The Bowery Capital team had a conversation with Brendan Berry, a Director of Product Management at Ripple, centered around the current state of cross-border payments and what the blockchain-powered future means for international payments.
The Bowery Capital team is embarking on a ten week journey to cover B2B Marketplaces. We are doing deep dives on various companies, interviewing founders and investors, and learning what it takes to build success in the B2B Marketplace arena. Below is a part of our content series focused on insights from successful VC investors in the space. This week we present a B2B Marketplaces Interview with Robin Dechant from Point Nine Capital.
Robin Dechant is an associate at Point Nine Capital where he invests in the B2B marketplaces and software companies that are reshaping traditional industries. Point Nine is a leader in early-stage investing and its portfolio companies include Zendesk, Typeform, Contentful, and others. Robin is based out of Point Nine’s Berlin office.Robin – with your investor hat on, how do you think differently or similarly about B2C vs B2B marketplaces?
For B2C marketplaces, there are playbooks for growth out there based on the success of past companies. Also, B2C marketplaces have less complex acquisition strategies and usually a much faster conversion. For B2B marketplaces there are fewer playbooks to follow and B2B marketplaces usually have longer sales cycles. Building initial liquidity can take quite some time, but the monetization can be easier and transaction volume is much bigger.
What are some of the things you see in B2B marketplace pitches that move you to a pass? What are some things that move you to fund a B2B marketplace?
Two key things: the market understanding and the founder’s insights. It is especially important for the founders to understand both the supply and demand sides of the market. It makes a huge difference if the founder has only a high-level understanding of the space versus founders who have unique insights and deep industry expertise, particularly around market entry, as it is difficult to break into a legacy market given the strength of existing relationships.
What are some of your key themes and ideas around B2B investing? For example, you’ve invested in a metals trading marketplace like Metalshub. How do you think about the key themes at Point Nine that led you to these investments?
We always try to assess the structure of the market and see if using the platform is favorable towards the demand and/or the supply side of the marketplace. Every party needs to be gaining tremendous value from platform adoption. It is important to really focus on the market structure and how much value the platform can create.
In this current economic downturn, what are a few modifications you are making to your investing guidelines? Which B2B companies will navigate this downturn to emerge as winners?
As seed investors, the short term might look gloomy but in the long term, the crisis could be an opportunity to put pressure on existing supply chain and procurement processes and highlight the need for digitalization. The current circumstances can encourage companies to consider relying on B2B marketplaces to meet procurement needs. According to research published by E&Y, 80% of companies say they are reassessing their supply chains in light of the COVID-19 crisis, which makes it an interesting time for marketplaces focused on goods and materials.
How does consolidation play into your assessments? What are the early signs of a platform that will become the dominant acquirer? What were some characteristics or actions that built the momentum that carried successful exits?
In the past, successful marketplaces have had very different go-to-market approaches depending on the situation (e.g., focus on supply side, focus on demand side, focus on different geographies, niche vs. generalist). The execution and team also matter a lot obviously. As I mentioned earlier, many large B2B markets are tough to crack and require deep insider experience. A high level of existing concentration within the market on the supply or demand side can also be a big risk.
When you think about outcomes, most of the v1.0 players were acquired by PE firms with many feeling that if industry players acquired these companies their independence would be compromised. GXH could not be bought by a drug distributor because then it would be less independent. Elemica could not be bought by a chemicals company like Dow because then it would lose independence. Caterpillar buying IronPlanet would be bad because then they’d just sell Caterpillar equipment. What are your views on the v2.0 successes and their outcomes? What do you think is different this time around?
The playbook might be out there for 1.0 marketplaces but it is not clear yet how to attack them for newer entrants. It is too early to identify a playbook for v2.0 successes – we are still at an early stage. As an example, Autodesk acquired BuildingConnected in the construction industry and they paid a significant price. This is a signal that more and more companies are beginning to see the value of these platforms. One big difference today is the increased demand for workflow tools that can add value on top of the marketplace and network.
There obviously were some great successes as well as spectacular failures around the v1.0 marketplaces. What do you take away from the prior generation of companies as you apply your lens for investing in the next generation of B2B marketplaces?
With v2.0 B2B marketplaces, the product and software play a much bigger role. The monetization strategy can also be different (subscription basis vs. transactions). Building out workflow products is a key focus of many v2.0 marketplaces.
For entrepreneurs, do you encourage B2B marketplace founders to do things differently than B2C marketplaces?
While it is good to read up on B2C playbooks, in the end, B2B is a different game. For example, customer acquisition takes much longer and how you build initial liquidity depends on the specific industry you are targeting. The focus points for B2B are also different – B2C might focus heavily on marketing, while B2B should focus more on workflow products, building liquidity, and making customers sticky to the platform.
For entrepreneurs, do you encourage focusing on the supply or the demand side during the early days? I am curious about how you think about the early motions and dynamics with B2B marketplaces?
It really depends on the market structure and dynamic, there is no golden rule. There is always one side of the market that is more constrained, and which side you want to focus on can change over time. One general rule – which has been highlighted by Bill Gurley and others – is that supply aggregation is easier, whereas aggregating demand is the hard part.
What have you seen to be the biggest impediment to driving utilization and participation? What do successful exchanges do to overcome these challenges?
One key factor is understanding the marketplaces’ workflows and participants. This requires the entrepreneurs to have strong insights into the industry so they know who they can sell to and how. Change management is also a key skill, especially in traditional industries where marketplaces are replacing transacting by phone or e-mail. There can also be differences between the buyer and supplier personas, and the founders should understand each at a deep level. Successful companies figure this out early on and are better positioned to build a go-to-market strategy that can scale.
How do you apply your prior experience having founded a marketplace to the companies you work with?
I am currently working with several B2B marketplaces and the way they are building out their offerings really varies depending on their situation. In some cases, they have had to focus on developing tools to make the demand side sticky, while in other cases they have instead needed to focus on attracting suppliers in order to build initial liquidity. So again, there are no golden rules to follow and startups need to find the strategy that fits best with the market environment and their product.
If you liked “Investing In B2B Marketplaces: Robin Dechant (Point Nine Capital)” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog. Look out for more content on B2B Marketplaces from us in the coming weeks.
Bowery Capital and Balance explain how B2B marketplaces can think about payments.