Olivia from a16z explains how the firm evaluates marketplace companies, looking at supply and demand growth, fulfillment rates, and GMV retention. She uses examples like Airbnb, Turo, and Depop to show what signals indicate a marketplace can scale into a large business.
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To transition a little bit, Olivia, I know in the background when you are thinking about marketplace companies, I mean, they're all so different, right? We've done stuff in pets, we've done stuff in food, we've done stuff where people are selling things over video streams. There's real estate, there's so many different things. What is your strategy to kind of just cover You know, these different spaces or lanes, and talk about some of the themes you're excited about these days.
Yeah.
As you kind of map these out, just talk about that whole thing.
Yeah, it is interesting because there's so many types of marketplaces. Like, even these days I'll look at some, you know, B2B construction materials marketplace where people are selling asphalt to, you know, someone else in a construction site in New Jersey, which you think would be like vastly different from like, you know, a teenage girl selling her Vans or whatever brand is cool now on, like, Depop or something like that. But I think what we have found is, like, a lot of the kind of metrics that represent whether or not something is working on a marketplace actually are fairly consistent across these, like, types of verticals and industries. And that's the kind of thing that we look at. From the highest level perspective, I think what we love to see is people building businesses on a marketplace, whether it's whether it's actual existing businesses that are kind of turbocharging their sales, or one example would be Airbnb has created this whole new class of hospitality businesses that are now multi-property. Turo has people who've bought 10, 20, 30 cars that they now run fleets through something like that. Depop, as an example, there's now teenagers who go to Goodwill every weekend and rifle through all the bins, and they sell thousands of dollars worth of inventory every month. And so, I think that once you have people building businesses on your marketplace, they are kind of driving your growth for you. Like, the flywheel is really going. And so, there's lots of metrics that we look at to see how well that's working. So, it's growth in supply, growth in demand, how quickly is supply taken up, what's What's the fulfillment rate on the marketplace? What does turnover look like? Some of these metrics we've developed are things a little more complicated, like GMV retention, which Nash has always been incredible at, which is not only like how often is someone coming back to transact again, but ideally they're coming back to transact more than they did the first month. Like maybe they spend $50 month 1 and $100 month 2. So often, you know, we're investing in seed marketplaces where they're maybe doing $30,000 to $50,000, $60,000, $100,000 in monthly GMV, which is a feat. Like, it's hard to get there. But it's a whole other level to get to $500,000, $1 million in monthly GMV. And so at the seed, it's those things I mentioned around the market, the team. Are there early signs that something's working? At the Series A, it's more like, OK, do we have line of sight that this can be at least a few hundred million dollar company and get to the Series B? from the Series A in the next couple years. Ideally, for us, especially as a multi-stage fund, if we're making a Series A, we want to bet that it's gonna be a billion-dollar company or bigger. One maybe example from our own portfolio would be Whatnot, which is like a live shopping marketplace. And at the seed, they were just doing Funko Pops, which is this very specific type of collectibles. And you can make the bet, I think, at a seed round that a Funko Pops company could get to an interesting Series A. But by the time they're at the A, they had proven, okay, this works for FigPins, which is another collectible. This works for Pokémon cards. This works for sports cards. So you want to start seeing between the seed and the A that it's going to jump in— that either that starting market is big enough to be $1, $5, $10 billion business, or that they're going to make the jump because they've enabled such a compelling behavior for buyers and sellers into whatever that next industry is going to be. And for you guys, it was expanding from the local businesses into regional businesses, giant multinational enterprises, and then also continuing to grow the supply pool too.
Yeah. And I think that this is also one of the biggest headfakes in the marketplace industry that I think investors who are untrained can easily kind of be deceived. I mean, there's actually a really funny email exchange between Fred Wilson from Union Square and Paul Graham of Y Combinator. And, you know, and they published this all publicly, so it's in good fun. But literally the original pitch, I mean, people just really thought that Airbnb, aka Air Bed and Breakfast, was literally going to be was a bet that travelers wanted to sleep on air beds, right? And so, yeah, I mean, it's really hard to go from there into, oh wow, this is going to compete with Expedia and Hilton and the whole variety of it. And yet at the same time, it's obviously so advantageous to start with vertical.
