How to Find Investments for an Online Marketplace Startup
March 22, 2021
7 minutes to read
Investments for Online Marketplace Startups: Key Major TrendsIn 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|
Organic food markets
Online grocery shopping
On-demand education that helps people acquire relevant skills
Remote education and homeschooling
Financial and trading consulting
Insurance provider marketplaces
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
Online Marketplace Startups Funding: Companies That Got Most Investors' AttentionAccording 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 TeamIn 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.
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.
Wyzant — the company is set for acquisition by IXL Learning — a Chicago-based company. The details of the deal are not yet disclosed.
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.
Instacart — an online meal delivery marketplace closed an impressive deal in October 2020, raising $200 million.
EzCater is the largest catering marketplace that, since its creation in 2007, raised over $170 million in funding.
Instacart — a Zurich-based marketplace for managing online investments raised 1.2 million Euro in 2020.
Health and wellness
Instacart — an online fitness marketplace that raised $300 million in investments, closing a deal with Softbank.
Classpass — at the beginning of last year, the marketplace that connects fitness enthusiasts and gym instructors for online classes raised $285-million in investments.
GOAT — a sneaker marketplace platform closed a Series E deal last year, raising $100 million for expansion.
Top 5 Ways to Raise Money for a Marketplace StartupStatistics 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. BootstrappingBootstrapping 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 moreWhile 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.
Full ownership of the platform
No need to share confidential data with investors
High budget needs
2. CrowdfundingThere 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.
Gathering a user base for the future platform
Full ownership of the product
Quick way to raise funds
Attracting donors requires a lot of effort
Business owners need to come up with incentives for contributors
High failure rate
3. IncubatorsBusiness 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.
Exposure to users and investors
Partially giving up ownership of the company
Long waiting periods between program cycles
4. VC fundingVC 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
VC firms usually provide startups with multi-million dollar investments
Wide range of VC firms
No application fees
Partly giving up ownership over the company
Preparation takes a lot of time and effort
Need to compete with other startup owners
5. Angel investmentAngel 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.
Support and oversight from the investor
Reasonable deal terms
Introductions to key players in the industry
Limited funding capacity
Investors are hard to find
Review of Top Platforms to Find Funding for Online Marketplace StartupsRegardless 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.
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.
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.
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 ThoughtsRunning 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?
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?
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?
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?
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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