From Good To Great: How To Ace Your Marketplace Fundraise (2021)
From Good To Great: How To Ace Your Marketplace Fundraise (2021)
November 2021
FROM GOOD TO GREAT: HOW TO ACE
YOUR MARKETPLACE FUNDRAISE
Justin Da Rosa, Vice President, Battery Ventures
Philip Specht, Principal, Speedinvest Network Effects
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DISCLAIMERS
The information provided in this presentation is solely intended for the use of entrepreneurs, corporate CEOs and founders. The
information is current as of the date it was published. This presentation is being provided for informational purposes only. Nothing
herein is or should be construed as investment, legal or tax advice, a recommendation of any kind or an offer to sell or a solicitation
of an offer to buy any security. The contents are not intended to be used in the investment decision making process related to any
product or fund managed by Battery Ventures.
Content obtained from third-party sources, although believed to be reliable, has not been independently verified as to its accuracy
or completeness and cannot be guaranteed. Battery Ventures has no obligation to update, modify or amend the content of this
presentation nor notify readers in the event that any information, opinion, projection, forecast or estimate included, changes or
subsequently becomes inaccurate.
Battery Ventures provides investment advisory services solely to privately offered funds. Battery Ventures neither solicits nor
makes its services available to the public or other advisory clients. For more information about Battery Ventures’ potential
financing capabilities for prospective portfolio companies, please refer to our website. For a complete list of portfolio companies,
please click here.
As of Nov 2021
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DEFINING THE STAGES
Pre- Early Growth
Seed Stage Stage
Pre-revenue Seed / Series A Series B and later
Early product Initial phase of Scaling efficient growth
revenue generation
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PRE-SEED
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MARKET SIZE & MONETIZATION POTENTIAL
Common practice: Focus on GMV How to ace it: Assess gross margin potential
GMV
Monetization rate in %
$ 180 B
2020 Net revenue potential
Estimated gross margin in %
Gross margin potential
Annual spent on bunker fuel in 2020
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COMPETITOR ANALYSIS
Common practice: Analysis on two axes How to ace it: Detailed competitive analysis
Category Competitor 1 Competitor 2 Competitor 3
Annual Revenue $ 2.5 M $3M $7M
Total Funding $6M $2M $ 15 M
Users 45.000 60.000 250.000
Employees < 20 > 30 60
Full Service Yes No Yes
Target Market DACH USA UK
Provide key take-aways why your approach is superior and
you will beat competitors. Can also be done in short memo.
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MARKET RESEARCH
Common practice: Quoting selective study results How to ace it: Comprehensive market insights
Provide data room with most relevant
65% studies, articles and research papers
Buyers
of buyers say their Suppliers
Suppliers Buyers
Broker
procurement is still done via Suppliers
Suppliers
Broker
Buyers
Buyers
Trader
fax, email or phone Suppliers
Suppliers
Buyers
Buyers
Explain market structure and fragmentation
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CUSTOMER AND EXPERT INSIGHTS
Common practice: Simple customer survey How to ace it: Interview (audio) - transcripts
Would service xy be of interest to you?
Conduct many interviews with experts and both prospective
suppliers & customer n > 50
Not interested
Audio record interviews and use software to transcribe
Would pay for it Use service provider to increase speed or size
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ACHIEVEMENTS & PRODUCT VALIDATION
Common practice: First screenshots from MVP How to ace it: Systematic, user-centric testing
14 Testing Tools for Mobile UX – Neil Patel
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NETWORK EFFECTS
How to ace it: Show in depth understanding
Common practice: No comment on Nfx of Nfx at play
? Explain marketplace dynamics and different network effects at
play (direct, two-sided, data nfx etc.)
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FORECASTS
Common practice: Long term revenue forecast How to ace it: Detailed 18 month budget
Category Q1 ’21 Q2 ‘21 Q3 ‘21
Revenue
$ 0.5 M $ 1.3 M $2M
Forecast
Cost Staff $ 0.1 M $ 0.2 M $ 0.4 M
Cost IT/ Tech $ 45 k $ 60 k $ 95 k
Cost Marketing $ 0.2 M $ 0.3 M $ 0.6 M
Cost G&A $ 20 k $ 26 k $ 31 k
Revenue in € M Net Income € M ... ... ... ...
Budget should reflect Monetization, Hiring Plan and general cost
assumptions such as G&A or other.
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IF POSSIBLE, INCLUDE RELEVANT PRE-SEED
KPI’S
📈 Number of waitlisted Users
📈 Number of sign ups
📈 Relevant actions take (e.g. profiles created)
📈 Engagement/ Repeat rates of beta-testers
📈 Pilot agreements
📈 Pipeline of advanced conversations
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EARLY STAGE
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WHAT MATTERS MOST AT THE EARLY SEED
STAGE?
