B2B Marketplaces In The Age Of AI With Sonia Nagar From SNAK Venture Partners | EM Group Chat #216

Welcome back to Everything Marketplaces, where we talk with founders and leaders on some of today's top marketplaces. So this is episode 216, which is a group chat we just had with Sonal Nagar, who's a partner at Snack Venture Partners. Snack is an early-stage venture fund that's focused on investing in B2B marketplaces. So this is a great chat with Sonal where she started off by sharing what led her to venture investing in B2B marketplaces specifically. She gave us an overview of Snack as a venture fund, what she looks for when investing in B2B marketplaces. We discussed how AI is impacting them, topics like defensibility and data moats in the age of AI. Sony shared lots of tips for founders, and we also had a great group Q&A. We did unfortunately run into some issues with the Zoom and had to make a few edits, but I know you'll enjoy this conversation and find it great to watch to the end. So Sony, your posts are always being a reference in the community, and we realized that we, you know, haven't had you join us as a group chat guest yet. So it's long overdue, and I want to start off by saying huge thanks for taking the time to join us here today. We have a lot that we're going to dive into with all of your experience in B2B marketplaces, But I thought it'd be great if you could start off by briefly sharing your background for those here that might not know you.

Thank you for having me, Mike. As way of background, so I started off in engineering and then about 20 years ago in 2008 was at Amazon and helped launch the clothing category. And then in 2011, I founded a mobile shopping startup. That startup was acquired by RetailMeNot in 2014, and then I ran their mobile team for 2 years and then switched over to venture capital and joined Pritzker Group, which is a Chicago-based fund that did a little bit later-stage investing. I was there for 10 years, and some of my best deals were digital marketplace model businesses. And kind of tracks when I think about like the last decade of the internet, the companies that have defined venture capital, like the exits like Coinbase and Instacart, DoorDash, so many more, Airbnb. A lot of them were marketplace model businesses. And when My partner and I, Adam, were at Pritzker Group. Our track record kind of similarly, we had a lot of marketplace model businesses that were our fund returners. And so about 2 years ago, we went to the Pritzker family and pitched them on us starting a new fund called Stack Venture Partners that would be wholly focused on digital marketplaces. We write $1 to $2 million checks at the seed stage. We're typically leading, and where we see the biggest opportunity and white space is in enterprise, which is important because if you think about a lot of the big winners in the last decade, most of all of them were first movers and category defining. And so we're focused on industrial categories like supply chain logistics, construction, manufacturing.

That's a great background. There's a lot that we're going to get into here. But, you know, if we kind of go back, you know, what initially led you to venture investing and in B2B marketplaces specifically?

From my Pritzker Group experience, a lot of our fund returners were marketplace model businesses. And I think if you look at the last 15 years of venture, especially in consumer. You've had Uber, Coinbase, Lyft, like a lot of DoorDash, Instacart, like a lot of the best performing venture companies were marketplace model businesses. And when I think about what led some of those to be successful is often they were category defining. Marketplaces tend to be winner takes all or most. I know I'm preaching to the choir here. And so it helps to be a first mover in a highly fragmented market. Often they were shifting the model. And so when we thought about where there was an opportunity, a white space to take what was very successful in consumer over the last 15 years Where was that white space? It led us to focus on B2B. It feels like B2B has lagged historically for many reasons, and there's been some changes that we think, especially in industrial categories, that make those prime for having some category-defining winners for this era. So I guess the 3 things that we always point to when we're talking to our LPs is you've had a generational shift in the decision makers. So like in your average construction manufacturing supply chain logistics company, You're no longer pitching when you pitch your idea to somebody who doesn't understand technology. Often in industrial categories, you have deskless workers. And so, you know, if you had to be on your laptop to access software like that was limiting. But now mobile phones obviously are way more capable than they were 10, 15 years ago. And then the last thing we point to is like the fintech rails that exist today. So sometimes you have a concept of escrow or payment terms and like historically you would have needed to build a bank and a bunch of banking functions, but Stripe and all the fintech companies that have emerged over the last decade now make it possible to not have to build a bank in order to service B2B transactions. So that's kind of where our thesis has come from. And we're about, we'll do 20 deals in the fund. We've done 5, we had a 6th that just, we funded today. So closed yesterday, funded today. So we're about a third of the way through our fund. All in that mandate.

