The Story Behind Our Investment In Back Market

Willy Braun
Dec 7, 2017 · 11 min read

The first time we met was at a bar. The meeting was arranged by a friend. We didn’t know what to expect or even what we were looking for. But sometimes things just happen the way they should. We were five in a dark room, with brick walls and somewhat strange, church-inspired windows. Bearded hipsters were enjoying home-brewed beers not far from us, while we talked without a clear agenda, just getting to know each other. Mathieu, Marie and I were meeting the founders of Back Market on an informal basis before daphni launch. They were creating a marketplace that would change how electronic devices are consumed. Thierry Petit, the CEO of Showroomprivé had advised the team to meet with VCs and build relationships.

Thibaud Hug de Larauze, Quentin Le Brouster & Vianney Vaute are the three co-founders of Back Market, which is the best place to find your future electronic device, without surprises (or only good ones). Their vision is to build a new standard of the refurbishing industry, and making refurbished devices the standard consumption behaviour.

Thibaud Hug de Larauze, Vianney Vaute & Quentin Le Brouster, co-founders of Back Market

Thibaud remembers the first meeting well: “I followed Thierry’s advice. I realized it was important to humanize investors and to go beyond the transactional relationships. Yet we didn’t know precisely what to do next. When Mathieu sent me a follow-up email, I just said we’d come back when the need of cash would appear. It wouldn’t be before many months.”

The Fundraising

And that day eventually arrived.

The fundraising process was setup by Marc Oiknine & Nicolas Tcherdakoff, the partners of Alpha Capital Partners. Thibaud remembers: “He had made a short list of the most relevant funds for our round. He was structuring everything: the meetings, the timing, the overall approach.”

Daphni had just been launched at that time. Nicolas from Alpha Capital Partners called Pierre-Yves to update him on where the company was standing and officially launch the fundraising process. A first meeting has been quickly scheduled with both Back Market management, Pierre-Yves and Sarah at Daphni, having both a strong interest in marketplace businesses.

Sarah tells me: “Before this meeting, I was really curious. I first met Thibaud during the France Digitale Tour and it was the very beginning of their venture. So I was looking forward to knowing their evolution. And I wasn’t disappointed!“

Pierre-Yves describes the meeting: “I really liked the team. And their vision. And their execution. It was an obvious call for me. I’m not the kind of guy rushing to make decisions. I like looking at all the pros and cons, collecting many perspectives and thinking it through. But for Back Market, it was like they’d came with a checklist and had everything pre-filled. Their DNA is at the center of our thesis, with its strong impact on sustainability, relying a lot on the collective culture that we find in Europe. The product/market-fit was already visible, with a fierce traction and a high growth rate that hasn’t slowed down since. The three founders are not only remarkable, they are really complementary: One is super creative, however never fully confident on how things will unfold; the other is very optimistic, amazing in operations and giving everyone great energy to go at full speed; and the last one is thoughtful but polyvalent, someone who can take care of anything and will do it, at least on the tech side. They had inside knowledge and an established network in this industry. The discussion was really fluid, and they kept a very healthy, convincing mix of confidence and honesty, not hesitating to talk about their fears and zones of risk. When everything is said to be under control, founders are either fooling themselves or trying to fool us. This was not the case with Back Market.”

Pierre-Yves Meerschman, partner at daphni

Thibaud remembers: “We enjoyed the fundraising process very much, the meetings were super casual and we felt that we shared lots of beliefs and values. When you are raising funds, especially when you are following a very structured process, you end up telling your stories countless times. You tend to lose a bit the inner fire and authenticity, because it starts to feel over-prepared, a bit mechanical. We didn’t follow the deck with daphni, we just discussed. We really liked it. It was authentic, human and… refreshing.”

