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Lessons Learned Building Online Marketplaces

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Supporting slides for my keynote at the Global Online Marketplaces Summit in Miami

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Lessons Learned Building Online Marketplaces

  1. 1. LESSONS LEARNED BUILDING ONLINE MARKETPLACES JUNE 22ND, 2018
  2. 2. PRIOR INVESTMENTS 2
  3. 3. IN A NUTSHELL VENTURE CAPITAL • Seed / Series A focus • Average investment size $400K • Global strategy: Active in U.S., Europe, LatAm, India • 60-80 investments per year • 65% new investments + 35% follow-ons • Do not lead rounds or join boards • Co-invest with larger funds we know and trust COMPANY BUILDING • Build 1-2 businesses from scratch per year • Invest $2.5M to $5M per company • Executive chairman role • Hands-on role in product, marketing, hiring, strategy & fundraising • Expertise in scaling using TV advertising (FJ has bought over $1B of TV ads) • US focus but have built companies in Europe + Brazil 3
  4. 4. INVESTMENT HEURISTICS $1B+ Potential Value Valid Business Model Initial Unit Economics Market Leader Potential Scalable & Capital Efficient Growing Market No Disintermediation Risk Execution Know-How Quality of Team 4
  5. 5. LESSONS LEARNED FROM BUILDING ONLINE MARKETPLACES Lessons learned 5
  6. 6. IDEAL CONDITIONS FOR MARKETPLACES Fragmented supply Fragmented demand Discovery Price transparency CommunicationTrust Payment Logistics 6
  7. 7. DETERMINE STRATEGY TO BUILD INITIAL LIQUIDITY 7 Demand • Selection incentivized • Lower recurrence • Finite consumption • Just-in-time purchasing Supply • Financially incentivized • Higher recurrence • Excess capacity • Less time-sensitive Most marketplaces focus on building supply first
  8. 8. 8 MARKETPLACE DESIGN Buyer Buyer Buyer Supplier Supplier Supplier Double commit Buyer picks Supplier picks Complex, custom Variety Commodity UpWork, Craigslist Ebay, StockX Uber, Rev
  9. 9. PICK A BUSINESS MODEL 9 RakeSaaSVisibility • Pay for reach and visibility • Location and category matter Leboincoin “Popup” fees by category • Jobs – €4 per ad • Cars – €3.50 per ad • Real estate – €4 per ad • Buyer or seller subscription • Access to marketplaces, services Knowde seller-side SaaS subscription • Knowde sellers pay $4,000 per premium product page with Lead Gen and Analytics • Buy side and/or sell side • Typical range: 10% - 25% • Extremes: 1% - 75% Average take rates • Uber: drivers pay 25% (Rider Fee) • Airbnb: host 3% / guest 6% - 12% (by location and length of stay) • UpWork: freelancer pays 5% - 20% (by billing amount) Listing Fee • Pay per post • Location and category matter Craigslist fees in SF Bay • Jobs – $75 per post category • Services – $5 per post • Brokered apartments – $10 per post
  10. 10. 10 NAIL IT BEFORE YOU SCALE IT Gross GMV (- discounts, promotions) Net GMV (*take rate %) Revenue (- variable transactional costs and/or COGS) Profit margin (- CAC) Contribution margin (Net) LTV = Contribution margin * number of transaction per user Customer acquisitionLifetime Value Paid-only CAC = !"##$%#&'()( *'+,)-./0 '/( 1'#)2 3&2- # /)5 6'$./0 "2)+2 7+&8 6'.( 9:'//)#2 Blended CAC = !"##$%#&'()( *'+,)-./0 '/( 1'#)2 3&2- # /)5 6'$./0 "2)+2 What we look for 12 month LTV ≥ 2x Paid-only CAC 18 month LTV 2x Paid-only CAC Organic vs paid CAC <25% organic growth = synthetic growth <40% paid growth = underinvested in paid channels
  11. 11. FOCUS ON UNIT ECONOMICS FROM THE START High AOV Low AOV Low Frequency High Frequency 11
  12. 12. SUCCESSFUL VERTICALS FOCUS ON ECONOMICS AND PRODUCT Features horizontals can’t match (1) Features horizontals can’t match (2) 12
  13. 13. Measuring growing marketplaces 13
  14. 14. SINGLE METRIC FOCUS CAN KILL YOU New listing in Nigeria – somewhere in 2014 14
  15. 15. ZOOM IN AND SEGMENT Listings Nigeria per frequency of posting 15
  16. 16. SINGLE METRIC FOCUS CAN HIDE THE REALITY Pageviews vs listings 16
  17. 17. MEASURE THE FULL DYNAMICS OF YOUR MARKETPLACE 17
  18. 18. Marketing strategy for marketplaces 18
  19. 19. DIMINISHING RETURNS OF ONLINE AD SPEND At small scale it is possible to increase spending and maintain low CPCs Increasing spend tenfold by 1) increasing CPC or 2) expanding number of keywords, will increase your marginal cost of acquisition Beware diminishing returns on online ad spend; usually happens around a couple hundred thousand dollars monthly ad spend 19
  20. 20. DIGITAL MARKETING AND SEO VERSUS TV … but offline marketing will really move the needle! Digital marketing and SEO can grow your business nicely… 20
  21. 21. TV CAMPAIGNS ESTABLISH NEW PLATEAU Long tail effect: Total Marketing Spend vs. Pageviews 21
  22. 22. WIN A MARKET IN A FEW MONTHS Even against an incumbent competitor you can win the market in a few months if you’re the only one doing TV properly 22
  23. 23. Where is the industry heading 23
  24. 24. VERTICALIZATION OF THE HORIZONTALS CONTINUES 24
  25. 25. CONTINUED VERTICALIZATION OF HORIZONTALS 25
  26. 26. CLASSIFIEDS ARE BECOMING TRANSACTIONAL: WALLAPOP Fully transactional website Visibility revenue Shipping and logistics 26 Optional buyer-paid escrow service €0.99 per visibility Bump Variable shipping + service fees
  27. 27. CLASSIFIEDS ARE BECOMING TRANSACTIONAL: VINTED Fully transactional website Visibility revenue Shipping and logistics 27 Variable shipping + service fees€1.95 per visibility BoostBuyers pay €0.70 + 5% of sale price
  28. 28. MOVING FROM DOUBLE COMMIT TO MARKETPLACE / SUPPLY PICK 28
  29. 29. B2B MARKETPLACES – THE HOLY GRAIL Examples High Margins of 20%+ High Average Order Value High Recurrence B2B Marketplaces have attractive characteristics that makes them more resilient 29
  30. 30. AMAZING THINGS LIE AHEAD! 30 Thank you!
  31. 31. Thank you. F A B R I C E G R I N D A fabrice@fjlabs.com J O S E M A R I N jose@fjlabs.com 19 W 24th Street, 10th Floor, New York, NY www.FJLabs.com 31

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