#01 Why B2B Marketplaces Are the Next Big Thing
Over the last decade, online marketplaces have proliferated, disrupting inefficient legacy distribution channels and bringing new catalogs of inventory online in large consumer categories:
These companies defined categories and created some of the biggest venture wins. Since 2010, 50% of the top 10 IPO outcomes for VCs have been marketplaces and today five out of the world’s top 10 most valuable companies — Apple, Amazon, Alphabet, Microsoft and Meta — rely significantly on marketplace dynamics and network effects when it comes to their business model.
While there has been some investor sentiment decline around marketplaces, we believe this relates more to fatigue around the “uber for x” pitch, and the fact that the largest TAM consumer categories have been pretty well covered. Marketplaces tend to be winner takes most or winner takes all, which means there are benefits to being a first mover. (Network effects are a pretty effective moat). However, we believe that there is still immense whitespace in B2B, and that the next wave of venture wins will bring the same distribution channel disruption to B2B categories in “old line” industries.
Why now
Business buyers tend to be more conservative than consumers, so it’s no surprise they are slower to adopt new technologies. However, ultimately people who make business buying decisions are also consumers, and have been trained by the explosion of consumer marketplaces and online experiences to expect the same levels of efficiency and transparency in business transactions. We are also seeing a generational shift in the decision makers in legacy industries like construction, agriculture, supply chain and manufacturing. According to the Bureau of Labor Statistics, the average age of a construction company executive, specifically a construction manager, is around 45-46 years old. (Just shy of the 1980 cutoff for being considered digitally native, but close enough!) Interestingly, the average construction industry executive is almost a decade younger than the average manufacturing and logistics executive, which is why we’re particularly excited about the potential for technology adoption in the construction sector.
The macro data supports the digital readiness of the B2B sector: B2B e-commerce is on a rapid growth trajectory, global online B2B sales hit $23.4 trillion in 2023, with a growth rate of 16% (Statista & AgileIntel Research). The trend shows no sign of slowing down, with over 62% of construction SMBs and 59% of automotive SMBs indicating they plan to increase their online spending next year. (See Exhibit 1.)
Source: BCG
Lastly, one of the bigger unlocks for B2B marketplaces has been advances in FinTech over the last decade that have allowed B2B marketplaces to (1) be in the payment flow, (2) offer lending to customers to supercharge growth. This last bucket is a meaty one that we will elaborate on in a subsequent post.
At SNAK Venture Partners our thesis is to invest in category defining seed stage digital marketplaces.
We are actively seeking startups bringing old line industries online – either with explicit marketplace model businesses, or businesses that rely on network effects but may be monetizing either supply or demand via a SaaS product. If you’re building in this category come find us, or perhaps we will find you, in 2025.
Marketplace News
VividSeats (SEAT) is rumored to be exploring a sale. The stock price is up 20% on the rumors. Stubhub and SeatGeek are the most logical acquirers, though Stubhub has high leverage and SeatGeek is currently burning cash - Business Insider
Last Week’s Deals (week of 12/30)
3 Things to Read this Week:
Our Source of Truth on Marketplaces by Forerunner
AI & Marketplaces: the Future is Agent led by Colin Gardiner | Take Rate
A Checklist & Best Practices for B2B Marketplaces feat. Everything Marketplaces + Casey Winters (oldie but goodie)