online marketplaces: what investors look for [Interview]

Mathias Ockenfels
Jul 18, 2018 · 7 min read

This interview was first published on Besedo’s blog. You may also like this recording of our webinar on the same topic.

A few weeks ago I had the pleasure to give an interview to Besedo covering why online marketplaces hold their value, how early stage founders can get investment ready, and exactly what investors are looking for before investing in a seed-stage marketplace startup.

Int: Thanks for taking the time to speak with us, Mathias! Could you give us a little insight into your career so far?

MO: For sure — I’m Mathias and I live and breathe online marketplaces! I’ve been involved with them for the past ten years — since my student days. Before launching Speedinvest x, I was the German general manager for Uniplaces, a marketplace for student accommodation. I started out as an investment manager at Zurich-based Mountain Partners Group, before landing roles at Point Nine Capital, another early stage fund focused on SaaS and marketplaces; and heading the mergers and acquisitions arm at ricardo Group, then a subsidiary of South African Naspers.

Int: So… why online marketplaces? What is it about them that drives your interest?

MO: I’ve been building online stores since I was a teenager but came across the idea of ‘network effects’ when researching my degree thesis. It’s underpinned by a very simple but powerful concept: the value of the network increases with every new participant who joins the network.

This idea predates the internet — it stems from telephone networks. The more people used a phone, the more it made sense for others to have a phone. From an online marketplace perspective, once you’ve built a critical mass of users, it’s hard for a competitor to penetrate or disrupt your market — even if your product is inferior (just look at craigslist!).

From a business perspective, one of my first investments went into ‘Yourdelivery’, a EuropeanJust Eat competitor, which later rebranded to Lieferando and was eventually acquired by the Takeaway Group that IPO’ed at a valuation of around €1bn. Shpock’s sale to Schibsted was another deal we saw come to fruition here at Speedinvest.

Basically, it’s clear that online marketplaces, given the right team, environment, and backing have huge potential.

Int: What kinds of marketplaces do you invest in now at Speedinvest x?

MO: Speedinvest x sits underneath our parent company Speedinvest and focuses solely on early-stage online marketplaces and network effects-driven startups in Europe and North America.

Even more specifically, rather than ‘type’ of marketplace, we’re more interested in the stage or phase a company’s at, as we aim to be the first institutional investor a marketplace encounters: at both Seed and Pre-Seed stage.

That’s the phase we feel most comfortable getting involved in; and it’s where we can add the most value, too.

Int: Aside from financial investment (!) what else do you offer the companies you work with?

MO: First of all, as VCs it’s not our job to come up with the idea, it’s to find the entrepreneurs who are creating them. When we do, we can get very operationally involved if desired by the founders. Most of our team come from an entrepreneurial background, so they know what founders are going through! We can even go as far as placing a dedicated team member within a company we invest in.

Also, because we can tap into Speedinvest’s team of experts in Europe and the US, we can help marketplaces grow their teams, presence and go-to-market strategy — thanks to Speedinvest’s dedicated HR (known as the Speedinvest Heroes) and growth hacking (known as the Speedinvest Pirates) teams.

Int: What do you look at when deciding whether to invest in a marketplace or not?

MO: The overall market must be big enough, in order for it to offer the kind of return we, as a VC, are looking for. It doesn’t make financial sense for us to invest in something that is very niche.

To be precise, we’re looking for teams that tackle billion-dollar markets; companies that are on track to achieve product-market fit; the kind that are solving real pain points for their users. We also look into the team and overall growth, but we take both a qualitative and quantitative approach to ensure we get a range of KPIs and statistics.

We talk to their customers and users, to get a good feel for what their real pain points are, and to determine the extent to which they perceive the business is solving these problems.

From a quantitative aspect, we look at a range of factors: how the numbers stack up, growth dynamics; as well as non-financial KPIs: such as engagement numbers and how people are using the product. This can include everything from weekly and daily active users to booking or transaction numbers. Basically, we are looking at anything that shows us how people are using the product and how engaged they are; and whether these are in line with the kind of engagement we would expect based on what problem the marketplace or platform is solving.

