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How to Find Investments for an Online Marketplace Startup

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Thinking about some of the world’s game-changing startups, you’ll quickly realize a lot of them are marketplaces — eBay, Uber, Airbnb, etc. The “platform economy” is the future, and marketplaces are its vital components. The competition among marketplaces is cutthroat, though — statistically, online platforms account for 40% of online retail.

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As a marketplace developer or business owner, chances are that you are wondering how to make an impactful presence for your platform, and where to find funding to get a next-generation marketplace off the ground. In this post, we will take a look at the top methods for how to raise funds for a marketplace startup.

Investments for Online Marketplace Startups: Key Major Trends

In 2021, what are investors and Venture Capital (VC) firms looking for in a successful startup? We took a closer look at the industries with the most booming marketplace landscapes and zoomed in on trends that will define the future of marketplace development.

Here are the trends that will shape marketplace demand in the next 5-7 years:

IndustryKey industry trendsTop online marketplaces
Meal delivery
  • Organic food markets
  • Online grocery shopping
  • Meal kits
  • Blue Apron
  • Hello Fresh
  • Cortilla
  • Ocado
Education
  • On-demand education that helps people acquire relevant skills
  • Remote education and homeschooling
  • Preply
  • Brainly
  • ClassDojo
  • Remind
Fintech
  • Financial and trading consulting
  • Insurance provider marketplaces
  • Robinhood
  • Revolut
  • Monzo
Mobility
  • Increased demand for in-city car travel (as a growing number of people try to avoid using public transport)
  • Governments encourage micro-mobility (e-scooters, e-bikes) to reduce air congestion
  • Uber
  • Lyft
  • Lime

2020 led to fundamental changes in the online marketplace market. In the pre-COVID world, the most popular platforms were those primarily selling electronics and books. Now, marketplaces have a powerful presence in almost all fields of life: they are prominent players in meal shopping, education, healthcare, and other industries.

As can be seen from the table above, regardless of the field, the key market demands for online marketplaces are speed, customer support, online shopping safety, and convenience.

Online Marketplace Startups Funding: Companies That Got Most Investors' Attention

According to Andreessen Horowitz, a leading VC firm, 2020 was a busy year for online marketplace startups. The company put together a list of marketplaces that stormed into the startup community and gathered impressive funding.

“We were surprised by the number of startups that had made it to the list, including many relatively unfamiliar names”

Andreessen Horowitz Team

In this blog, we have selected the most rapidly-developing companies across all marketplaces that made it to the list, and took a closer look at these platforms to get an understanding around how a marketplace startup raises money.

Education

  • Coursera — in 2020, the online education platform raised $130 million in funding to help move colleges to remote learning in the 2020-2021 academic year.
    Coursera
  • Wyzant — the company is set for acquisition by IXL Learning — a Chicago-based company. The details of the deal are not yet disclosed.
    Wyzant

Meal delivery

  • MilkRun — a grocery shopping company, that connects farmers and wellness-oriented shoppers, has made 12 times more in 2020 than it had in the two years prior. The marketplace is expanding its reach and is now partnering with over 150 farmers.
    MilkRun
  • Instacart — an online meal delivery marketplace closed an impressive deal in October 2020, raising $200 million.
    Instacart
  • EzCater is the largest catering marketplace that, since its creation in 2007, raised over $170 million in funding.
    EzCater

Fintech

Health and wellness

  • Instacart — an online fitness marketplace that raised $300 million in investments, closing a deal with Softbank.
    Gympass
  • Classpass — at the beginning of last year, the marketplace that connects fitness enthusiasts and gym instructors for online classes raised $285-million in investments.
    Classpass

Retail

  • GOAT — a sneaker marketplace platform closed a Series E deal last year, raising $100 million for expansion.
    GOAT

Top 5 Ways to Raise Money for a Marketplace Startup

Statistics point to the fact that marketplaces are “the next big thing” and it’s no surprise that a growing number of investors can be found placing bets on B2B and B2C online platforms.

