March 22, 2021
7 minutes to read
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.
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.
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:
| Industry | Key industry trends | Top online marketplaces |
| Meal delivery |
|
|
| Education |
|
|
| Fintech |
|
|
| Mobility |
|
|
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.
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.
Read also about developing a custom e-learning platform.
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.
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.
Benefits:
Drawbacks:
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.
Benefits:
Drawbacks:
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.
Benefits:
Drawbacks:
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
Benefits:
Drawbacks:
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.
Benefits:
Drawbacks:
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.
Read also about how to develop an EdTech startup.
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.
What do I need to have prepared before going out for investment?
How much money can my project raise?
Are only companies with in-house teams eligible to apply for investment programs?
What do Series A, Series B, and Series C mean in funding?
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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