Yeah, no, that's awesome to hear. And congrats on that. So, you know, what do you specifically look for when you're investing in B2B marketplaces? And has this been updated in the age of AI?

The fact that anybody can build software very easily. What gets us excited is the network effects and where network effects are strongest is when you have highly fragmented industries. So we're looking for places where there's a lot of fragmentation on both the buyer side and the seller side. We're looking for places where you could be a first mover. And then the founders, we're looking for domain experts. So It's especially in enterprise, it's harder to get like break the cold start problem unless you are a domain expert and have deep relationships or an understanding of an industry that's your unique edge on why you're gonna win.

Yeah, we'll probably get into those a little bit more detail, but I guess if we, you know, just think about like B2B marketplaces in general and kind of where we're at with them right now, I guess as a starting point, kind of where do you think we're at with B2B marketplaces and then how are you seeing AI specifically impact them?

So it feels like we're still in like inning 1.0 in a lot of the categories we invest in. So for example, we invested in, salvage yard marketplace called AP Fusion. They do SaaS plus a marketplace for salvage yards, which take in wrecked vehicles to kind of inventory their auto parts and then sell those recycled auto parts online. And historically, they would do that to a local base of business. It's like very Internet 1.0. And like, in order to do anything with AI, you first need to have online data. A lot of our companies are Internet 1.0, like SEO will still be vital and, and there's a lot of opportunity. We're seeing AI come kind of like in 2 places. One is kind of in the business building. You can use AI to hack it. Like we're seeing some really great AI-based lead gen solutions. Like it helps you solve the cold start problem faster. Historically, a lot of marketplaces were supply-driven. Like you get a bunch of suppliers, fake it till you make it, and then like figure out a way to generate demand for them. And that was a great way to start a marketplace model business. What AI is doing interestingly is it's allowing you to flip that on its head. So like if you were an enterprise in the enterprise procurement function, employing a bunch of people, like maybe your human can get 3 quotes for everything you're trying to build or buy. And now with AI, you can get hundreds very efficiently. And so we're seeing a couple of like very interesting folks that have started on the demand side and said, we're going to improve your procurement function. And then they've gone and sourced the network of supply using AI in that way. So it's been an interesting hack to solve the gold star problem.

Yeah, those are great examples. I'm glad you actually mentioned, you know, as far as like some of the strategies are changing, right? So like, you know, evolving and not taking that kind of more traditional marketplace approaches in the past. So like, how do you advise kind of founders to think about that? And those like early strategies that they take?

I really love Colin Gardner. We, we invest often and swap notes. He had talks, he talks about a concept of SaaS plus marketplaces. Now that it's so easy to build software, it's like the marketplace is your, that is your web, that is the reason why people are going to stay. But what are all the cheap software SaaS solutions you can build around your marketplace that you can charge for to make smooth over your revenue while you're building? And especially in enterprise where transaction frequency can be lower, we really love SaaS plus marketplaces where people are like, all right, we're going to solve a problem and maybe it looks more like a SaaS company initially, but the long-term ambition or even the near-term ambition is to keep building that, you know, the network effects, that moat as you're building the software solution. So we love, you know, it's like use the AI to build all the cheap stuff, anything you're hearing from your supply and demand base, like figure out a way to embed your software.

Definitely. And then you did mention, of course, network effects, which is what make marketplaces, you know, great and why investors also like them. So are you seeing AI kind of change network effects and what they look like?

For a while, there was a question of like, is it going to be a great threat to network effects? And I think in the early days when you're a super small startup, it is. It's like once you have scale and you are clearly the winner, it's like Uber and Lyft. Like it would be really hard to start another ridesharing company today because they have all the drivers and they have all the demand. And it's like, why would a driver take a risk on some unknown platform? But in the early days, everything is a little riskier. So I mean, what we're seeing is that Series A market, you know, marketplaces are still getting bid up and all the coastal funds are there, but there's a lot more skepticism at the seed stage. And so it has created a little bit of a gap and we'll see how this plays out. We have really great companies in our portfolio. I think the bar for a Series A has gotten higher because people want to be sure that they're betting on the winner and not, you know, someone who can get displaced because AI can hack either the demand side or the supply side. A little bit more easily.