Core focus in early seed-stage marketplaces: product-market fit
➔ Engagement
➔ Repeat Rate
➔ Stickiness
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EXAMPLE 1: CUSTOMER RETENTION
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EXAMPLE 1: CUSTOMER RETENTION
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EXAMPLE 1: CUSTOMER RETENTION
Show cohorts with absolute numbers... … and with percentage figures
Number of active customers Customer retention rate
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EXAMPLE 2: NUMBER OF ORDERS AND
AVERAGE ORDER VALUE
Number of Orders by Cohort AOV by Cohort
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EXAMPLE 3: REVENUE RETENTION
Revenue Revenue Retention Rate
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IT IS IMPORTANT TO LOOK AT BOTH THE
DEMAND AS WELL AS SUPPLY SIDE!
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GROWTH STAGE
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WHAT MATTERS MOST AT THE
GROWTH STAGE?
Core focus in growth-stage marketplaces: growth at scale and efficiency
➔ Cohort segmentation
➔ Share of wallet
➔ Growth efficiency metrics
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THE EVOLUTION OF COHORT ANALYSIS:
EARLY STAGE VS. GROWTH STAGE VIEW
Early-stage view Growth-stage view
Set-up tracking infrastructure for cohorts as early
Cohort data can become blurry when new
as possible (mention tools) customer groups or markets are tackled
Evaluate cohorts regularly
Need to start evaluating cohort data by customer
segment (remember: averages are misleading)
Retention should be stabilizing, and cohorts
improving Which markets, demographics, channels are
performing better vs. worse? This should inform
Spot “tipping points”
where to amplify vs. pull-back growth
Start to identify traits of power users and focus
on finding more of them!
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SHARE OF WALLET TELLS YOU HOW VITAL
YOU ARE BECOMING ON BOTH THE DEMAND
AND SUPPLY SIDES
Example: How do you assess the cohort below?
GMV by Month
Period Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7
2018-06 $7,171 $8,026 $10,010 $12,025 $11,601 $16,928 $13,358
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SHARE OF WALLET TELLS YOU HOW VITAL
YOU ARE BECOMING ON BOTH THE DEMAND
AND SUPPLY SIDES
Example: How do you assess the cohort below?
GMV by Month
Period Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7
2018-06 $7,171 $8,026 $10,010 $12,025 $11,601 $16,928 $13,358
Answer: Retention looks great, but still hard to evaluate relative product-market fit
→ Assess share of wallet = actual demand / potential demand of the customer
→ Call your customers to find out their potential demand, then compare how much is transacted via marketplace
→ Understand the reasons why a customer if fulfilling demand via other channels
→ The closer to 100% the share of wallet, the better the product market fit (in most cases)
→ Can you drive de facto exclusivity?
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CAC: COMMON PITFALLS
Only including acquisition costs instead of a fully-loaded number including salaries,
overhead, tools
Not including non-media costs, i.e. referral costs, free trials, etc.
Only considering demand-side acquisition, but neglecting supply-side
Only looking at blended CAC, and not distinguishing paid CAC vs. blended CAC
Looking at numbers in aggregate rather than by channel
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BREAKING DOWN CAC
Paid acquisition costs Organic acquisition costs* Supply acquisition costs
Fully loaded
Fully-loaded acquisition costs
* Organic acquisition costs include cost of SEO, content, PR, etc.
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BREAKING DOWN CAC
Total acquisition costs Total customers acquired Blended CAC
Most people stop here…
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BREAKING DOWN CAC
… but we recommend showing paid CAC as well
Paid acquisition costs Paid customers acquired Paid CAC
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BREAKING DOWN CAC
We also recommend looking at CAC by channel:
Total customers acquired
FB acquisition costs FB CAC
from FB
Total customers acquired
Instagram acquisition costs Instagram CAC
from Instagram
Total customers acquired
SEM acquisition costs SEM CAC
from SEM
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ORGANIC, PRODUCT-LED ACQUISITION IS THE
MOST DURABLE AND EFFICIENT FORM OF GROWTH
Social? Content? ?
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CAC: WHAT WE‘RE LOOKING FOR
Diversity of acquisition channels
At least one paid channel that is performing well and scalable
Stable overall CAC as absolute marketing spend grows
Increasing share of organic often a good indicator of organic growth loop(s)
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LTV: COMMON PITFALLS
Assuming an “infinite” customer lifetime versus capping at a defined period
Looking at revenue LTV instead of gross margin LTV
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BREAKING DOWN LTV
LTV
Average lifetime number of
X Gross margin per order
orders per customer
Account for all cost of sales
Apply cut-off times
and variable costs
(24-36 months is usually
associated with generating
acceptable)
revenue
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LTV / CAC IS ONE OF THE BEST MEASURES OF
UNIT ECONOMICS AND GROWTH EFFICIENCY
<1x
= Bad
1-2x
= Needs improvement
LTV CAC
2-3x
= OK
>3x
= Great
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PAYBACK PERIOD IS AN EQUALLY
IMPORTANT METRIC!
