Marketplace Innovators

MARKETPLACE INNOVATORS

Marketplace Innovators • Marketplace Overview

• Key Drivers and Success Factors

• Financings and Valuations

• Maturity and Consolidation

3

Marketplaces: Defined Ho

rizon

tal

Vert

ical

A platform that facilitates transactions by matching providers of goods & services with end users of these goods & services. The platform provides the

infrastructure and rules that facilitate transactions between these parties.

1995 1999 2010 2000 2008 2007 2001 2005 1996 1997 1998 2002 2003 2004 2006 2011 2012 2013 2009

4

• 500M - Internet Users

• 1B - Smartphone Shipments

• $286B - eCommerce Sales

• GMV: • eBay -$5.5B • 1B –

eBay Listings

GMV: • Alibaba – $170B • Amazon – $95B • eBay – $75B

• $1T - eCommerce Sales

• 300K – Airbnb Listings



• 1B - Internet Users

• 9.5% - Internet Users

• 20.0% - Internet Users

• 200M - Smartphone Shipments

Marketplaces: Evolution

Webvan Files for

Bankruptcy iPhone Launch

1B App

D-loads

10B App

D-loads

WEB 2.0

• 2B - Internet Users

GMV: • Amazon – $11B • eBay – $34B

Marketplaces: Drivers

Mobile

Marketplaces

Collaborative Consumption

Technology Urbanization

• Increased need for simple, focused experience as screen size drives efficiency and unbundling

• Pervasive connectivity and computing within cloud-based infrastructure

• Payments & location based tech allow for new business models with seamless UX

• Analytics & automation enable platforms to match market participants, delivering uniquely curated services and experiences

• Platforms facilitate base level of trust required for online transactions to occur

• Online reputation becoming more credible indication of offline trustworthiness

• People migrating to urban, densely populated areas, encouraging collaboration and sharing economy

• Underutilized assets (cars, guest rooms, leisure) provide opportunity to be monetized

5

Marketplaces: Success Factors

6

7

Marketplaces: Disruptive Lending Case

Demand Supply

• As interest rates drop, capital suppliers seek increased returns while capital consumers refinance existed debt with cheaper capital

• Marketplace lending reduces infrastructure costs by operating virtually • Technology leverages validated analytical automation tools and real-time

system transparency

Refinancing 61%

Credit Card Payoff 22%

Use of Proceeds

Source: LendingClub Source: Federal Reserve

Other 17%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2007 2008 2009 2010 2011 2012 2013 2014

Mill

ions

Loans Outstanding 2 YR Treasury Yield

8

Marketplaces: Verticalization

48% 67% 74% 78% 81% 87%

52% 33% 26% 22% 19% 13%

0%10%20%30%40%50%60%70%80%90%

100%

<2009 2010 2011 2012 2013 2014

Vertical Horizontal

Vertical vs. Horizontal Invested Capital Global Internet & Mobile Penetration (%)

Source: International Telecommunications Union

Vertical-specific marketplaces provide a simple, focused solution for a specific purpose. As mobile traffic accelerates, vertical marketplaces have a distinct advantage in creating simple, streamlined solutions more suited to mobile

apps.

0%5%

10%15%20%25%30%35%40%45%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Internet Mobile

Horizontal Formation Vertical Formation

Source: Public & SVBA Proprietary Data

$3.0

$3.1

$3.2 $3.7 $4.0

$4.5

$4.9

$2.0

$5.0 $6.0

$6.7

$8.2

$0.0$1.0$2.0$3.0$4.0$5.0$6.0$7.0$8.0$9.0

2009 2010 2011 2012 2013 2014

Series A (Internet Index) Series A (Marketplaces)

9

Marketplaces: Burn Capital Se

ries A

Size

Com

paris

on

Scale to Capture Network Effects

$8.2 $10.0 $12.0 $15.0 $15.0

$18.0

$17.5 $17.0 $13.7

$19.4

$36.0 $30.0

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

2009 2010 2011 2012 2013 2014

Series C (Internet Index) Series C (Marketplaces)

“Marketplace platforms are neither easy to start nor easy to scale” – Foundation Capital

Serie

s C S

ize C

ompa

rison

Build a Two-Sided Network

Marketplaces have been raising greater amounts of capital both in getting started and when scaling, and despite larger rounds, they raise capital more

quickly and as often as less capital intensive start-ups

Series A B C

Days Marketplaces Internet Index

400 460

540 580

A B C Round


Marketplaces: Monopoly

10

Winner Takes (Almost) All

Post

Mon

ey /

Inve

sted

Cap

ital

x

5x

10x

15x

20x

25x

2008 2009 2010 2011 2012 2013 2014 2015

A majority of vertical marketplace financings are around 2x-4x of invested capital. Yet, as market leaders emerge, these leaders raise significantly more

capital at much higher valuations of 8x-15x, more than quadruple invested capital multiples of smaller followers. Network effects within the specialized

nature of vertical marketplaces create this “winner take all” dynamic

Mkt. Leaders

Followers


Marketplaces: Maturing

11

As clear winners establish themselves, there is less opportunity to disrupt larger established verticals, so investment into growth stage companies

increases for those with developed networks

Series B and C rounds represented 60% of rounds in 2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013 2014

Seed Series A Series B Series C n = 140 Perc

enta

ge o

f tot

al fi

nanc

ing

roun

ds

Increasing later stage rounds


12

Marketplaces: Saturation & Consolidation

Total Invested Capital ($MM’s)

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200

Logistics

Education

Real Estate

Retail

Services

Hospitality

Financial

Food Delivery

Transportation

Seed

Series A

Series B

Series C

Series D+

65% of acquisitions occur within 2 years of raising the first round and have raised less than $20M.

As verticals declare winners, consolidate vertically, and finance for growth, cross-vertical consolidation of adjacent vertical markets is around the corner

Sectors are increasingly saturated with capital

n = 140


13

Marketplaces: Vertical Expansion Case

Localized delivery struggled as the costs of infrastructure limited applications of the model, but the technology advances providing for leverage of

underutilized capacity assets significantly decreases the cost of localization, below that of established global infrastructure

$18b

$50b

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Marketplaces: Conclusions

1 Enabled by advancing enablement technology, digital social footprints and smart mobile proliferation, marketplaces are only now fulfilling the vertical economies of scale anticipated in the dotcom boom

2 Compared to other internet business models, marketplaces consume significantly more capital at a more rapid pace to establish the network effect required to drive market leadership to reap the outsized returns provided to the winners

3 Digital marketplaces continue to rapidly disrupt traditional markets burdened with significant transactional friction, increasing the direct-to-consumer opportunities for suppliers derived from user-centric massive scale platforms

4 As marketplaces reach critical mass in targeted verticals, expansion into adjacent market verticals will create consolidation opportunities in the coming decade as experienced in horizontal markets over the past two decades

5 While the vast majority of M&A activity are smaller core intra-vertical talent and technology acquisitions, vertical market economies of scale within specialized scope will deliver multiple $50B+ companies in the next 3-7 years.

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Economy & Finance

Marketplace Innovators