What It Takes to be A Venture-Backable Marketplace

Venture capital is buying into online marketplaces in a big way.

In 2021, VC investors poured $139B into marketplaces, making it a banner year and roughly doubling 2020’s investment levels, according to the Online Marketplaces: 2021 in Review report.

Following Nautical Commerce’s $30M Series A funding announcement, we hosted a webinar with industry experts to discuss what it takes to be a venture-backable marketplace.

The panel featured ecommerce leaders:

• Masha Khusid: Partner, Drive Capital
• Marc-Antoine Bonin: Co-founder, Planned
• Ryan Lee: Co-Founder & Advisor, Nautical Commerce
• Moderator: Bhavin Shah, CTO/COO, Nautical Commerce

‎‎Here are four takeaways from the webinar:

1. Be Quick to Market

Marc-Antoine Bonin, whose event-planning marketplace secured $18M in series A funding this year, emphasized the importance of time to market (TTM).

“I think optimizing for speed is always — or most of the time — a good decision, especially in your early days, because our most precious resource is time,” he said. “You don’t want to realize in two years after you build a product that it doesn’t work. Taking on third-party options can go faster.”

In Planned’s early days in 2018, Bonin was hyper-concentrated on proving his marketplace idea and used rudimentary tools like QuickBooks for payments, a decision that helped him begin generating revenue and making a case to investors. “We didn’t build any technology, but we had transactions,” he said.

2. Prioritize the Customer Experience

There are five types of marketplaces, according to Lee:

Digital

Apple first revolutionized the digital marketplace ecosystem when it released the App Store. Today, digital marketplaces take many forms, from the Google Play Store to Roku, and Netflix.

Product

When most people think of marketplaces, they often think of product marketplaces like Amazon. Today, there are a plethora of product marketplaces focused on a specific niche like fashion, industrial parts, home goods, and more.

Service

Service marketplaces revolve around booking people for a job or service. This includes freelance marketplaces like UpWork and Fiverr.

Booking

Booking marketplaces only allow customers to book a service one at a time. The two most popular booking marketplaces are Uber and Airbnb.

Listing

Some of the world’s first online marketplaces were listing marketplaces like Craigslist, where individuals can list items or services for sale.

No matter which category — or categories — your marketplace falls under,  the top priority should always be the same: improving the customer experience.

“The customer experience, the buyer’s experiences, and the logistics, or the delivery experience, regardless of whether it’s digital or physical — those are the things that you really ought to focus on when you’re a marketplace business,” Ryan said.

For example, transactions across all marketplaces are about the same. Vendors are onboarded — whether Uber drivers or Airbnb hosts — products or services are delivered to buyers, and the marketplace operator’s system handles the accounting, including payouts.

“What differentiates Amazon?” Lee asked. “It’s the customer service, it’s the selection, it’s the quality, it’s the speed of delivery. If you look at where these companies optimize, they’re not optimizing their tech stack. They’re optimizing the experience delivered to the buyer.”

Ultimately, satisfied customers, who will continue making purchases from your business, will attract VC — not what tech is under the hood.

“What gets us really excited about marketplaces generally is this idea that you could acquire one customer but sell multiple products to that customer,” Masha said. “Marketplaces can scale much faster than your one-off direct-to-consumer business or your one-off burger shop on the corner.”

3. Don’t Overspend by Developing Your Own Tech Stack

Even as recently as a few years ago, when off-the-shelf marketplace tech wasn’t as accessible, it was common for ecommerce companies to spend millions of dollars developing their tech stack from the ground up. With this approach, sometimes still seen today, the high up-front cost is only one of the drawbacks.

“When you have too many different tech stacks or at least platforms powering a marketplace you have a real liability there — that goes beyond what I call tech debt — which is the maintenance of it,” Ryan said during the webinar.

Companies that opt for a custom build are launching not one but four different businesses. In addition to their marketplace — which is their main business — they’re creating separate enterprise tools for commerce, fintech, and logistics. “And then they have to ensure that all of that works in harmony,” Ryan added.

Masha Khusid agreed that creating a bespoke tech stack is not the way to go for marketplaces vying for VC. “It’s an absolute massive mistake for any founder to think that they can go and build infrastructure better than people that are focusing on it every day of the week,” she said.

4. Invest in Purpose-Built Marketplace Technology Instead

Today, Ryan sees a transformation in marketplace technology similar to what happened with customer relationship management (CRM) software. “You don’t hear organizations nowadays saying, I need to build a CRM from the ground up to be competitive,” he said, noting out-of-the-box options like Oracle, HubSpot, and Salesforce.

He sees platforms like Nautical as analogs to these solutions but with a focus on powering marketplaces.

“We started marketplace tech because we saw a real gap in the market; it looked like everybody was trying to build a custom solution, and we wanted to make sure that at the end of the day there was an option to have a turnkey marketplace platform,” Ryan said.

We’re living in the era of headless commerce and best-in-class software, which means companies can dedicate more resources to developing other tools.

Investors care about your business model and are much less concerned about the uniqueness of the technology powering it, Masha noted.

“Investors have a set of metrics that they’re looking for, and if you can hit those metrics, you’ll be able to go out there and get funding,” she said, “Nobody in diligence is going to be peaking under your tech stack and saying, ‘hey, what I’m really excited about here is this one payment line of code.’”

Marketplace Platforms Enable the Growth Investors Look For

Choosing a platform that has been purpose-built for multi-vendor ecommerce helps today’s new marketplaces become tomorrow’s success stories. With such a solution, businesses can operate leaner, cut costs, get to market sooner, and more.

“When you leave infrastructure to companies like Nautical, it allows you to open up your own product roadmap to thinking about those huge pie-in-the-sky ideas,” Masha said.

To learn more about Nautical’s multi-vendor marketplace platform, contact our team of marketplace experts.