20 VC The Ultimate Guide To Marketplaces with Boris Wertz, Founding Partner @ Version One Ventures

Abstract
Summary Notes

Abstract

In the latest episode of the 20 minutes VC, host Harry Stebbings interviews Boris Vertz, a prominent early-stage tech investor and founding partner at Version One, who also collaborates with Andreessen Horowitz. Boris shares his journey from an entrepreneur at AbeBooks.com to becoming an investor, leveraging the proceeds from its sale to Amazon. He discusses the dynamics of marketplace models, emphasizing the importance of supply, the impact of mobile technology, and the potential of vertical marketplaces due to internet proliferation. Boris also highlights the significance of trust and safety, the rise of power sellers, and the development of an ecosystem around successful marketplaces. Additionally, the episode touches on the release of Version One's marketplace guidebook, which consolidates knowledge on building successful marketplaces. Finally, Stebbings promotes a free trial of Loyalty Bay, a SaaS tool designed to boost website conversion rates.

Summary Notes

Introduction to the 20 minutes VC Show

  • The show is returning after the Christmas break.
  • Host Harry Stebbings discusses new written content for the show.
  • The "two minute take takeaway" will accompany each episode, summarizing key points.
  • The first takeaway is available on the show's website and Medium page.

And before we dive into the show the other day I was chatting to a friend of mine, the awesome Tiffany Zhang at Binary Capital, and she suggested the 20 minutes VC produce written content of the best bits from each episode.

This quote introduces the idea of producing written content to complement the podcast episodes, as suggested by Tiffany Zhang from Binary Capital.

Guest Introduction: Boris Wertz

  • Boris Wertz is a top early-stage tech investor in North America.
  • He is the founding partner of Version One Ventures.
  • Boris is also a board partner with Andreessen Horowitz.
  • He was the COO of AbeBooks.com, which was sold to Amazon in 2008.
  • Boris was named the Pacific Ernst and Young Entrepreneur of the Year in 2005.
  • Version One has released a book on marketplaces, recommended for startup founders and investors.

I'm so thrilled to welcome an amazing guest for today's show, Boris Vertz. Boris is one of the top tech early stage investors in North America and he's the founding partner of version one of whom I was very lucky to interview Angela tran King Yens earlier this year, episode 38, if you missed that one.

Harry Stebbings introduces Boris Wertz, highlighting his achievements and contributions to the tech industry and venture capital space.

Boris Wertz's Entrepreneurial and Investment Journey

  • Boris's journey into tech was partly serendipitous.
  • He co-founded JustBooks, an online marketplace for hard-to-find books.
  • After selling JustBooks to AbeBooks and working as COO, he sold AbeBooks to Amazon.
  • Boris transitioned to angel investing with the proceeds from the Amazon sale.
  • His successful angel investments led to the creation of Version One Ventures.
  • Version One Ventures has an $80 million first fund and a $35 million second fund for early-stage investments.

Yeah, I mean, it was a little bit random in a certain way. I always knew I would love to become an entrepreneur, but in 99, Internet 1.0, kind of the big bubble, there was an incredible excitement around the Internet and I thought, like, I just have to be part of it.

Boris Wertz describes his initial draw to the technology industry and becoming an entrepreneur during the Internet 1.0 era, which led to the founding of his company, JustBooks.

The Power of Marketplaces

  • Boris was inspired by the impact of marketplaces on customers' lives.
  • AbeBooks allowed customers to access a vast inventory of hard-to-find books.
  • Personal stories from customers highlighted the significance of marketplaces in niche markets.

So just the power of bringing together buyers and sellers in a relatively small market, like the hard to find books market, convinced me.

This quote explains Boris Wertz's realization of the transformative power of marketplaces, as evidenced by the success of AbeBooks in connecting buyers and sellers globally.

The Rise of Marketplace Models

  • Marketplaces were not as prevalent in 1999 as they are today.
  • Personal customer stories showcased the impact of marketplaces.
  • The reemergence of marketplaces since 2010 is attributed to several factors, including the influence of eBay.

And why do you think then we've seen this mass reemergence now? I mean, there seems to be a marketplace for absolutely everything nowadays.

Harry Stebbings questions the reasons behind the resurgence of marketplace models in the tech industry, indicating a trend that has become widespread across various sectors.

Evolution of Marketplaces

  • The innovation in marketplaces was stagnant for a long time after eBay launched.
  • Three significant changes have occurred in the last five years:
    • The rise of vertical marketplaces.
    • The impact of mobile on marketplace potential.
    • Expansion from product-centered to service-centered marketplaces, with the on-demand trend.