Pierre-Yves and Sarah came prepared, since we already knew the team and we received an updated deck beforehand. Pierre-Yves shared with me his state of mind before the meeting: “I was really intrigued by how fast they had been developing the company. It was especially comforting and exciting giving their impact. Sometimes companies you would like to back and believe in, end up never finding a demand. Maybe the market doesn’t exist, maybe it’s too early. That wasn’t the case here. Traction was there. The three founders handled a complex problem in a very methodical way: managing to have strong client engagement thanks to all the aspects of their branding strategy, managing the operation at scale, and having a great and reliable tech product that connects everything.”

“I believe they will become a category leader (second hand, electronic devices), matching demand and supply across the world. I do believe they will be able to control the whole value chain from sourcing to sales and that there are still many services to add on top of what they do today,” he adds.

Team is growing fast, unlike the office size

Yet, even if most of the lights were green he had some worthy hesitations: “There are no huge technological barriers, so the play is mostly on execution. There was the question of latent competition, from startups or tech giants. But we were ready to make the bet on their capacity to succeed. The three of them were communicating very efficiently with us. The trends observed were confirmed by many interviews and reports that made us comfortable that the market would grow and that they were really well positioned.”

“The real question was whether we would agree on the right parameters about the operations. I was afraid they’d be trying to mitigate the risk to ensure the sustainability of their business, when they really had to go full speed. We had to agree on the size of the round, and valuation. And dilution is never a trivial topic. It was the biggest proposition of the fund at the time in terms of ticket size,” Pierre-Yves says.

Sometimes, when we think of fundraising, we only focus on the selection done by the investor. But entrepreneurs are choosing too. They can choose not to fundraise. They can choose when, how and with whom they are fundraising.

Thibaud Hug de Larauze

Thibaud tells me: “We had already five term sheets that were matching our expectations. When you start to receive formalized propositions, it’s astonishing to see how funds can amend their positions and parameters and converge to the best conditions. You are eventually in a position where you can ask yourself: “ok, who do I really want to work with?”. When you have some data in mind, you know that you are making a choice that will last for 3 to 7 years as you enter your series A. So it’s not a small choice. Since the conditions have converged, the true question is in terms of fit: fit of vision, values, and styles. To complicate the choices, it’s not like we had one hero and many villains. We had proposition from many great funds, and we enjoyed the relationship with them. We eliminated some funds that we felt had not behaved as well as we thought, trying to maximize their optionality by answering late and waiting for conditions to be precise. We wanted investors with a strong network, to help us generate business opportunities, fundraise the next rounds and secure the best talents. Also one of our key criteria was care. Entrepreneurship is a rollercoaster and sooner or later you will be in bad situations. In these situations, you don’t want to have ego, paternalism or aggression in the room. You need empathy, collaboration and care, to make the best of everything and to find the best, most creative solutions. The daphni team was a perfect match. And I’m glad to have make this choice. Pierre-Yves has helped us a lot with corporate and business development, by making great introductions. Also he connects us with amazing talents and help us assess the key hiring with the other board members.”

The road to a bright future

“I really want to build the world leader of technology-powered circular economy. We won’t just offer refurbished products, we’ll make sure to get as many devices as possible to increase their life cycle. We are in a world with limited resources. If we keep our current pace, the pools of lead, gold & copper will be exhausted in less than 40 years. We cannot consume technology as we did in the 80s. We need to do more with less. It’s not just an ecological conviction, it’s common sense. I want to take part in this necessary movement. I want to have an impact that could be labelled as a political engagement, to accelerate change. Recycling is better than nothing, but it’s not a true, lasting solution.”

Of course having a strong impact requires to build a gigantic company. For Pierre-Yves, their development is already amazing: “They have deals with many, if not most Original Equipment Manufacturers. They have substantially grown their user base. They have an impressive growth, high and consistent, every month. They’ve increased their team from 25 to 45.”

Back Market might be on the right track, but they are far from having arrived at their final destination, Thibaud explains.

