Andrew Chen discusses when marketplaces should expand to new regions or categories. He suggests waiting until Series A or B with $5-10M GMV, and emphasizes proving repeatability across three or more markets before scaling. Investor pressure and valuation expectations often push founders to expand too early.
Chapters
Andrew, thanks for being here. My background is as a PM at Uber, LinkedIn, and then a startup called Curated. So been working in marketplaces for a while. I'm now a founder of a marketplace in the expertise economy space. So wanted to double-click a little bit more on timing for expansion, and then also kind of what you see go wrong in expansion. I think it's easy to start to feel the pull from customers or supply side and start to think, you know, this is, this is exactly the time we need to go, but then kind of underestimate the team and the resources. So just curious if you could speak more to when you know it's absolutely time to start going and expand that network or launch new categories and, and kind of what teams can do to prepare to actually expand successfully.
Yeah, I mean, it's funny enough, I would say that the most common reason why we end up seeing teams expand is as a proof point to investors, for better or worse. And I'll give the counterpoint to myself at the end of this, but I think what investors need to be able to see when they are valuing a company at several hundred million in valuation— so if you look at it from the investor lens, whatever price that they come in at, they basically are underwriting that easily there should be a 3, 2 to 3x step up in valuation in the next round. So if they're coming in at $200 or $300 million in valuation, you're saying that potentially they're going to be a $600 to $900 million valuation company in 18 to 24 months. And you're kind of like, well, how do you do that? So typically you're not going to do that purely by taking your core market and just growing it a bunch, because one of the things that you have a lot more control of is you actually have a lot more control of opening in more markets as compared to growing an individual market 3x. It's usually easier just to open more markets. And so as a result of that, investors really want to see it. And so one of the first conversations that I have with a startup, as soon as we've done our investment, literally the first board meeting is asking them, do you feel like you have a good sense for what you need to accomplish in the next 18 months to raise your next round? And hopefully the answer is yes. Hopefully others have been having that conversation with them along the way. And one of the first things that often ends up happening, especially once you are in the kind of $100 million plus type valuation range, is to show repeatability, to show that one flavor is— I think lowest hanging fruit is just opening more markets. So that's more cities, more colleges, more teams, more, et cetera. Or, and then the second is once you've kind of mined that, is are there more services that you can offer and showing a growth path there too? And so I think, you know, you ultimately need to be able to show both, but I think right around kind of the Series B, kind of the end of the Series A is kind of when you should be thinking about adding a lot more regions. And so what that means is that's typically think of that as you're in the $5 to $10 million GMV range is when you should start thinking about it. You should be thinking about it when you've shown that you can— I think almost always, if you're successful in one home market, investors will view it as like you get that for free because you understand your market so well. A second market is often good, but you often pick a second market that's also easy. I think 3 is kind of the magic number where you could start to argue that it's repeatable. And so any 3 and above are kind of like, you know, 3 or 3+ markets is kind of when I start to think, okay, yeah, we can start to connect the dots and underwrite this to 5 markets or 10 markets.
