Marketplaces Evaluation, Thesis, and Trends

Next Billion Tech

A while back, I wrote a piece on the "Marketplaces for Social Good," if you have not read it, please do give it a shot.

One theme that draws my attention apart from solving issues in education, financial services, and gender equality is marketplaces. I am personally bullish on marketplaces, I see them as a tool to bring price transparency, accessibility, and efficiency in the value-chain, especially in the emerging markets, where the markets are opaque, fragmented and lack accountability. They are very much applicable in the emerging economies in sectors like retail, healthcare, education, agriculture, and financial services. 

How to evaluate a marketplace startup?

Fabrice Grinda, ex-CEO of Olx, and co-founder of FJ Labs, a VC and company builder focused on marketplaces. Fabrice has led 500 investments in startups in his lifetime, out of which 350 are in marketplaces.

Here is what I have learned from him, after listening to a bunch of his podcasts on Venture Stories, Origins, and many more: 

  • Is this business attractive? in terms of 

    • Unit Economics (Actual Vs. Theoretical): The 'good' unit economics is one where the company can recoup their fully-loaded customer acquisition costs in six-months on a net contribution margin basis. 

    • Valuation/ Pricing: $1 bn + potential enterprise value 

    • Low disintermediation risk 

    • Market Domination: Market leader potential, growing market, the possibility of optimizing TAM and increasing it

    • Capital Efficiency: Scalable & capital efficient 

  • Team, in terms of 

    • Storytelling skills

    • Grit & tenacity 

    • Demonstrated passion and 

    • Metrics-driven & analytical.

  • Are the deal terms reasonable? The attractive price is relative to the team, traction & market. 

  • Does it match the thesis? Is it a thesis-driven investment or an opportunistic investment. 

What's my marketplace thesis? 

  • Veriticalisation of Horizontals, not just Craiglist but beyond - betting on niches, also emerging out to be billion-dollar markets. 

  • Curated/ managed marketplaces are a way to go where the platform curates the products/ service offerings for the customer using AI, deep learning, and machine learning. 

  • B2B, a lot can be done to bring price transparency and formalisation in the B2B space, which is full of inefficiencies and informal ways of doing things.

Curated resources for further curiosity:


I am continuously looking for marketplace solutions that can serve mass-markets in emerging economies. If you are building one or investing in one in Indonesia or SEA, please do write to me, I would love to learn more from you.

With Love,

Sagar


About

"first followers" is founded by Sagar Tandon, a founding member at Moonshot Ventures and venture affiliate at MIT D-Lab. You can reach him at sagar@moonshotventures.org.

Occasionally, he blogs about the responsible investing, tech for good, venture capital, investment thesis, conscious capitalism, collaborative consumption, community, and humane lifestyle.

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