Despite the booming growth of marketplaces, it’s normal for business owners to feel overwhelmed when trying to secure funding. To get a sense of direction in online marketplace fundraising, take a look at these methods to raise funds for an online marketplace startup.

1. Bootstrapping

Bootstrapping is a fancy word for financing a startup on your own, without reaching out to investors. A lot of companies owe their success to bootstrapping — GitHub, BigCommerce, and many more

While bootstrapping brings undeniable benefits to the table, such as the freedom of decision-making, it also comes with a major drawback — there’s a limit to how much money business owners can spend on marketplace maintenance.

1. Bootstrapping
Benefits:
  • Time savings
  • Operational freedom
  • Full ownership of the platform
  • No need to share confidential data with investors
Drawbacks:
  • No oversight
  • High budget needs
  • Limited scalability

2. Crowdfunding

There are times when business founders can generate public interest in the platform and have future users fund its development. The “Hall of Fame” for crowdfunded projects is impressive — Oculus VR, Allbirds, and other startups have become multi-million companies after raising funds on Kickstarter.

Online marketplace funders can consider leveraging the power of crowdfunding, as well.

2. Crowdfunding
Benefits:
  • Gathering a user base for the future platform
  • Full ownership of the product
  • Quick way to raise funds
Drawbacks:
  • Attracting donors requires a lot of effort
  • Business owners need to come up with incentives for contributors
  • High failure rate

3. Incubators

Business incubators provide business owners with a growth-oriented environment for building and raising money for a marketplace startup business. In addition to connecting with investors and prospective users, company managers can learn by watching other startup owners get their projects off the ground.

3. Incubators
Benefits:
  • Learning-induced environment
  • Exposure to users and investors
  • Mentoring programs
Drawbacks:
  • Rigorous selection
  • Partially giving up ownership of the company
  • Long waiting periods between program cycles

4. VC funding

VC funding is a mature way to get funds for a marketplace startup. After pitching the project to venture capital firms, business owners can get private equity and, in return, they pay investors back through delayed profit and shares.

VC online marketplace startups funding makes it possible to generate multi-million dollar investments; however, closing the deal with a firm takes a lot of time and effort

4. VC funding
Benefits:
  • VC firms usually provide startups with multi-million dollar investments
  • Wide range of VC firms
  • No application fees
Drawbacks:
  • Partly giving up ownership over the company
  • Preparation takes a lot of time and effort
  • Need to compete with other startup owners

5. Angel investment

Angel investors are people who have amassed a following in the niche and are financially independent. For the sake of exposure or new monetization opportunities, these individuals invest in potentially promising startups.

As the name suggests, “angel” investors typically have more reasonable terms and lower interest rates than venture capitalists.

5. Angel investment
Benefits:
  • Support and oversight from the investor
  • Reasonable deal terms
  • Introductions to key players in the industry
Drawbacks:
  • Limited funding capacity
  • Investors are hard to find

Review of Top Platforms to Find Funding for Online Marketplace Startups

Regardless of the answer you may end up with when you ask the question on how to raise capital for a marketplace startup, keep in mind that you are in it for the long run. Not vetting investors properly puts you at risk of data leaks or ownership hijacking schemes.

To make sure you embark on an online marketplace development journey armed with the right tools and connections, here is a top list of fundraising platforms and companies.

Crowdfunding platforms

  • Indiegogo is one of the leading crowdfunding platforms. Its highest-grossing projects have raised multi-million targets — over $51 million for Pamu Slide, $36.2 million for Ninebot Max, and more. The platform is easy to work with — it allows business owners to choose between 'all-or-nothing' or 'take-what-you-get' funding. Also, you can keep receiving investments after the campaign is closed with Indiegogo InDemand.
  • Patreon is a widely used platform to support online creators. Although it’s mainly geared towards influencers, business owners can use the platform’s infrastructure to fund online marketplaces. The benefits of the platform include flexibility of rewards, an internationally accessible payment gateway, and reasonable (5%) processing fees.