Yeah, certainly. That's actually a good transition to talking about defensibility in the age of AI, because that's something, you know, we're always discussing in the community. So, you know, on that, with it being, you know, easier than ever to start a marketplace, you know, how do you think about defensibility and, you know, maybe advise founders to think about that as well?

Yeah. So we touched on this a little bit with the embedded software, but the best marketplaces have always had embedded software, even if they were only monetizing the transaction layer. It's like Grubhub had a point-of-sale system. It's like when you dig behind the surface of a lot of the best marketplaces, Amazon has a bajillion examples of like all the different products, whether it be Prime or Fulfillment by Amazon services and products that they've built around their marketplace to make themselves very sticky. But you have an advantage if you are monetizing the transaction. You can offer the software for much more cheaply. If you look at the overall economics of your customer, you as a marketplace should be advantaged in being able to charge for a whole bunch of things and as a whole make more money per customer, but on any individual service be priced to undercut any of your competition in all of the adjacent, like, so I would look at like your category and be like, okay, especially because it's so easy to build software today, like who are all the adjacent vertical software companies and like undercut them? You own supply or demand. What you're offering is most times more valuable than a random vertical software company that's charging a fee per month.

That's definitely a great point. And, you know, something else I want to spend some time discussing is data moats, because you, you know, wrote a post on this previously. You know, it's been discussed a few times in the community. So could you kind of walk us through, you know, your post on Datamotes and, you know, how you think about that?

This is actually my anti-portfolio. So when I was at Pritzker Group, we looked at the Series B for Honey. And because I had come from RetailMeNot, which is also the couponing space, like I was excited by what they were doing, but also skeptical because I was like, oh yeah, they were taking an affiliate— it was an affiliate model business and they had a browser extension so you could check coupons while you were on a website. And I was like, you could build that software in a day. Like, I don't understand what Ultimately, they had a very successful exit, and what they were valued on was the data moat. And so, I think, as a marketplace, the data that you're building, and what we love about the industrial cat, it's like you own the data. That is what, like, nobody can do AI without the data. And so, as you scale, that data asset becomes pretty valuable, and you can figure out, do you want to license it? Do you want to use it to build a financing product on top of it? The earlier you understand, like, A, you should gate your data and make sure you protect it. It can have as much value as, you know, the GMV that you're generating. And so you should just figure out like who are the hedge funds, who are the folks that would care about that data and what advantages does it give you outside of your core business model? But it can be a good way to create some revenue too if you're looking to bridge funding gaps in between raises.

Yeah, we'll definitely get into fundraising. But are there any more maybe specific examples as far as like data moats that you can share for B2B marketplaces?

For B2B marketplaces is once you get to scale, Financing becomes an interesting product that you can build. If you're going to underwrite a loan or underwrite any kind of financing, if you know the historical transactions that a business has done or understand their cash flows from transactions, you can underwrite in a more compelling way than much of your competition. And so, so we've seen a lot of interplay between like as you get to scale, the financing products you can offer, can often become an even more compelling source of revenue than like your core transaction business. So Backlot Cars is an example of this, which is one of our Pritzker portfolio companies. They help dealers buy and sell used cars from each other, and financing ultimately was like a big part of, you know, how they generated revenue.

Yeah, we have lots of B2B marketplace founders here, so this can be really helpful. But, you know, something that does come up quite a bit is the topic of sequencing, right? So you mentioned like offering these additional kind of value-added services. So like, how do you think about, you know, sequencing and advise founders to think about that from the earlier stages?