For example, with a platform like Shpock, you’d expect to see more frequent, long-term usage, as a typical use case. However, with a real estate platform, user activity would typically be high over a few weeks; as those buying a home tend to conduct their search on a short-term basis and during a certain time frame, but actually move home rarely.

Retention is important, too. We therefore often look at cohort analysis of users. Once a startup is starting to generate revenue we look at how fast it is growing. But, making money isn’t the primary concern at the Seed- or Pre-Seed phase. The really important thing is to achieve that critical mass of users — which is why we take engagement figures into account and consider it as more important than actual, financial traction.

Int: So you’re not necessarily concerned if a marketplace isn’t making money from the outset?

MO: One of the biggest mistakes founders make is monetizing too aggressively too early. A small profitable business is not a bad thing, but it won’t be a game changer — or a good VC case. It might seem counterintuitive, but building a marketplace is about hitting critical mass as fast as possible so the network effects can kick in.

If you start monetizing too soon you risk people shying away, which impedes the network effect. That’s why we pay such close attention to engagement numbers. The ratio between daily and monthly users indicates the ‘stickiness’ of the platform. The higher that is, the better the market fit; and the more compelling a case it becomes for investment.

Int: What’s the most effective way for marketplaces to reach that critical mass?

MO: It all depends whether you’re building a vertical or horizontal marketplace.

With horizontal marketplaces, you should try to build liquidity early and focus on quality afterward. Get as many listings as possible and once you introduce listing fees, you’ll soon put an end to fake or prank listings. That said, it’s important to monitor and remove scammer from the outset — to protect users and to ensure the best experience for all.

If you’re building a vertical platform; quality comes first. You’re essentially creating a marketplace giving people access to a supply that no-one else has; a niche where you can make a difference and deliver a unique experience.

Being niche gives you the opportunity to truly cater to your target audience and provide a very targeted service and platform, however, there is such a thing as being too niche.

To be successful, the chosen niche needs to have broad enough appeal to build ‘quantity’.

Or, if you can capture a large enough percentage of transactions (say, 20–30%) then that may be good enough even if it’s very niche — but that hinges on you providing enough value to ensure customers are willing to pay that kind of money.

Int: Some great info here… what would be your best piece of advice for online marketplaces looking for investment?

MO: Try to have your numbers in place from the very beginning so you can come across as professional and on top of your numbers. Follow engagement numbers daily and show how changes to the marketplace alter user behavior.

And — show us you care! Because we invest at an early stage, first and foremost we invest in the founders. We want to be sure of them, their drive, and passion. If you’re not passionate about the industry you’re in, or the idea you’re working on, others won’t feel that excitement either. Authenticity accounts for a lot. Usually, the best ideas come from those with experience of the pain points; those who genuinely want to solve a particular problem. Rarely do those who start a business that ‘seems like a good opportunity’ have that same passion.

Int: And finally, do you think the online marketplace sector could exhaust itself?

MO: A lot of people do — but I don’t. There’s lots of competition out there, and many categories are already covered. But, consider the B2B space. It’s still largely untapped.

In B2B there are lots of asset-heavy categories — such as construction materials, machinery or storage — assets that don’t get used to their fullest extents. Companies like Stowga (one of ours…) who uses the sharing economy approach to warehouse space, is growing in popularity.

There are some great ideas out there, and we want to back the entrepreneurs that have those ideas and help make them a reality.


We are a seed investor that offers both capital and operational resources.

Mathias Ockenfels

Written by

I ❤️ network effects! @Speedinvest ❌ | Alumni: @Uniplaces @PointNineCap @Naspers @ricardo_ch | Passion for startups, 🏍🥋🥊 ☕️🍫🏃 | VAMO


We are a seed investor that offers both capital and operational resources.