"People felt like, okay, they had nailed kind of that area and there wasn't much potential."

This quote highlights the initial complacency in marketplace innovation, suggesting there was a period when little progress was made.

"First of all, I think people looked at vertical marketplaces, and vertical marketplace probably wasn't large enough of an idea back in 99 just because there weren't too many people on the Internet."

Boris Wertz explains that the concept of vertical marketplaces wasn't viable until the internet user base grew significantly.

"With mobile, you just have completely new use cases."

Boris Wertz discusses how mobile technology has opened up new possibilities for marketplaces, such as ease of use and accessibility.

"The whole services category hasn't really been nailed."

Boris Wertz points out that there is still untapped potential in marketplaces focused on services rather than products.

Objectives of "A Guide to Marketplaces"

  • The book aims to provide a concise and comprehensive guide to understanding marketplaces.
  • It is designed to educate and support entrepreneurs and the broader ecosystem.
  • The book reflects what excites Version One Ventures and how they think, aiding mutual understanding between the firm and potential entrepreneurs.

"We learn a lot...you learn quite a bit in that process."

Boris Wertz emphasizes that the process of writing and structuring content is a learning experience for them.

"We want to be as supportive as possible to entrepreneurs out there and the whole sort of ecosystem."

Boris Wertz highlights their intent to support entrepreneurs at scale through publishing their insights.

"People understand what we at version one get excited about how we think."

Boris Wertz states that the book helps entrepreneurs understand Version One Ventures' perspective and investment interests.

"It's a very concise, 50 page guide to, I would say, everything you need to know about marketplaces."

Boris Wertz describes the book as a succinct yet comprehensive resource for marketplace entrepreneurs.

Selecting the Right Market for Marketplace Entrepreneurs

  • Entrepreneurs should consider market attractiveness based on certain criteria:
    • Fragmentation of supply and demand.
    • The nature of the buyer-seller relationship (transactional vs. monogamous).
    • The size of the addressable market.

"The more people are on either side of the marketplace, the more value as a marketplace can bring."

Boris Wertz explains that a greater number of participants on both sides of a marketplace increases its value.

"Is it a transactional relationship or a monogamous relationship?"

Boris Wertz highlights the importance of understanding the buyer-seller relationship dynamic in a marketplace.

"What is the kind of market you can address?"

Boris Wertz suggests considering the potential size and scope of the market when planning a marketplace.

Unbundling of Marketplace Models

  • There is a trend towards niche vertical marketplaces.

"We get this pitched all"

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Venture Capitalist Perspective on Niche Marketplaces

  • Niche marketplaces can be highly profitable and provide great value to buyers and sellers.
  • For venture capitalists (VCs), the investable companies are those that can potentially scale to $100 million in revenue within 5-7 years.
  • Many niche marketplaces may not meet the criteria for VC funding but can still be successful through alternative funding methods such as angel investors or bootstrapping.

"I think very specific niche marketplaces and I think they can be great businesses." This quote emphasizes the potential for niche marketplaces to be successful businesses in their own right.

"Not every business needs to be vc fundable." This quote highlights that not all businesses require venture capital to be successful and that there are other paths to building a successful company.

The Chicken and Egg Problem in Marketplaces

  • Startups must address the fundamental challenge of balancing supply and demand in a marketplace.
  • The initial focus should generally be on building supply to attract buyers.
  • Different strategies can be employed to build supply, such as offering unique inventory or paying for initial inventory.

"Like how do you figure out this chicken and egg problem?" This quote introduces the classic dilemma faced by marketplace startups: how to balance and grow both supply and demand.

"You usually always have to start with supply and kind of getting something onto the platform that people can buy." This quote suggests that building supply is the first critical step in solving the marketplace dilemma, as it gives buyers a reason to come to the platform.

Identifying and Scaling Hotspots in Marketplaces

  • Once initial transactions occur, startups should analyze which transactions are successful and repeatable.
  • Identifying "hotspots," or areas of the marketplace with successful interactions, is crucial.
  • Startups should focus on scaling supply and demand around these hotspots to grow the marketplace effectively.

"Try to understand what type of transactions work really well." This quote emphasizes the importance of recognizing successful transactions that can be replicated and scaled.

"Then double down on these things and trying to scale supply and demand in this subset of the marketplace." This quote suggests that once a successful transaction type or hotspot is identified, startups should concentrate their efforts on expanding those areas.

Scaling a Marketplace Startup

  • Trust and safety become increasingly important as the marketplace scales and gains media attention.
  • The growth of a marketplace is often driven by power sellers who professionalize their presence on the platform.
  • Developing a supporting ecosystem around the marketplace can lead to greater efficiency and defensibility.