Yeah, I mean, at the seed stage, I think you keep things simple. We have a seed stage company right now that's like doing very well, and they, they've added an insurance product, and like, they're taking a cut of the transaction fees because they have enough volume now that they've been able to negotiate that. Um, but they're also gonna add new categories. It's like, you've gotta pick one or two things. At seed stage, it's like, keep it as simple as possible. What we're seeing is that Series A investors, If it's too complicated, their heads kind of explode. Not many investors love marketplaces. They like them once it's like obvious they're gonna be successful. But let's say you're cusp of between seed and A, people struggle a little bit. So just keep it super simple. Series A, once you've got $5, $10 million in the bank, it's like, all right, pick one or two big bets that you wanna make. And then after Series B, it's like you should start having GMs to run literally in a marketplace. Like think about Amazon, you, would have somebody running Amazon Prime. You would have somebody running each category. You would have a GM over, you know, if there was a financing or a payments product. All of those could be independent businesses, but the strength is unlike you as a CEO, you see over all of them, understand how they interplay, understand what the trade-offs are between, you know, having more economics in one part of the business and less in another to grow the business. And, but yeah. Yeah, it gets more complicated, but I'd say save the complexity till definitely after Series A. And realistically, like Series B is when you can, especially financing, because you start to take on more risk. I think underwriting and financing products are a Series B proposition that you can do with a bigger bank account.

And now sequencing is, you know, definitely one of the challenges, but, you know, for marketplaces, you know, in general. But when it comes to like B2B marketplaces, what do you think some of the specific challenges are that they face?

Yeah, I mean, the biggest is that you have larger transactions and often delayed, like sellers want to be paid immediately, but your buyers want to pay on that 30. And as a result, like there was a company we invested in at Pritzker Group that got into a little bit of trouble because one of their customers defaulted. And then you're left, and it was a $250,000 invoice that they just didn't pay, which is meaningful money for a startup. And so what they started doing, and anytime we see that kind of really lumpy revenue and concentration, you can insure that. And so making sure that you do insurance on, if you are taking on the risk where you are effectively lending your customers' money because they're not paying you immediately, then you need to, or they're not paying you immediately, then you need to make sure that you underwrite that and insure against that risk, 'cause it could take you under. It's probably, that's probably the biggest thing we've seen that's unique to B2B over consumer where you're paid immediately, the thing clears and it's like, and you have frequent, very small transactions versus like big ones.

Yeah, definitely. We've had, you know, the founders of, you know, Flexport and, you know, Convoy on, and risk is always something that comes up in the discussions, so.

Yeah, who's carrying the risk? And cash conversion cycle, it's like, that's a big thing that, Ironically, as you grow faster as an enterprise startup, sometimes your cash can get crunched even more because of this dynamic of payment terms.

And I wanted to switch over and discuss fundraising for a little bit because, you know, of course that's something that we're always looking to learn about here in the community. How are you seeing AI impact fundraising for marketplaces and maybe B2B specifically?

AI has kind of like sucked a lot of time, energy, and money away from marketplaces and marketplace model businesses. I don't know. It feels like 2021 all over again where everybody's doing crazy things and not a ton of diligence, like pre-revenue companies getting $50 million valuations. You don't see that in marketplaces. It's for whatever. I don't think it's fallen out of favor necessarily, but there is not the same number of funds that have a focus on it. And so the valuations are a little bit lower. And yes, Mike, do you have the report? Somebody just asked for the report, but it's a great report that has a lot of marketplace-specific benchmarks for seed, Series A, and beyond, and pre-seed. I think it might have just been pre-seed and seed, but yes. So it's not dire. I think great company. And honestly, I think when all the dust settles, your— the valuation that you raise your seed round or even Series A round at is not what matters. It matters if you exit. And I think a lot of these crazy AI companies are going to be big zeros, um, because even if they get like easy come easy go, they get to $5 million in revenue real fast, but then Everybody churns in 12 to 18 months for the next best AI thing. Like, I still think, you know, we're focused. We advise our founders to just aim for more capital efficiency so they control their own destiny. So if that Series A takes longer to raise, they're not, you know, they're not gonna run outta cash and go outta business.

