delegate, a Singapore-based marketplace for event organization and supply contractors, has raised US$1 million in a pre-Series A round from an unnamed family office and Yang Bin Kwok, the former CTO of Zopim (one of Singapore’s most visible startup success stories).

#5 Entr

Entr, a Montreal-based event planner platform, has raised a $1.13 million seed round with several investors, including iNovia Capital, vice-chairman of Expedia, Peter Kern, Telegraph Hill Capital, Interaction Ventures and Chronogolf co-founder, Guillaume Jacquet.

#6 Ohmyhome

Ohmyhome, a Singapore-based prop tech marketplace, has raised $2.9 million in a Series A funding round led by Golden Equator Capital.

 

#7 ChefHero 

ChefHero, a Toronto-based marketplace, which allows restaurant owners and their staff to order wholesale food and supplies, has raised $12.6 million in Series A funding.

#8 Eporta

Eporta, a London-based B2B marketplace startup for interior design, has raised $8 million in a Series A funding round led by US investor Canvas Ventures with participants from venture capitalists.

#9 Tractor Zoom

Tractor Zoom is an auction marketplace for farm equipment that has raised $1m in a seed round.

#10 iFixng.com

iFixing, an online marketplace for hiring handymen and artisans, has raised $50,000 seed funding from Yomi Martins, a non-institutional private investor.

These examples display online marketplace startups that have raised millions of dollars in the early startup funding stages.

Even though 2018 was rich in seed and pre-series A investments, there were also many cases of investments in marketplaces that were already growing.

For example, a Singapore ride service marketplace Grab has raised $1 billion in a Series H round from Toyota Motor Corporation and Microsoft co-founder Paul Allen’s family office Vulcan Capital.

Lyft raised $600 million in a Series I round led by Fidelity Management & Research Company.

StockX has raised $44 million in Series B from GV, Battery Ventures and many more investors.  

These are just a few among the many inspiring examples of investments. We’ve done our research and found out that there were more than 100 investments in marketplaces in 2018.

Awesome, right?

And what about 2019?

You may ask about what’s going on now in 2019. Well, the first half of the year has passed and we are ready to show you some statistics.

The pace of investment is not about to slow down in 2019. There are already about 30+ investments in digital marketplaces according to CrunchBase. More than half of them are pre-seed, seed, pre-series A and series A investments which is very promising for the marketplace industry.

What is particularly interesting is that while 2018 may not have had many investments in pre-seed marketplace startups, 2019 will amaze you.

Just to boost your inspiration, here are a few examples of pre-seed investments:

Coolbeez, a Berlin-based platform that helps to monetize micro-influencers, has raised an undisclosed amount of money in its pre-seed round.

Poplar, a London-based platform that inspires the world to easily create AR experiences has raised £500K led by Haatch along with Ascension Ventures Limited, Nigel Morris and others.

Cribcut, an online platform that connects mobile hair stylists to clients, has raised $1.1M in its pre-seed round. The investors were Creative Destruction Lab, Innovacorp, Georgian Angel Network and Broken Glass Angels.

Why do investors find marketplaces so compelling?

Marketplaces are extremely valued by venture companies, private investors, accelerators, and angels.

But what exactly attracts investors to marketplaces?

Reasons why VCs invest money in marketplaces:

From the business point of view:

  • Marketplaces are a fundamental part of e-commerce
  • They are highly defensible when they operate well
  • Network effect – retaining your loyal community

From the emotional point of view:

  • Investors love how marketplaces grow, evolve and perform
  • Marketplaces are challenging and at the same time fun since you have to match two sides in order to maximize liquidity

According to an interview with Fabrice Grinda, co-founder of FJ Labs, investors like marketplaces, because they bring transparency to previously opaque and fragmented markets. They also improve market liquidity.

Marketplaces remain an alluring area to investors because of barriers of entry, healthy margins and proven business models across different sectors.

Which stage is better for raising funds in a startup marketplace?

As seen from 2018, there is a tendency for investment to come too early stage startups that are in the seed and pre-Series A rounds, though there are cases of investments in marketplaces that already exist.

The smart thing for every marketplace startup is to run a discovery phase, polish your idea, create a solid pitch for investors and raise funds for further development.