"Trust and safety becomes more important because you might attract fraudulent suppliers or buyers." This quote acknowledges the growing importance of maintaining a secure and trustworthy environment as the marketplace expands.

"How can you support these power sellers? Because ultimately they're going to provide a much more professional service or much better quality of service to your buyers." This quote recognizes the significance of power sellers in driving the marketplace's growth and the need to support them effectively.

Market Overview and Exciting Verticals

  • Mobile-first and on-demand marketplaces continue to excite investors.
  • The scaling of companies like Uber serves as an example of successful on-demand marketplaces.

"Mobile first, marketplaces and on-demand marketplaces are still something that we're getting excited about." This quote reveals the speaker's interest in marketplaces that prioritize mobile access and on-demand services, which are areas of continued growth and innovation.

On-Demand Space and Mobile-First Opportunities

  • There is still significant opportunity in the on-demand and mobile-first sectors.
  • Examples of on-demand services include Doordash and Booster Fuels, which offers on-demand fueling of cars.
  • The appeal lies in the convenience of services being brought to the customer, rather than the customer having to seek out the service.
  • Mobile technology enhances the value proposition for customers by enabling this convenience.

"I think there's still a bunch of opportunity left in the on-demand space and kind of mobile first, space secondly on demand." "So there's a few of those categories that are just gigantic categories where just for the combination of a service brought to you, instead of you going to get the service and mobile, you create some real customer value."

The quotes highlight the untapped potential and customer value creation in the on-demand and mobile-first markets, with a focus on service accessibility.

Decentralized Marketplaces and Blockchain

  • Decentralized marketplaces built on the blockchain are an emerging area of interest.
  • There are questions about the profitability of these marketplaces and whether they can generate money on their own.
  • Current decentralized marketplaces have a prevalence of illegal activities, but there is potential for legitimate products and services to be sold in the future.
  • It's uncertain whether the next generation of marketplaces will be completely decentralized and if customers will embrace this model.

"We're kind of fascinated by this whole development of decentralized marketplaces built on the blockchain super early." "But will that move out of the illegal space and actually become marketplaces where legit products and services are being sold?"

These quotes express intrigue in the development of decentralized marketplaces on blockchain technology and ponder the transition from illegal to legitimate transactions.

VC Success Metrics

  • Success as a venture capitalist (VC) is measured by feedback from entrepreneurs.
  • Important considerations include entrepreneur satisfaction, willingness to work with the VC again, and fair treatment even if funding is not provided.
  • VCs aim to serve and help entrepreneurs, and their feedback drives VC success.

"I think ultimately always buy feedback from entrepreneurs. How happy are they working with us? Would they work with us again?"

The quote underlines the importance of entrepreneur satisfaction and feedback as key indicators of a VC's success.

Industry Hype and Realities

  • The on-demand sector is somewhat overhyped, with many attempting to replicate Uber's success without understanding its unique drivers.
  • It's challenging to identify underhyped sectors due to rapid hype cycles in technology.
  • Blockchain, virtual reality, augmented reality, and drones are examples of quickly hyped sectors.

"As much as we're excited about on demand, I think it's also a little bit overhyped." "Right now I feel like there's not a single underhyped sector."

The quotes reflect the speaker's view on the overestimation of the on-demand sector's potential and the difficulty in finding sectors that have not been excessively hyped.

Key Metrics for Marketplace Founders

  • Marketplace founders should focus on gross merchandise sales and take rate.
  • Gross merchandise sales indicate the total volume of transactions in the marketplace.
  • The take rate represents the marketplace's revenue relative to gross merchandise sales, signifying the marketplace's size and opportunity.

"I think gross merchandise sales and take rate, I mean, gross merchandise sales being kind of the top line, kind of what is the volume you're creating for your marketplace and then take rate is what do you take out of that?"

The quote emphasizes the importance of gross merchandise sales and take rate as primary metrics for assessing the health and potential of a marketplace.

Investment in 'Headout'

  • The company 'Headout' is a mobile-first marketplace for travel experiences.
  • It operates in major cities and offers last-minute access to travel experiences.
  • The investment was made due to the mobile use case and lack of current mobile options for such services.

"So we invested in this company called Headout, which is a mobile first marketplace for travel experiences." "It's a pure mobile use case. I mean, you're traveling in the city, you want to go to a show, you want to have a helicopter flight, you want to visit the Empire State Building, whatever it is, and you can quickly find these attractions on your mobile phone, book them right away and kind of enjoy them."

The quotes explain the rationale behind investing in Headout, highlighting the mobile-centric approach and the gap in the market for immediate, on-the-go travel experiences.

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