Yeah, I'll be sure to share a link to the report or the post and the recording after. So, And, you know, we're going to go ahead and get to the group Q&A because I am getting some, some messages from, from founders. I want to make sure we can save time. But, you know, right before we do, you know, what would be your top tips for founders starting B2B marketplaces today?

Ideally, you're starting in a category that you know super well, better than anyone else. I think figuring out, especially if you have low purchase frequency or let's say it's quarterly or bimonthly and not daily like some consumer marketplaces, then Figure out a SaaS revenue model that will help you like smooth out your revenues and give you extra cash runway. We've seen our companies be very successful with that. And actually a couple of them have hit profitability off their seed round, they're cash flow positive after their seed round, which just means that, you know, they're still gonna go out and raise hopefully great Series As or whatever they aspire to do, but they have the power to choose.

That's gonna be a helpful tip.

Cool.

So we're going to go ahead and get to the group Q&A. I actually want to ask a question to help kick things off that was, that was sent in advance and it was around take rates. So how do you think about take rates for B2B marketplaces and, you know, potentially starting with like a no or low kind of take rate and then raising?

I think that's fine as long as you have a SaaS revenue model that shows that you're— so we actually just invested in a company, the one that has not been disclosed yet but closed today. They are taking a super low take rate, but they have a SaaS revenue model on one side of the business. So in this case, the demand side is actually paying to get access to their catalog, if you will. And they are not, they're taking a small take rate, but they want all the data. I think it's a fine way to do it. Just make sure you're not proving anything if you're not getting any revenue. So as a seed stage investor, like we, we don't invest pre-revenue. And so, yeah, it's gonna be helpful.

Hey, David, saw you raise your hand. Do you wanna jump on here?

Yeah, sure.

How's it going, Sonia? I'm David Banasakar, founder of a B2B wholesale marketplace. And with that being said, I saw your post actually in the Everything Marketplaces community regarding that when buyers feel price gouged, I guess they walk away. And when suppliers feel commoditized, they essentially disengage from the platforms as well. Pricing comparison is really something that buyers obviously want. But I'm wondering, I guess, how do we, or have you seen any marketplaces, I guess, balance that pricing transparency, especially in a traditional business that requires relationships such as distribution with these marketplaces? I'm wondering if you've seen anyone balance both.

Are you dealing in commodities where things like, it's the same cardboard boxes, but you could get it from 5 different suppliers?

Yeah, so it's mainly CPG products that have overlapping products across multiple catalogs?

So, I mean, we're investors in a company called Repackify that's in the recycled warehouse shipping supply space. So pallets, Gaylord boxes, IBC totes, where the real value creation is, is in the matching of— so it's not discovery, but it's in efficiency of like, if I'm sitting in Ohio, I want— I don't want to ship something from— that's like not— the pricing doesn't make sense to— so if I can minimize the shipping, I can actually create a cost advantage. I think you're either going to try to compete on discovery, like you're finding cool things or things you couldn't find anywhere else, or you're competing on price is really what it comes down to. And, and then you just got to decide. I mean, like Amazon doesn't sugarcoat that they compete on price. Like they've always been cost and I guess convenience. So speed matters for some folks too. But, you know, if you're selling markers and somebody else is selling markers, that's a better price and has better reviews, you're going to lose. And like they just decided they're going to be customer-focused, obsessed, and the suppliers are gonna have to deal with it. And that's okay. As long as you have enough scale or other reasons that the suppliers are gonna stick with you, because Amazon can generate 10%, 20%, 80% of your business, you're not gonna leave them.

Right.

That makes sense. I appreciate it. Thank you, Sonia.

And I will say, that's a good point. When we're analyzing businesses, we will look for a superpower on— at the early stages, like, you're not gonna have everything. So we're looking for a superpower on either the supply side or the demand side. it's usually not both at the seed stage, at least. Backlot Cards was a unique one in that the buyers were sellers and the sellers were, they were the same people. Like it was dealers buying and selling from each other, which is one of the reasons why it like grew exponentially. And ACV Auctions has a similar dynamic. But 95, 98% of the time it's like, we just wanna see superpower on one side. What we don't wanna see is that you're lukewarm. You're like, there's people churning on the buy side and there's, you're kind of, Mediocre on both sides.