Payback time = Length of time needed to recoup customer acquisition cost
Example:
Per Customer Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10
Revenue $51 $47 $59 $60 $85 $89 $122 $110 $80 $137
(x) Gross Margin 70% 70% 70% 70% 70% 70% 70% 70% 70% 70%
Gross Profit $36 $33 $41 $42 $60 $62 $85 $77 $56 $96
Cumulative Gross Profit $36 $69 $110 $152 $212 $274 $360 $437 $493 $588
CAC ($350)
Cumulative Contribution ($314) ($281) ($240) ($198) ($138) ($76) $10 $87 $143 $238
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NOT ALL BUSINESS ARE CREATED EQUAL…
CLEARLY ARTICULATE YOUR TYPE OF BUSINESS
12 months In general, marketplaces that see higher
transaction frequency can afford longer payback
periods while lower transaction frequency
Payback Period
requires shorter payback periods
Instant
Daily Frequency of Transaction Once a year
Note: Logo placement is purely illustrative.
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GROWTH EFFICIENCY: REAL LIFE EXAMPLE
IN DOORDASH
DoorDash: Revenue and Adjusted EBITDA
Although revenue is growing at a nice
clip, losses have mounted: the
$885
company had an EBITDA loss of
$475M in 2019 up from $158M in 2018
For every $1 revenue generated, they
$291 lost >50 cents in EBITDA in both 2018
and 2019
This does not appear to be a very
efficient business…
($158)
($475)
2018 2019
Revenue Adj. EBITDA
Source: DoorDash’s S-1 filing.
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GROWTH EFFICIENCY: REAL LIFE EXAMPLE
IN DOORDASH
Marketplace GOV by Cohort, Indexed to Year 1
DoorDash customers are sticky and
spend more over time: cohort GMV
exhibits negative churn (i.e. net
expansion)
Notice that retention has improved
with each cohort – a clear signal of
the network effect in DoorDash’s
business
Source: DoorDash’s S-1 filing.
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GROWTH EFFICIENCY: REAL LIFE EXAMPLE
IN DOORDASH
Adjusted Sales & Marketing and Promotions as % of
Marketplace GOV by Cohort DoorDash invests into S&M early in a
cohort’s life cycle to acquire new
customers and encourage repeat
behavior
Spend normalizes by the second
year cohorts are on the platform
Source: DoorDash’s S-1 filing.
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GROWTH EFFICIENCY: REAL LIFE EXAMPLE
IN DOORDASH
Contribution Profit (Loss) as % of Marketplace GOV by Cohort
Contribution margin (gross margin
less S&M) is generally negative in
the first year of a cohort’s life, due to
upfront investment in customer
acquisition
As cohorts age, contribution margin
turns positive driven by cohort GOV
expansion and operational efficiency
Source: DoorDash’s S-1 filing. Contribution margin is calculated as gross margin less S&M expense as a % of revenue.
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GROWTH EFFICIENCY: REAL LIFE EXAMPLE
IN DOORDASH
Marketplace GOV from New Consumers & Existing Consumers
As consumers make DoorDash a
regular activity, repeat use results in
a greater proportion of GMV being
generated by existing consumers
(accelerated in 2020 by COVID-19)
The growing proportion of existing
consumers (“aging base”) is
meaningful in driving operating
leverage
Source: DoorDash’s S-1 filing.
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GROWTH EFFICIENCY: REAL LIFE EXAMPLE
IN DOORDASH
➔ Cohort expansion over time (>100% revenue retention)
➔ S&M focused early in cohort life cycle (no ongoing reliance)
➔ Gross margin leverage
➔ Strong repeat behavior
Efficiency
Source: DoorDash’s S-1 filing.
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GROWTH EFFICIENCY: REAL LIFE EXAMPLE
IN DOORDASH
DoorDash: Contribution Margin and EBITDA Margin
29%
24% 24% 23%
19%
12% 10% 10% 9%
7% 4%
(3%)
(20%) (22%) (19%)
(35%)
(48%)
(52%)
(71%)
(108%)
Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21
Contribution Margin % Adj. EBITDA Margin %
Source: DoorDash’s public filings.
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Philip Headshot
THANK YOU! Name
Justin Da Rosa Philip Specht
jdarosa@battery.com philip.specht@speedinvest.com
