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Marketplace Innovators

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Silicon Valley Bank presents a historical look and new research on marketplaces based on data collected from more than 140 private companies. The results describe how mobile technology is impacting the creation and sustainability of marketplaces—and separating the winners from the losers.

The presentation was delivered at Silicon Valley Bank’s Marketplace Mashup on October 14 in New York City. Nearly 100 marketplace founders, venture capital and private equity investors and industry veterans from around the world came together at the exclusive event. More information is available at http://www.svb.com/Blogs/Steve_Allan/Marketplace_Mashup_(Presentation_and_Video)/

Published in: Economy & Finance
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Marketplace Innovators

  1. 1. MARKETPLACE INNOVATORS
  2. 2. Marketplace Innovators • Marketplace Overview • Key Drivers and Success Factors • Financings and Valuations • Maturity and Consolidation
  3. 3. 3 Marketplaces: Defined Horizontal Vertical A platform that facilitates transactions by matching providers of goods & services with end users of these goods & services. The platform provides the infrastructure and rules that facilitate transactions between these parties.
  4. 4. 1995 1999 2010 2000 2008 2007 2001 2005 1996 1997 1998 2002 2003 2004 2006 2011 2012 2013 2009 4 • 500M - Internet Users • 1B - Smartphone Shipments • $286B - eCommerce Sales • GMV: • eBay -$5.5B • 1B – eBay Listings GMV: • Alibaba – $170B • Amazon – $95B • eBay – $75B • $1T - eCommerce Sales • 300K – Airbnb Listings • 250M - Internet Users • 36M - Internet Users • 1B - Internet Users • 9.5% - Internet Users • 20.0% - Internet Users • 200M - Smartphone Shipments Marketplaces: Evolution Webvan Files for Bankruptcy iPhone Launch 1B App D-loads 10B App D-loads WEB 2.0 • 2B - Internet Users GMV: • Amazon – $11B • eBay – $34B
  5. 5. Marketplaces: Drivers Mobile Marketplaces Collaborative Consumption Technology Urbanization • Increased need for simple, focused experience as screen size drives efficiency and unbundling • Pervasive connectivity and computing within cloud- based infrastructure • Payments & location based tech allow for new business models with seamless UX • Analytics & automation enable platforms to match market participants, delivering uniquely curated services and experiences • Platforms facilitate base level of trust required for online transactions to occur • Online reputation becoming more credible indication of offline trustworthiness • People migrating to urban, densely populated areas, encouraging collaboration and sharing economy • Underutilized assets (cars, guest rooms, leisure) provide opportunity to be monetized 5
  6. 6. Marketplaces: Success Factors 6
  7. 7. 7 Marketplaces: Disruptive Lending Case Demand Supply •As interest rates drop, capital suppliers seek increased returns while capital consumers refinance existed debt with cheaper capital •Marketplace lending reduces infrastructure costs by operating virtually •Technology leverages validated analytical automation tools and real-time system transparency Refinancing 61% Credit Card Payoff 22% Use of Proceeds Source: LendingClub Source: Federal Reserve Other 17% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% $- $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 2007 2008 2009 2010 2011 2012 2013 2014 Millions Loans Outstanding 2 YR Treasury Yield
  8. 8. 8 Marketplaces: Verticalization 48% 67% 74% 78% 81% 87% 52% 33% 26% 22% 19% 13% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% <2009 2010 2011 2012 2013 2014 Vertical Horizontal Vertical vs. Horizontal Invested Capital Global Internet & Mobile Penetration (%) Source: International Telecommunications Union Vertical-specific marketplaces provide a simple, focused solution for a specific purpose. As mobile traffic accelerates, vertical marketplaces have a distinct advantage in creating simple, streamlined solutions more suited to mobile apps. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Internet Mobile Horizontal Formation Vertical Formation Source: Public & SVBA Proprietary Data