Hey, Namrata, I saw you raise your hand. Do you want to jump on here?

Thanks, Mike. Hi, Sonia. I'm Namrata. I'm the founder of a marketplace for hiring vetted family help that is culturally aligned. And I see a lot of marketplaces that start out with consumers targeting consumers, and over time they add a layer of targeting businesses in the same space. So they're both B2C and B2B, like a care platform would add daycare centers or senior centers and service them as well. So when do you see this happen and what are your thoughts around this strategy?

Yeah, so I was on the board of Sitter City, which had a B2B relationship with Bright Horizons. It can be super lucrative and it's, you know, consumer 10, 15 years ago, you could efficiently do SEO and other things and you wouldn't have to compete. And depending on your category, you still can do SEO, although care is pretty highly competed in now. And so It's expensive to go B2C. And so I think it's all about figuring out where you can have the CAC work in your favor. B2B is nice because you go one-to-many. And then within the care sector especially, there's a trust factor. So SitterCity would sell to corporations and offer their care platform in addition to selling direct-to-consumer. So I think the sooner you can do it, the better. The hard part is big corporations, like if you go to Pepsi and you're like, hey, we can provide you with a care platform, they're gonna wanna know that you can service their large base. And so, you know, that's where scale, supply, quality, all of that will come into play. But the sooner you can do it, the better. You're more enterprise has a lot of advantages over, you know, onesie-twosie consumer acquisition.

Hey, Sanjay, do you wanna jump on?

Thanks for jumping on this call. So everything we discussed was kind of earlier stages about fundraising. There's a lot of talk about, You know, how do you value marketplaces, all of that. But if you look a bit later down the road, what is your experience in terms of where exits happen in the marketplace space? And the reason I ask is because, and I think you kind of hinted a little bit that companies like Uber, Lyft, they're more or less winner take all or almost winner take all. And so if you're building a new category, then where does consolidation happen? Or is it, is your only main path to exit is an IPO? Yeah.

I'd say there's 3 paths. So, you know, the IPO is the dream, but 95%, 99% of companies will not go public. And so like, okay, there's the 1% IPO equipment shares of the world. Great. I've seen acquisitions happen in one of 2 ways. One is like Backlot Cars sold to KAR, which is like the incumbent in the space. So I think there are a lot of examples of the digital innovator getting acquired by the incumbent. So, it's like, who are you disrupting? Like, who's— like, we're investors in a company that's in the equipment rental space called Big Rentals. It's like, you've got Uline, you've got U-Haul, you've got all these billion-dollar companies that are logical acquirers. And the sooner you can start building, like with Backlot Cars, they started building that relationship well in advance. They were on their radar. You, you talk to those incumbents, you don't share too much with them, but they should know who you are. So, as they have strategic conversations, you're on their radar. That's your most likely acquirer. In some enterprise categories, private equity will play, especially if you are able to start cash flowing and, you know, you have some EBITDA. I think if you have a data asset, hedge funds could be acquirers. And so, or financial institutions that value your data is another exit path. And I think the— looking at your category, Jason, like CitiCity was acquired by Bright Horizons. That was a business partnership. They had a business relationship first, and that led to an acquisition. So. I'd say 2 cautionary things there. One is like, it's always great to like do these big, big BD deals with the incumbents in the space. Make sure, like, I think one thing that I've seen come around to bite you is like that, make sure you have good counsel, like A+ counsel reviewing the contracts on those so that you don't accidentally create something that hinders your ability to exit to anyone besides that strategic partnership. But yeah, I would say, I mean, yeah, 99% of companies will sell to either a strategic or a financial sponsor.

That's a good question. Hey, Sonia, I want to jump in here and ask another question that was added. And it was around, of course, you know, with it being easier than ever to build with AI, does this kind of change how you evaluate, you know, the technical, you know, capabilities of founders?

