Why I love B2B Marketplaces

I’m excited about marketplaces. I’m excited about marketplaces because they serve as mediators between the buyers and sellers of products/services, creating liquidity and transparency in otherwise opaque and fragmented markets.

Building a marketplace is tough. There are many challenges, and it’s undoubtedly something different from starting-up any other model. In nearly every 2-sided marketplace, one side is harder to acquire than the other, and there is often no value to one side until the other side is there too (The so-called “Chicken or Egg Problem”). This race against time to achieve liquidity in your marketplace can be painful, but the reward is priceless. Reaching the critical mass of liquidity can allow you to fully take advantage of the most significant defensibility ever: network effects.

Over the last years, some of the most successful companies have been consumer-facing marketplaces like eBay, Uber, or Airbnb, unlocking huge network effects and driving a massive change in society. This creation of trust, transparency, and better communication in certain markets, has been translated into the acquisition of millions of users, and billions of dollars in funding from investors.

Okay, consumer marketplaces have been successful, but what’s next?🦄

I firmly believe that the new wave of disruption, massive funding, and hyper-growth is going to be led by B2B marketplaces. These are my reasons:

1. Massive markets

B2B markets are gigantic. According to Statista, the global B2B eCommerce market was valued at $12.2 trillion in 2019. That is x6 the size of the B2C eCommerce market in 2019. Even though B2C eCommerce has witnessed extensive adoption over the last years, B2B eCommerce is taking the lead in terms of growth and overall numbers.

Professional buyers are no different from the average consumer, and the tremendous increase in B2C online shopping is creating a change of habits in the population. B2B buyers are starting to require the business purchasing experience to be as accessible and straightforward as online personal shopping.

2. Inefficiencies everywhere

Ideal online marketplaces are created in inefficient markets. Well, inefficiencies in B2B transactions are huge! There is an immense lack of price transparency, automation, trust, and a lot of constraints in the discovery of supply and demand.

Thanks to B2B online marketplaces, buyers gain choice, better communication, price transparency, and higher efficiencies. At the same time, sellers are financially incentivized, gaining access to a broader demand for their products/services, reducing drastically their marketing, sales, and logistics costs that they used to have.

Many traditional B2B industries have avoided the online marketplace revolution seen in B2C markets, but that is already changing thanks to start-ups like Convoy (Freight), JOOR (Fashion), Klarx (Construction), or Choco (Food).

3. Better unit economics

I’m not a big fan of benchmarks, but when it comes to marketplaces, there are some specific metrics that I like to understand, such as:

• GMV
• Net Revenue
• Margins
• Average Order Value
• Frequency of use
• LTV/CAC ratio

Guess what! When you compare these KPIs with their consumer counterparts, B2B marketplaces usually perform better! B2B markets have higher AOV, higher frequency of use, and take rates tend to be higher. By extracting fees for the transactions occurring within the B2B marketplaces, marketplaces can capture a lot of value from each market.

Having invested recently in a B2B marketplace (to be disclosed soon😉) and having spent some time reading about a few more, I’m very enthusiastic about how this model will evolve. I’m sure that we will see many European B2B marketplaces taking-off in the coming years.

That’s all folks! I will continue to search, find, and learn from entrepreneurs building such type of business. If you are an investor interested in the space or you are building a B2B Marketplace, I would love to talk! cesar@jme.vc