How to Ace Your Marketplace Fundraise
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The Speedinvest Network Effects team shares proven tips to help founders of online marketplace startups improve their pitch decks and increase their chances of receiving VC funding. The information is tailored specifically to pre-seed, Seed and Growth startups.
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How to Ace Your Marketplace Fundraise
- 1. May 2021 | Speedinvest Network Effects From Good to Great - How to Ace Your Marketplace Fundraise 1
- 2. Defining the Stages Pre- Seed Pre-Revenue Early Product Early Seed Initial phase of revenue generation Late Seed/ Series A > 12 months of revenue generation
- 4. Market Size & Monetization Potential Common practice: Focus on GMV GMV Monetization rate in % Net revenue potential Estimated gross margin in % Gross margin potential $ 180 B 2020 How to ace it: Assess gross margin potential Annual spent on bunker fuel in 2020
- 5. 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 $ 3 M $ 7 M Total Funding $ 6 M $ 2 M $ 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.
- 6. Market Research Common practice: Quoting selective study results How to ace it: Comprehensive market insights of buyers say their procurement is still done via fax, email or phone 65% Provide data room with most relevant studies, articles and research papers Explain market structure and fragmentation Suppliers Suppliers Suppliers Suppliers Suppliers Buyers Buyers Buyers Buyers Buyers Broker Broker Suppliers Buyers Trader
- 7. Customer and expert insights Common practice: Simple customer survey How to ace it: Interview (audio) - transcripts Conduct many interviews with experts and both prospective suppliers & customer n > 50 Use service provider to increase speed or size Not interested Would pay for it Would service xy be of interest to you? Audio record interviews and use software to transcribe
- 8. 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
- 9. Network Effects Common practice: No comment on Nfx How to ace it: Show in depth understanding of Nfx at play Explain marketplace dynamics and different network effects at play (direct, two-sided, data nfx etc.)
- 10. Forecasts Common practice: Long term revenue forecast How to ace it: Detailed 18 month budget Category Q1 ’21 Q2 ‘21 Q3 ‘21 Revenue Forecast $ 0.5 M $ 1.3 M $ 2 M 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 ... ... ... ... Budget should reflect Monetization, Hiring Plan and general cost assumptions such as G&A or other. Revenue in € M Net Income € M
- 11. 📈 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 If possible, include relevant Pre-Seed KPI’s
- 12. Early Seed Stage
- 13. What matters most at the early seed stage? Core focus in early seed-stage marketplaces: product-market fit ➔Engagement ➔Repeat Rate ➔Stickiness
- 14. Example 1: Customer Retention
- 15. Example 1: Customer Retention
- 16. Example 1: Customer Retention Show cohorts with absolute numbers... … and with percentage figures Number of active customers Customer retention rate
- 17. Example 2: Number of orders and average order value Number of Orders by Cohort AOV by Cohort
- 18. Example 3: Revenue Retention Revenue Revenue Retention Rate
- 19. It is important to look at both the demand as well as supply side!
- 20. Late Seed / Series A Stage Stage
- 21. What matters most at the late seed/ Series A stage? Additional focus topics in late seed/series A stage marketplaces: growth, relevance for customers and efficiency ➔Top-line KPIs ➔Share of wallet ➔Growth efficiency metrics/ Unit Economics (CAC vs. LTV)
- 22. Share of Wallet tells you how vital you are becoming on both the demand and supply sides Assess share of wallet = actual demand / potential demand of customer Example: How do you assess the cohort below? (GMV per month) Answer: Retention looks great, but still hard to evaluate relative product-market fit.
- 23. CAC: Common Pitfalls ➔Not looking at fully-loaded CAC 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 a blended CAC and not distinguishing paid CAC vs. blending CAC ➔Looking at numbers in aggregate rather than by channel
- 24. Breaking Down CAC Paid acquisition costs Organic acquisition costs Supply acquisition costs ➔Fully loaded Fully-loaded acquisition cost
- 25. Breaking Down CAC ➔Most people stop here... Total acquisition costs Total customers acquired Blended CAC
- 26. Breaking Down CAC ➔Paid CAC shows the cost acquiring a new customer through paid channels. It is a better representation for the true cost of acquiring a marginal customer. Paid acquisition costs Paid customers acquired Paid CAC ...but we recommend showing paid CAC as well
- 27. Breaking Down CAC FB acquisition costs Total customers acquired from FB FB CAC We also recommend looking at CAC by channel: Google acquisition costs Total customers acquired from Google Google CAC SEM acquisition costs Total customers acquired from SEM SEM CAC ➔CAC by channel helps illuminate which channels are more scalable vs. not, and where to accelerate / pullback spend
- 28. Organic, Product-Led Acquisition is the most durable and efficient growth Social ? Content ? ?
- 29. CAC: What we are looking for ➔Diversity of acquisition channels ➔At least one paid channel that is performing well and scalable ➔Increasing share of organic often a good indicator of organic growth loop(s) ➔Stable CAC as absolute marketing spend grows
- 30. LTV: Common Pitfalls ➔Assuming an “infinite” customer lifetime versus capping at a defined period ➔Looking at revenue LTV instead of gross margin LTV
- 31. Breaking Down LTV Average lifetime number of orders per customer Gross margin per order LTV Account for all cost of sales and variable costs associated with generating revenue Apply cut-off times (24-36 months is usually acceptable)
- 32. LTV / CAC is strong to measure unit economics and growth efficiency LTV CAC 2 - 3 X = OK > 3 X = Great 1 - 2 X = Needs Improvement < 1 X = BAD
- 33. Payback period is an equally important metric! Payback time = Length of time needed to recoup customer acquisition cost ➔Typically, the shorter the payback period the better ➔Most investors will look to < 12-month payback periods ➔But: It is dependent on the type of business you run...
- 34. Not all businesses are created equal… Clearly articulate your type of business 12 month Once a year Instant Daily Frequency of transaction