15 years ago when I was a founder, it was like really important to have a technical founder. And now I don't care about the technical founder at all, but I do care about whether you're self-taught and you have the ability to build things. Because now with AI, it doesn't matter. I mean, if you were telling me you were building, you know, new AI dev tools, then yeah, you should be technically capable. I care a lot more now about your industry and domain expertise. And because we're at the seed stage, we're not pre-seed, demonstrated proof that you can build and iterate quickly with whatever tools are available to you. So like, it should not take you a month to get a website up and running. And so by the time people talk to us, it's like, I want to look at your— what product you've built over the last 6 to 12 months and figure out like, how fast were you iterating?

That's going to be really helpful. Definitely agree on that. So, hey, hey, Matt, so I raise your hand. You want to jump on here?

Hi, Sonia. Nice to meet you. Matt. I founded a company called Unbuilt, and we're a marketplace for unused construction goods. I noticed that you have a lot of construction companies kind of in your portfolio and background, and One of the things that, that we struggle with is to map, I guess what I'd call like a low-frequency event, which is a construction project, to kind of the traditional demands from the startup community about like velocity and speed and atomic, you know, demand and supply. And so I'm just curious if you look at velocity on the buy side differently in the construction space than you would with something like handbags or rental properties or things like that, where you do have cohorts who are like repeating this buying action as opposed to maybe spacing things out like by a year or two. Yeah.

Well, so I'd say we will lump— we'll look at things quarterly for B2B. We're generally not looking at monthly because to your point, most B2B categories, that doesn't matter. And then what we care a lot about then is, okay, if your customer is infrequent, what's your supply side retention? Is it 100%? Like it should be 90% plus and you should, they should love you because you are helping them generate new business or do, you know, there has to be a superpower on one side because if you have to buy both demand and supply and it's churning, it's super expensive. And I got to figure out, you know, how, how's the growth going to compound? So For the customer side, ideally the AOV, you know, I still care about unit economics. Like how are you finding those customers? And if it's a lot, if it's a big purchase, hopefully there's a pipeline. It's like how are you getting into their purchase cycle earlier and trying to own their top of funnel?

The frequency can be low, it just can't be expensive.

It can't be expensive and it can't, and I wanna know that your lead gen is really good. Like we have a company that has a very long purchasing cycle. Similarly, they have built planning tools, and so their top of funnel, we could see data that was like, okay, yes, their overall GMV is still developing, but the future looks bright because they've got all these people using their planning products that should yield some percentage of contracts.

That's like the pipeline upstream.

Yeah, yeah.

So figure out your software story so that you can be like, listen, like, yeah, these people aren't purchasing a lot, but we have visibility to like, all of this stuff that advantages us over our competition.

Appreciate diving into it, Sonia. So, hey, Heidi, I saw you raise your hand. I believe a familiar face. Do you want to jump on?

If you're a domain expert, meaning my background has nothing to do with fintech, what's the best way as a domain expert? I would picture I'd have to have somebody on my team from like a fintech company to really to really work towards that? It doesn't seem like something I could pitch reasonably and be taken seriously. You want a GM that's done it before. And so that's why it's a Series A or maybe even a Series B question. And then ideally, you know, when you're fundraising, if that's the ambition for the next round, like for the company that we invested in, that's like seeing a ton of demand for their insurance product, which right now they're part— the other way to do it initially is to partner with Outsource it. So like they're white labeling somebody else's solution to start. So they know there's demand. And then it's like, okay, well, why wouldn't we just do— they're looking at it now and they're every, you know, time we catch up, they're like, we should just take all that margin for ourselves because we under— you know, they can do the math on how much lift that would provide. And we've just been like, hold on, wait. With the next round of funding, there are investors who really know insurance. So like, let's bring one of them on and have them help us hire the best GM to run that and then bring it in-house. But it is zero risk for you to like test something as a partnership to prove that there's demand and make a little bit of money doing that and then build it in-house once you have the capital and the talent to manage it properly. Awesome.

That's a great question. Hey, Robbie, sorry I raised your hand. Do you want to jump on here?

