Marketplace investing has never been so large-scale: the first quarter of 2021 started with the most significant investment in online startups – $28 Billion.
At the end of 2020, Airbnb raised $6B in funding, and Uber raised $25.2B overall. Currently, these companies’ value is $104B and $110B.
But what made VCs invest in them early on? What attracted investors to funding these particular marketplaces?
We analyzed what interests investors in the online marketplace investing and how to get them to fund your online project.
Best Stages To Raise Funds For Your Startup
There is a tendency for investment to come to early-stage companies. For example, in the seed and pre-Series A rounds. But there are cases of investment in projects that already exist.
The smart thing for every startup before investing 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 attract investment 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 business companies and receive investment for your full-featured project in the Series A round. Your MVP is a business portfolio. Be aware that you’ll have to show the traction to prove your idea is valid with an MVP.
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 Business
First things first, you need to prove that the idea is unique and that the online business plan is developed and looks reasonable. There investing is the key. But how to present your business portfolio well?
I am about to cover the most important questions that VCs will want answers to! Your investment is at the stake.
Investor Questions For Investing in Startups
Q1: What problem does your new business solve?
S1: Find a problem that is time-sensitive
First, you need to decide what problem your new project will solve for consumers and suppliers. Your problem needs to be real and even more importantly – it should sound real while you are looking for investing vendor.
If your problem is solved, companies would think you are going to reinvent the wheel. So, investing will be under the question.
There is a chance that the current solution to the problem may not be a proper solution at all. 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. So, the investment can push it.
Everyone wants to be the best one on the market, many fewer want to be the first one to enter the market. Your potential capitalists might be not the type.
Q3: What is your revenue model?
S3: Choose the monetization model
There are several revenue models that you can choose from. Obviously, the most common revenue stream is to charge a commission from each transaction. It’s vital to present these ways to investors before investing. There are always other options like:
- featured listings and ads
- membership and subscription
- listing and lead fee.
Find out: How to choose a payment solution
Yes, you might be not sure yet and might change this monetization model later.
But financiers have to know you have something to start their investment.
Q4: How do you plan to acquire customers before investment?
S4: Come up with supplier’s and consumer’s acquisition strategy
To have a good investing partner and consumer acquisition strategy, it’s vital to know your industry and market. You need to understand how the market works and which side is better to acquire first: investing 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. Before the investment process, of course.
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 and get investing?
S5: Analyze the market and find your perfect timing
There are always certain problems on the market that require immediate execution. And startups addressing those problems attract VCs the most.
So why should your project be started now? Why not 5 years ago? Why not in a year? Ready to grow and wait for investment?
Find an answer and win venture capitalists’ faith in your project for investment. You should analyze your target market and imagine how your portfolio may influence it. Usually, online marketplaces are industry disruptors, so don’t be shy, be bold! In this case, investment in your business will be the next step.
Type in the field “Idea” a word phrase – list of venture companies – and get your free list.
Importance of an MVP for Investing
A lot of startuppers struggle between choosing whether to build a startup MVP and attract investment or vice versa.
The common idea to raise investment is to build an MVP. Investors can check something live and thus see the idea turned into reality.
Related: How to Build a Marketplace MVP?
The trap comes when startuppers try 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 at least some traction. And it can become a closed-loop.
So in cases, where the budget is very limited and there is no investment for a good quality minimal version of a product, it’s better to embark on the discovery phase, make a super good pitch and get investment at the idea stage. Only then should you build a good MVP, do a marketing campaign that will likely cost you as much as your MVP, and gain traction with your MVP.
Our Portfolio in Developing Online Marketplaces
Sloboda Studio has started to build online startups since the beginning of its existence. Till now, we still build them. For more than 11 years we have been developing marketplace companies that raised millions of dollars. Here are a few of our startups:
Salita: Raised Over $2 Millions
Salita is an online project that offers interpreting services in Norway. This startup was built from scratch by Sloboda StudiWe started with building an MVP forFor getting a product out of the MVP and then scaled it to a fully featured product. The online business for interpreting connect users from 72 countries and supports 67 languages. So, the investment was brilliant.
Cleaning Platform: Raised Money in Series A
Our company helped digitalize a client’s business, by building a Cleaning Marketplace. We built an online project that connects local cleaners with customers. Customers can search and book a cleaning service when needed. After a product was launched, our client’s business had grown in numbers and investment.
Insights from Interviews with Marketplace Experts
When Starting a Project Be 100% Sure
Recently, we had a very informative and insightful talk with one of our first and current customers, Gautam Chandna, CEO at Salita.
Here is the advice he gave for online entrepreneurs while they are searching for marketplace investing:
- Be absolutely sure about starting an online project, this includes your idea, team, and a plan B in case of a failure.
- Know your customer in order to build as pleasant a user flow as possible while looking for investing.