  9. 9. $3.0 $3.1 $3.2 $3.7 $4.0 $4.5 $4.9 $2.0 $5.0 $6.0 $6.7 $8.2 $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 2009 2010 2011 2012 2013 2014 Series A (Internet Index) Series A (Marketplaces) 9 Marketplaces: Burn Capital Series A Size Comparison Scale to Capture Network Effects $8.2 $10.0 $12.0 $15.0 $15.0 $18.0 $17.5 $17.0 $13.7 $19.4 $36.0 $30.0 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 2009 2010 2011 2012 2013 2014 Series C (Internet Index) Series C (Marketplaces) “Marketplace platforms are neither easy to start nor easy to scale” – Foundation Capital Series C Size Comparison Build a Two-Sided Network Marketplaces have been raising greater amounts of capital both in getting started and when scaling, and despite larger rounds, they raise capital more quickly and as often as less capital intensive start-ups Series A B C Days Marketplaces Internet Index 400 460 540 580 A B C Round Source: Public & SVBA Proprietary Data
  10. 10. Marketplaces: Monopoly 10 Winner Takes (Almost) All Post Money / Invested Capital x 5x 10x 15x 20x 25x 2008 2009 2010 2011 2012 2013 2014 2015 A majority of vertical marketplace financings are around 2x-4x of invested capital. Yet, as market leaders emerge, these leaders raise significantly more capital at much higher valuations of 8x-15x, more than quadruple invested capital multiples of smaller followers. Network effects within the specialized nature of vertical marketplaces create this “winner take all” dynamic Mkt. Leaders Followers Source: Public & SVBA Proprietary Data
  11. 11. Marketplaces: Maturing 11 As clear winners establish themselves, there is less opportunity to disrupt larger established verticals, so investment into growth stage companies increases for those with developed networks Series B and C rounds represented 60% of rounds in 2014 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2009 2010 2011 2012 2013 2014 Seed Series A Series B Series C n = 140 Percentage of total financing rounds Increasing later stage rounds Source: Public & SVBA Proprietary Data
  12. 12. 12 Marketplaces: Saturation & Consolidation Total Invested Capital ($MM’s) $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 Logistics Education Real Estate Retail Services Hospitality Financial Food Delivery Transportation Seed Series A Series B Series C Series D+ 65% of acquisitions occur within 2 years of raising the first round and have raised less than $20M. As verticals declare winners, consolidate vertically, and finance for growth, cross-vertical consolidation of adjacent vertical markets is around the corner Sectors are increasingly saturated with capital n = 140 Source: Public & SVBA Proprietary Data
  13. 13. 13 Marketplaces: Vertical Expansion Case Localized delivery struggled as the costs of infrastructure limited applications of the model, but the technology advances providing for leverage of underutilized capacity assets significantly decreases the cost of localization, below that of established global infrastructure $18b $50b
  14. 14. 14 Marketplaces: Conclusions 1 Enabled by advancing enablement technology, digital social footprints and smart mobile proliferation, marketplaces are only now fulfilling the vertical economies of scale anticipated in the dotcom boom 2 Compared to other internet business models, marketplaces consume significantly more capital at a more rapid pace to establish the network effect required to drive market leadership to reap the outsized returns provided to the winners 3 Digital marketplaces continue to rapidly disrupt traditional markets burdened with significant transactional friction, increasing the direct-to-consumer opportunities for suppliers derived from user-centric massive scale platforms 4 As marketplaces reach critical mass in targeted verticals, expansion into adjacent market verticals will create consolidation opportunities in the coming decade as experienced in horizontal markets over the past two decades 5 While the vast majority of M&A activity are smaller core intra-vertical talent and technology acquisitions, vertical market economies of scale within specialized scope will deliver multiple $50B+ companies in the next 3-7 years.
  15. 15. 15 SVB Analytics 555 Mission Street, Suite 900 San Francisco, California 94105 800.760.9644 svb.com This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by SVB Financial Group and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer to acquire or dispose of any investment or transaction. Companies mentioned herein may or may not be clients of SVB Analytics or SVB Financial Group. ©2014 SVB Financial Group. All rights reserved. Member Federal Reserve System. SVB>, SVB>Find a way, SVB Financial Group, and Silicon Valley Bank are registered trademarks. SVB Analytics is a member of SVB Financial Group and a non-bank affiliate of Silicon Valley Bank. Products and services offered by SVB Analytics are not FDIC insured and are not deposits or other obligations of Silicon Valley Bank. SVB Analytics does not provide tax or legal advice. Please consult your tax or legal advisors for such guidance. Rev. 06-17-13

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