Editor’s Note: Digital Commerce 360 projects that as a group B2B marketplaces generated total sales approaching $60 billion in 2021 and emerged as the fastest-growing digital commerce channel. That B2B marketplaces are now a part of the mainstream of B2B ecommerce is well-known on Wall St. and among private investors. As a result, big money flows into the B2B marketplace market. Loren Straub and Michael Brown of investment firm Bowery Capital, which specializes in digital commerce, discuss what is behind the hot investment area of online B2B marketplaces—and how long it might last.
There is an acute pain that a lot of companies are seeing around pricing, lock-in, delivery, and beyond. Many are considerate of this challenge and have been moving towards alleviation using a marketplace mechanism.
DC360: How much investor capital will flow into new and existing B2B marketplace companies in 2022 vs. 2021?
Straub and Brown: Our view is that the market continues to be emerging and exciting. There will not be much of a change in venture investment activity at the early or late stage in the market in 2022. If anything, we will see an up year as more B2B marketplaces mature. There is a tremendous amount of late-stage private capital on the sidelines awaiting solid opportunities. There is no reason that attractive B2B marketplaces will not be in that grouping.
DC360: How many B2B marketplace companies are attracting capital this year, and how many were there last year?
Straub and Brown: We do not think there is going to be a change in the number of companies funded from 2021 to 2022. Qualitatively though, we have seen a bit more maturity in the mind of the investor and entrepreneur as we start 2022. While there is a lot of market opportunity, the conversation is a lot more focused and specific around major items that are critical. Take rates and growth, the cohort analysis on existing gross merchandise volume (GMV), and the competitive set as examples. We are seeing some changes, but it is early.
DC360: B2B marketplaces continue to acquire lots of capital—what trends are driving this? How long will this trend continue and why?
Straub and Brown: There are a couple of big trends and themes that we are seeing. There is a massive pull forward around digital transformation and broad-based digitization at most medium and large companies post COVID-19. The technology buyer is now in a much different place than two years ago. Decentralized and autonomous, they are considering digital-forward solutions and online ways of doing business. Business ecommerce is a logical path forward. Next—and why this is more industry-dependent and focused on supply chain—we are at the tail end of large-scale consolidation in many of these industries around the middleman. There is an acute pain that a lot of companies are seeing around pricing, lock-in, delivery, and beyond. Many are considerate of this challenge and have been moving towards alleviation using a marketplace mechanism.
DC360: We have written about the $300 million Mirakl attracted and their plans for growth. Are there any other prominently announced deals of late such as this one?
Straub and Brown: Yes, there are. From the pure-play marketplace standpoint, we have seen a lot of activity. Notably we saw a lot of activity before the year end and into this year in a couple spaces. Manufacturing, for one. Moglix in construction raised $250 million, Zetwerk in contract manufacturing raised $210 million, and Reibus in steel raised $75 million. Consumer product goods and fashion is another one. Ankorstore raised €250 million (US$280.2 million) to further their mission connecting independent shops and specialist brands. You mention Mirakl, but we also highlighted Tradeshift raising $200 million before the end of the year to further their mission around working capital. (Editor’s Note: Moglix is an online marketplace for business supplies and industrial equipment and is based in Singapore. Zetwerk, based in India, is an online marketplace that connects large manufacturing companies with vendors and suppliers for customized products that are used as components of industrial machines and equipment. Reibus operates a B2B ecommerce platform for the industrial metals market and has its headquarters in Atlanta. Reibus is a part of Bowery Capital’s company portfolio. Ankorstore is a wholesale marketplace that connects independent shop owners and specialist brands with neighborhood retailers and is based in Paris. Tradeshift, in San Francisco, is a cloud-based business network and platform for supply chain payments, marketplaces, and apps.
DC360: We have written about ACV Auction’s IPO—are there any other marketplace companies about to go public or that are already public companies? What are their similarities and differences? Do you think there is a disconnect between the public and private investors? (Editor’s Note: ACV Auctions, based in Buffalo, New York, built and maintains a marketplace platform that enables used-car dealers to view, bid, and purchase used-car inventory via online auctions.)
Straub and Brown: Right now, you have two public market companies that most folks are watching. Obviously, there are more public companies in the B2B marketplace ecosystem, but these are the most recent and the most relevant. As you mention, ACV Auctions (ACVA) is one of them. Their market cap is $2 billion. They have been growing 75-100% year over year and reported earnings recently, closing out the 2021 year at around $350 million in revenue. The second is Xometry. Their market cap is $2 billion. Also growing around 75-100% year over year. While the company does not report 2021 year-end numbers until mid-March, consensus is going to put them around $216 million in revenue for 2021. So, you have similarities with these companies. $2 billion businesses growing similarly and trading at around 23-26x LTM revenues. (Editor’s Note; LTM is last twelve months and refers to the timeframe of the preceding 12 months.) One thing to note is that while ACVA has stayed quiet around merger and acquisition, Xometry made several acquisitions (Thomas, FactoryFour, Big Blue Saw) in 2021 to grow out their platform. (Editor’s Note: Since launching in 2013, Xometry Inc. has managed steady growth as an online marketplace where more than 40,000 buyers from companies like automaker BMW and pharmaceutical manufacturer Moderna purchase manufacturing services from an international network of more than 5,000 manufacturers and machine shops.)
In terms of the disconnect, that is an interesting question. I am not sure we would call it a disconnect. The maturity and growth rates of these companies is much different than what we see in the private markets. There are simply not enough public companies comparable to really point to a trendline, and we remain of the view that healthy and growing B2B marketplaces should not necessarily use these two comparable as what their experience would be in the public market. In short, the data is sparse, and we think that is the substantial risk and opportunity with this emerging class of B2B marketplaces.
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