- Use a human-based approach in your new business.
Go Niche and You Won’t Miss
After visiting the Conference in San Francisco, our founder, Pavel Obod, and Adam Broadway, a co-founder of Desks Near Me and CEO of Near Me decided to talk more about marketplace investing in startups. Here are a few takeaways from their investment discussion:
- One of the best chances to get a successful investment project is to go niche. If it’s a nice idea, you’ll get an investment.
- Online companies create communities that big corporations look for. More companies will start partnering or using online marketplaces they made investment. So, an investment process brings them closer.
Investors Start to Question Marketplaces Business Model
After visiting a conference in Berlin in 2019, we have found tons of useful tips and insights for different companies in marketplaces and investment.
According to Roger Lee, the general partner at Battery Ventures investors used to give away money to those projects that showed growth. However, in recent years investors started to question before investing such things as:
- business model
- details about growth
So, the smart investment is up-to-date.
Things Investors Look For in Marketplace Investing
If you are an an-early staged platform then here is a little insight that we gathered from a Marketplace Meetup 2019 in Warsaw, Poland.
What investors are looking for in startup teams when they want to make an investment:
- Preference for multiple founders (not all VCs)
- Passionate people about customer experience and how they are innovating
- Track record of founders: your background is vital for investing
- Ability to execute: this can be proven by your previous track record or by your existing traction
- Personal motivation for investment
Important Metrics of Online Marketplaces
According to Magda Posluszny from Speedinvest, Maciej Noga from Pracuj Ventures and Joe Bond from ProFouners here are the most important metrics for the online business and further investment:
- Value: customer reviews, frequency of a review, customer retention rate.
- Retention and its rate: investment in product be adorable for years
- Growth if your business is growing, you’ll wait for investment less
- Net revenue: decide on your monetization model and keep your take rate healthy.
Investment in Online Marketplaces in 2023
Online startups continue to catch billions in investment while investors are saving their money and increasing the value of their shares.
The 2021 survey proves that many are ready to invest in new projects: in the UK 69% of Generation X, 74% of millennials, 75% of Generation Z want to make an investment and are ready to do it. As for the USA, Americans are making $43B investing this year.
The most popular online marketplace investing domains are the following:
- Online fashion
- Digital health
- Job search
- Real estate
Uber is the brightest example of how marketplace investing can turn an idea into a robust product with millions of customers worldwide. With a market cap of over $101 Billion, Uber ranks first among leading online companies worldwide. The total growth in 2021 is more than 30%. Without marketplace investing, such a result couldn’t be.
So if you are planning to create a big and complex online business, investment is a must-have.
Source: DealRoom, Statista, Forbes, StartupPill, Speedinvest
To help you find the most relevant venture capitalists, we created a table to provide you with the best investing opportunities.
LIST OF TOP INVESTORS IN ONLINE MARKETPLACES
|Name||Country||Investment type||Investment sector|
|New Enterprise Associates||USA||Debt, Early Stage Venture, Late Stage Venture, Post-Ipo, Private Equity, Seed||Technology and healthcare|
|A16Z crypto||USA||Early Stage Venture||Crypto companies and protocols|
|FJ Labs||USA||Early Stage Venture, Seed||Online shops and consumer-facing startups|
|Novator||UK||Early Stage Venture, Late Stage Venture, Private Equity||Different tech startups|
|Algebra Ventures||USA||Early Stage Venture||Fintech, healthcare, and blockchain technology|
|Advancit Capital||USA||Debt, Early Stage Venture, Seed||Media companies, entertainment, and technology|
|Endeit Capital||The Netherlands||Late Stage Venture, Venture||International projects|
|Khosla Ventures||USA||Debt, Early Stage Venture, Late Stage Venture, Post-Ipo, Private Equity, Seed||Environmentally friendly tech, Internet, computing, mobile, and silicon tech|
|Alpha JWC||Indonesia||Early Stage Venture, Late Stage Venture, Seed||FinTech companies and сonsumer tech sector|
Type “Idea,” a word phrase in the field – list of venture companies – and get your free list.
Below, we give examples of online companies that raised millions of dollars in 2019, attracting investment.
Karma is a Stockholm-based platform whose goal is to reduce food waste; it had $12 million of investment in a series A round of funding led by Swedish Kinnevik, with participants from Bessemer Venture Partners, Electrolux, and E.ventures, among others.
Fat Llama, a London-based peer-to-peer platform 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.
Delegate, a Singapore-based site for event organizations and investing contractors, has raised US$1 million investing in a pre-Series A round. The investment was from an unnamed family office and Yang Bin Kwok, the former CTO of Zopim (one of Singapore’s most visible startup success stories).
