Securing capital is the lifeblood for your marketplace. While it does require determination and hard work, there is no need for it to be painful. With PwC expecting the industry to grow from its $15 billion estimated overall value to $335 billion by 2025, it is a better time than ever to get investors on board.
The best way to start looking for investors for your multi-seller business is to define exactly what it is that you need. Different types of marketplaces need different approaches; the ambition, scalability, and nature of the platform’s specialisation all need to be taken into account when it comes to deciding the best course of action.
Finally, new ventures will also take a different approach to established corporations going into the marketplace space, with each having different funding options available. In particular, the former often secures the first funding from FFF (Family, Friends and Fools) while the latter requires an employee to pitch the marketplace idea to decision-makers at the corporate level and secure their buy-in. Here are a few approaches to consider.
New Ventures and Startups
Getting started is the first step: the marketplace industry is very competitive, so you will likely have to show potential investors that you have more than just a good idea. Bootstrapping - stretching existing resources as far as they can go - is a must when you are just starting out. Starting to save - or jumping into existing savings - and trying to earn customers organically might seem daunting at first, but there are a few solutions that can make things a lot easier. Open source platforms and SaaS solutions, for instance, can be used to build up a marketplace from scratch at a low cost, allowing you to test your idea out with real customers.
Kick-off Your Platform
With a plethora of online SaaS solutions available for building marketplace platforms, it is now possible to get started with a minimal investment. While pursuing the steps outlined below will allow for long-term success, you might be able to get further than you would think by starting off a platform with a small inventory using a SaaS service. Shopery, for example, can help you start a business with customisable templates, low-cost upkeep and a quick time to market.
Join an Accelerator or Incubator
New business owners and first-time entrepreneurs might want to consider joining an accelerator or incubator program. Tech incubators are increasingly common, and with marketplace revenue expected to double by 2022, it should not be difficult to find a program willing to help. Incubators and accelerators provide the resources, tools, know-how and networking possibilities that you will need if you are new to the industry, or to owning a business.
Take Out a Loan
If you go down the loan route, it is very important to choose the most suitable type of loan for your business. Inventory financing is a great option for new, small businesses; by taking out loans on the back of outstanding invoices, you can keep a steady cash flow, while reducing the worry of late-paying customers and clients. As Fundera points out, many businesses overlook credit card loans as a way to fund a business, but they are a relatively easy and affordable way to take out a loan. In contrast, for more established, profitable businesses, SBA (Small Business Administration) loans might be the best option, since these are more long-term affordable loans.
Go for Venture Capital
An owner with a disruptive idea may want to pursue venture capital. While this is undeniably a challenging route to take, it is the best way to secure thousands, if not millions, for your marketplace in return for equity in your business. The key is to convince investors that your business will bring them guaranteed ROI. In a 2018 VC investor’s panel, venture capitalist Andrin Bachmann emphasised that even if you are looking to go into a niche market, it must be connected to something bigger to attract VC investors — Facebook’s initial focus on Harvard and Amazon’s on book delivery were two big examples. Highly ambitious marketplace owners with a disruptive idea should seriously consider taking the VC route. In fact, there is an increasing amount of VCs, such as Point Nine Capital and Speendinvest x, that invest in marketplace models.
Crowdfunding is by no means a surefire way to fund your marketplace. However, you will gain a double benefit if it really takes off: not only will you secure funding, you will also be connected to a fully engaged and invested customer base. Crowdfunding can be time-consuming but that is because it essentially doubles up as marketing. Rather than doing a one-off pitch you have to constantly and continuously adapt your message to your audience. Crowdfunding sites like Kickstarter, Indiegogo and GoFundMe are popular choices for owners who have exciting ideas that they want to launch with the help of the masses.
While a lot of the points from above do apply in convincing management that a big slice of your company’s budget should go towards creating a marketplace, a budget meeting will need to be held in order to do so. Here, you will need to advocate for the return on investment (ROI) of creating the new marketplace platform, especially when looking to receive additional funds on top of the existing budgets that are already available to you. Thankfully, marketplace growth is incredibly strong and shows no signs of slowing. If a marketplace is truly a good option for your corporation, convincing management is unlikely to be a struggle.
By bringing onboard specialised, vertical partners with whom to kick off the marketplace you can strongly align your new platform with an existing or new supply partner while creating a new funding avenue - in exchange for an equity stake in the new platform. For example, a supply partner might want primary access to the wider audience you can provide them in exchange for funding and access to supply channels. A strategic alliance can help you share knowledge as well as a lucrative opportunity.
Securing funding for your new business or corporation is one of the most challenging but also most rewarding aspects of getting started as a marketplace. Thankfully, funding for marketplace models is becoming increasingly more accessible. If you’re looking for a comprehensive guide on how to how to get a new marketplace business off the ground, be sure to download our Marketplace Launch Guide here.