The lucky few in the team still having some space

“We have many challenges, like any startups that scale. On the marketing side, we need to build a brand that resonates in many countries, to craft a message that will be efficient in different cultures. On the HR side, we need to keep our culture, which is one of our strongest assets, and make it work in several countries. We’ve just opened in New York and Bordeaux. There is a need to keep both our strong growth and our culture. It’s not trivial. We also have to keep on onboarding incredible talents quickly, while managing our mistakes (because sooner or later you’ll make some hiring mistakes). On the product side, one of the big challenges is the democratization of the act of buying second hand devices and also to ship back our old devices. There are challenges on marketing and supply chain. Also I’m convinced that there should be a fiscal incentive to refurbishing, like what exists today with regards to recycling.”

The challenging moments are often very close to the exciting ones, especially when you feel the challenges will be conquered.

“We are heading to the US. It’s amazing to think that a European company will go and conquer the US and not the other way around. We also need to broaden the scope of refurbishment, from a mostly smartphone and tablet-driven market to a market that deals with any electrical device.

Lessons learned

Thibaud talked a bit about what he learned along the journey. “I really discovered how crucial radical honesty was. At first I wasn’t comfortable discussing my doubts and fears. But once you start to believe in yourself and in the people you work with, you manage to build trust. And trust is key to handle complex and fast-moving situations. It’s also the key to scale up your organisation.”

“Trust and transparency are not the only big lessons learned. The key is also selecting, and retaining the right people.”

“Scaling a team is hard. You need to make sure that everyone fully embraces your values. It’s a prerequisite. Skills without the right fit of values are useless. Skills can be learned. Values are more stable. Culture and values are the bedrocks of decisions and succeeding is mostly about making the right decisions while working hard. There is also the importance of communication. You might be among the best, hardest-working, creative people, but if you don’t share the right level of information, providing the relevant context while avoiding to flood everyone with useless intel, you’ll just waste this human capital. “

“Of course, real estate is a big topic also.” He laughs, putting it in perspective. “Let’s just say that it can become stressful at times, especially when your team is growing fast.” We could feel that he had spent quite some time on this subject lately.

How could a reader be helpful to the company?

“By thinking about their consumer behaviour, whatever their conclusion might be.” Confidently, Pierre-Yves adds: “Because if they think it through, they’ll end up buying from Back Market”.

For Thibaud, it’s surprising how different people behave toward food versus electronic products. “When you buy food, you try to understand how it is produced and where it comes from. You check the ingredients. You avoid pesticides and bad additives. And then there is the release of the last electronic device from your favourite brand. You just rush into buying it, without asking yourself any questions about the impact, implications or alternatives of your purchase. It’s not only a question of self engagement. There is also a big lack of transparency and regulation about the OEM’s (Original Equipment Manufacturer) communication. We really want to bring the same awareness and emotional attachment that we find in food to electronic device consumption. So yes, if you want to be helpful, just behave towards consumption of electronic devices as you would towards food.”

He adds, smiling: “Oh, and we are also looking for great developers, who share our values and vision. So do not hesitate to apply or refer your friends.”

One more thing — quick advices for entrepreneurs

I do believe that having a fundraiser is a strong advantage. They handle the timing and the construction of a momentum. You are not exposed directly to potential frictions during the process. You benefit from a great buffer, which ensures a better bargaining position.

Also, if you raise funds with VC it’s because you have a strong vision. Indeed, you need to listen and discuss the future and potential evolution; however, you should make sure not to promise to match the desires of the VCs.

daphni chronicles

daphni chronicles shares lessons learned and analyses from…

daphni chronicles

daphni chronicles shares lessons learned and analyses from daphnipolis, the great community around the venture fund daphni. It's like having private talks with high level thinkers & doers of the tech world.

Willy Braun

Written by

Operating Partner at @gaiacapital. Co-founder @daphnivc. Teacher (innovation & marketing). Author Internet Marketing 2013. I love books, ties and data.

daphni chronicles

daphni chronicles shares lessons learned and analyses from daphnipolis, the great community around the venture fund daphni. It's like having private talks with high level thinkers & doers of the tech world.