Planned, a Montreal-based event planner platform has raised a $1.13 million seed round with several VCs, including iNovia Capital, vice-chairman of Expedia, Peter Kern, Telegraph Hill Capital, Interaction Ventures, and Chronogolf co-founder, Guillaume Jacquet.
Ohmyhome, a Singapore-based proptech platform, has raised $2.9 million in a Series A investing round. The investment was by Golden Equator Capital.
Even though 2018 was rich in seed and pre-series A investment, there were also many cases of investments in projects that were already growing.
For example, Grab’s Singapore ride service platform has raised $1 billion investing in a Series H round from Toyota Motor Corporation and Microsoft co-founder Paul Allen’s family office Vulcan Capital.
Online market companies’ value in 2021 amounted to $132 Billion. There is a considerable investment boost in 2021. So, we will see many investments in pre-seed projects, too.
Coolbeez, a Berlin-based platform that helps to monetize micro-influencers, has raised an undisclosed amount of investment in its pre-seed round.
Poplar, a London-based platform that inspires the world to create AR experiences easily, has raised £500K led by Haatch and Ascension Ventures Limited, Nigel Morris, and other investing partners.
Cribcut, an online platform that connects mobile hairstylists to clients, has raised $1.1M investing in its pre-seed round. The financiers were Creative Destruction Lab, Innovacorp, Georgian Angel Network, and Broken Glass Angels.
Marketplace Fundraising in 2023
According to DealRoom in the first quarter of 2021, there has been a significant investment increase. New startups are building more vertically integrated models to unlock lucrative new markets.
In 2021 we had 370+ online unicorns, with a combined value of $5.0 trillion.
The market is developing rapidly, which means that investing in startups will appear much more.
Marketing investing was an excellent idea for the following companies in 2019:
Drover, a London-based company that offers car subscriptions for everyday and private hire drivers, raised $26M to take it to Europe.
Zetwerk, an Indian B2B platform that connects buyers and suppliers for manufacturing jobs raised $21 million which sums up to a $65.4M investment in the total amount.
Ula, an Indonesian platform that helps small retailers to modernize their distribution by using technologies. This 5-month old startup has already managed to raise a $10.5 million investment.
Nuvocargo, a managed website for door-to-door freight transportation raised $5.3M in seed funding.
Udemy, one San Francisco-based online learning company, raised $50M in a total funding amount of $223M.
Danggeun Market, the South Korean secondhand application, raised a $33M investment.
CREXi, an online real estate site raised $30M. The investment was from Mitsubishi Estate Company (“MEC”), Industry Ventures, and Prudence Holdings.
Insurify, an online platform that helps compare insurance quotes in the USA through artificial intelligence, language processing, and chatbots, raised a $23M investment.
Roofstock, a San Francisco-based online site for marketplace investing in leased rental homes, raised $50M investment in new funding round.
The Mom Project
The Mom Project, an online talent project that helps women find work. It had a massive investment of $25M in July 2020.
Why Do investors Find Marketplaces so Compelling
They are highly valued by investment companies, private people, investment accelerators, and angels.
But what exactly attracts people to make investment decisions?
Reasons why VCs find investment in online shops commercially viable:
From a business point of view:
- They are a fundamental part of e-commerce companies
- They are highly defensible when they operate well
- Network effect – retaining your loyal community
- Marketplace investing is a great way to get a passive income
From an emotional point of view:
- Investors love how companies grow, evolve and perform when they are making an investment
- Marketplace investing is 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, financiers like such investment projects because they bring transparency to previously opaque and fragmented markets. They also improve market liquidity.
Online companies remain an alluring area to people who like investing. What are the investment reasons? We can mention the following:
- barriers of entry
- healthy margins
- proven business models across different sectors.
To sum up, marketplaces are continuing to be a desirable area for investors. There was an enormous increase in marketplace investing in the first quarter of 2021. This boost opens up vast financial opportunities for investing in online startups.
For a startupper who is looking for investment, 2023 can become a turning point. If you are not ready to bootstrap, then your project investing would be the best choice. 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 user-friendly startup
- Make a startup pitch deck
- Be persuasive and tenacious while pitching your idea for investment
Frequently Asked Questions
Is 2023 worth marketplace investing?
Yes. Due to the newest statistics, 2021 is the best year to make an investment because the online market continues to grow, demand is steadily increasing, and all governments are doing everything to support falling stocks.
What are the most profitable sectors for marketplace investing in 2023?
In 2023 many marketplace sectors have shown huge growth, including the following:
✔️Travel and real estate
What are the right steps to attract investors?
If you have created an innovative project, we suggest turning to investors for financial support. The investment is vital. Learn the following steps and go for it:
1) Research and analyze the market
2) Explore what your product fit would be
3) Create a clear concept for building a user-friendly startup
4) Build an MVP product to show the core functionality of your product
5) Be persuasive while presenting your idea to investors