At early stages: On the pre-seed and seed rounds, you can raise money for an MVP development and a marketing campaign just by proving your idea is worthy.

At series A round: At this stage, you can pitch your shiny and attractive MVP to investors and raise money for your full-featured marketplace in the Series A round. Be aware that having an MVP, you’ll have to show the traction to prove your idea is valid.

Growth stage: After developing a fully functional product, you can raise another round for growing and expanding your product. Here you’ll have to provide a solid business plan with the estimated revenue growth.

How to pitch a startup idea for your marketplace?

First things first, you need to prove that the idea is unique and that the online marketplace business plan is developed and looks reasonable. But how can you do that?

I am about to cover the most important questions that investors will want answers to!

Investor questions for startups:

Q1: What problem does your marketplace solve?

S1: Find a problem that is time-sensitive

First, you need to decide what problem your marketplace will solve for consumers and suppliers. Your problem needs to be real and even more importantly – it should sound real.

If your problem is solved, investors would think you are going to reinvent the wheel.

There is a chance that the current solution to the problem may not be a proper solution at all or is an imperfect solution. Take your chance and make it better. Prove it’s better!

Q2: Who are your competitors and why are you better?

S2: Create a unique selling proposition

Find your rivals` weak points and turn them into your strengths. It’s a good thing that you actually have competitors. It means that the industry you’ve chosen has a market and there is market demand.

Everyone wants to be the best one on the market, much fewer want to be the first one to enter the market. Your potential investors might be not the type.

Q3: What is your marketplace revenue model?

S3: Choose the marketplace monetization model

There is a number of revenue models that you can choose from. Obviously, the most common revenue stream is to charge a commission from each transaction. Nevertheless, there are always other options like freemium, featured listings and ads, membership, subscription, listing and lead fee.

Yes, you might be not sure yet and might change this monetization model later.

But investors have to know you have something to start with.

Q4: How do you plan to acquire customers?

S4: Come up with supplier’s and consumer’s acquisition strategy

In order to have a good supplier and consumer acquisition strategy, you should know your industry and market. You’re also gonna need an understanding of how the market you are in works and which side is better to acquire first: supply or demand? Oh, here comes this everlasting “chicken-egg problem”! Despite endless disputes on this topic, there is no right way and you’d better analyze the market you are personally in.

Then you will be able to put everything together and incorporate it into an awesome pitch deck.

Q5: Why now is the right time for you to enter the market?

S5: Analyze the market and find your perfect timing

There are always certain problems on the market that require immediate execution. And startup addressing those problems attract investors the most.

So why should your project be started now? Why not 5 years ago? Why not in a year? Find an answer and win investors faith in your project. You should analyze your target market and imagine how your product may influence it. Usually, online marketplaces are industry disruptors, so don’t be shy, be bold!

Do I need to have a marketplace MVP in order to begin pitching my startup to investors?

A lot of startuppers struggle between choosing whether to build a startup MVP and then to raise money or vice versa.

Many marketplace startup founders think that the best way to raise investment is to build an MVP so that investors could check something live. So they can see the idea turned into reality.

The trap comes from startuppers trying to create “some” MVP. It’s hard to gain traction with a low-quality MVP. At the same time, at the stage when you have an MVP, investors expect you to have some solid traction. And it’s a closed loop.

So in cases, where the budget is very limited and there is no money for a good quality MVP, it’s better to embark on the discovery phase, make a super good pitch and raise investments at the idea stage. Only then should you build a good MVP, do a marketing campaign which will likely cost you as much as your MVP (so be smart with budgeting) and gain traction with it.

To sum up, marketplaces are an alluring area for investors. For the past year, the number of investments in marketplaces has grown and 2019 is promising to be even bigger.

For a marketplace startupper who is looking for some investments, it is definitely a good thing. If you are not ready to bootstrap, then finding investors is a must have. In order to be as proficient in your field as possible you need to:

  • Do solid research
  • Analyze your market
  • Explore what your product-fit would be
  • Have a clear concept for building a marketplace startup that is user-friendly
  • Make a startup pitch deck
  • Be persuasive and tenacious while pitching your idea

Pavel Obod

Pavel Obod

CEO & Founder of Sloboda Studio

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