Angel investment platforms

  • Republic is a platform that connects private investors and startup owners. In 2020, over $150 million was raised through the Republic. On the one hand, it introduces startup owners to a wide pool of investors. On the other hand, the platform has high processing fees and does not allow business owners to collect investments for online marketplace startups until they reach the funding goal.
  • WeFunder is another platform that aims at making the investment process simple and mainstream. Similar to Republic, it helps startup owners get to know thousands of investors worldwide; however, few of them are ready to back companies with millions of dollars — the investment minimum on WeFunder is $100.

Incubators

  • Y Combinator This is the most renowned accelerator program among startup owners, and has successfully funded over 940 companies. Enrolling in this incubator will introduce startup owners to key players in the marketplace industry. On the other hand, business managers need to brace themselves for hardcore competition — over 10,000 companies apply to every hosted batch.
  • 500 Startups is a global incubator, running in over 75 countries and boasting an impressive track record — with over ten years in business, the company has funded over 2,400 startups including the famous online education marketplace, Udemy, and the Canva design tool.

VC Firms

  • Union Square Ventures has an eye for promising marketplaces — the company was among the key investors for Etsy, MeetUp, and other renowned names in the marketplace industry. The firm invests selectively, though — since 2003, it has founded only a few hundred startups, most of which went on to become impactful players in their respective fields.
  • Sequoia VC Taking credit for investing in Google, Apple, and Youtube, Sequoia VC helped bring up the world’s most legendary companies. It is open towards providing funding for an online marketplace startup team of developers, with platforms like Instacart, Moovit, and Airbnb in its portfolio.

Final Thoughts

Running an online marketplace startup is challenging — business owners need to offer the technology, and acquire both suppliers and customers. At the end of the day, however, there’s a lot of room for scalability and revenue generation.

To make sure budget constraints don’t hold you back from making the most out of your platform, put some time into researching fundraising strategies and identifying top platforms that can fuel your startup’s growth. Rather than trying to successfully leverage every tactic on the list, focus on two or three high-priority fundraising methods and make the most out of them.

To develop a reliable online marketplace platform and get expert assistance on managing the startup, reach out to WTT Solutions. Our experts help business owners build and maintain small-scale and large-scale marketplaces. We design both B2C and B2B-facing platforms across all industries.

Let’s talk about your project — click on 'Get in Touch' in the top right corner of the page. To get more insights on running an online marketplace platform, sign-up for our newsletter, below.

FREQUENTLY ASKED QUESTIONS

🚀 What do I need to have prepared before going out for investment?

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Although different VCs ask for different documents, the standard paperwork for seeking capital includes a:
  • Pitch deck
  • Executive summary
  • Business plan with differentiation from top competitors
  • Financial records (balance sheet, income statement, statements of stockholders’ equity, etc.)
  • Team bio
  • Patent filings

⌛ How much money can my project raise?

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Depending on the investment strategy, a business owner can raise money for a marketplace startup ranging from thousands to millions of dollars. A lot of funders mistakenly believe “the more, the better” — however, you should meticulously calculate the amount to aim for in each round.The key metrics to calculate are the burn rate — how much it costs to keep the platform ready — and the cost of future milestones — the budget you need in order to roll out product updates in the future.

💵 Are only companies with in-house teams eligible to apply for investment programs?

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While some VC firms require startups to have in-house teams, a lot of investors are open to funding companies with offshore teams.

💻 What do Series A, Series B, and Series C mean in funding?

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Series A funding is for early-stage startups. Typically, companies raise $1-15 million, later allocated to development expenses.

Series B funding helps companies expand their market reach and acquire more users. Series B funding falls in the range of $30-$60 million investments.

Series C are larger investments that involve established startups and help companies scale.

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Table of contents

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Investments for Online Marketplace Startups: Key Major Trends

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Online Marketplace Startups Funding: Companies That Got Most Investors' Attention

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Top 5 Ways to Raise Money for a Marketplace Startup

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Review of Top Platforms to Find Funding for Online Marketplace Startups

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Final Thoughts

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