I guess like my question is about growth and like for marketplaces, growth, growth is— I mean, I was a founder of Upcar, which was a P2P car rental. We kind of need to do a lot of testing and a lot of things to do the cold start and everything. So now I'm building a kind of like AI magic for growth for marketplaces. So the question is, if you need to pick, there's like a lot of channels, like 20, about 20 channels for growth, right? Like if you need to pick top 2 channels for growth for marketplaces, what would those 2 be?

I mean, a lot of the categories we've invested in, there's not companies like Repackify in the recycled pallet space. Like they've gotten really far on SEO. And like using internet 1.0 SEO tactics of like, if you search for pallets in Austin, is there a landing page that drives or a microsite that drives to their website? So it's like crazy stuff that worked in like internet 1.0 or 10 years ago that still work in a category that has no or little competition, digital competition at least. And then if I think about the like more competed in categories, For enterprise, what we're seeing is like one of our companies has built like a custom, like agent scrapers and like finding a B2B data source that you can kind of hack and scrape in order to create qualified lead lists.

Hey, Matt, I saw you raise your hand again. You wanna jump back on and ask a question? We'll make this the last one.

So you mentioned earlier that you like to write $1 to $2 million checks. Do you all bias towards a certain like round size and number of partner investors, or is it kind of like sometimes you'll be the only folks in and sometimes it's $10 million?

So we, we have an example of like we've written checks where we've been the only one in the round and then we've gone, you know, up to our biggest round has been a $5 million round and we were one of many investors in that round. We still led, but we, yeah, are, we don't have a preference. We're pretty flexible on that. It really depends on the founder and the team. And, you know, where they want the— where the valuation ends up landing on whether there's room. I would actually, I shouldn't say we don't have a problem. I would always prefer to bring in partners because I think, you know, we know some really great people that we like working with as co-investors and we love bringing in like former founders as angel investors alongside us. So I prefer having many people in a round, but sometimes the round dynamics are what it is and we're not afraid to be the only check in the round.

We're almost out of time, but, you know, huge, huge thanks for taking time to join us today for the group chat, you know, sharing all of your awesome experience and helping answer questions that we had during the group Q&A. So, you know, and I want to ask my, you know, usual closing question here, which is if you could go right back before you entered the world of marketplaces, you know, what would you tell yourself about them?

Well, I mean, I would have bought so many stocks before they went, you know, right after going public. Yeah. I mean, I continue to think even though everybody's all hyped up around AI, that marketplaces are going to be very durable and it's the right place to be. And so if you're looking to build an enduring business, you're in the right category. And then just use AI for all it's worth, which is to like augment and build faster and all the things. And then one thing we are telling a lot of our founders is you're not just a marketplace company, you're a vertical plus marketplace company. And so like for our construction marketplaces, we're like, go build relationships and talk to all the construction tech investors. Or for, you know, folks that have a recycling component, we're like, go talk to all the sustainability investors. It's like while Maybe nobody, not many funds are saying they are marketplace first or marketplace only. You can figure out who thematically lines up with you. And like one thing I didn't do as well as a founder was qualify my leads. Like figure out who your universe of like realistic people who could be interested in what you're doing are and like start building relationships with them early because it's not like Shark Tank where you walk in a room and you do a pitch and like you walk out with a check. People build the best fundraisers I know, founders that are fundraisers build relationships over many months. And that makes their process so much more efficient and faster.

Now, that's going to be great parting advice. And, you know, last but not least, time for a quick plug. I know you're in the community, but where can everyone, you know, keep up and follow along with you at?

Snack VC. We have a Substack that's linked from there and Perspectives, so you can follow us there. That's probably the place where we're most active. We also have a— you can follow me on Twitter @SSAHNY or LinkedIn, but the Substack is really the best place.

Perfect.

I'll include all the marketplaces. Of course, I'm in the community, so we post When Mike thinks something is like worthy of floating to the community, we, we repost a lot of content into everything marketplaces.

No, that's great. I appreciate it. Yeah, thanks for, thanks for the plug, you know, for the community as well. So I'll be sure to include links, you know, in the recording. So you'll have lots of B2B marketplace founders coming your way. But once again, really appreciate, you know, taking the time to join us for the group chat today. And thanks everyone for the great questions.