In this Q&A article, Loren Straub and Michael Brown of investment firm Bowery Capital, which specializes in digital commerce, discuss what is driving the investment area of online B2B marketplaces — and why investors are looking far beyond growth in gross merchandise volume.

Big money from both private and public investors continues to pour into B2B marketplace companies, and that trend will continue despite challenging economic times, investment analysts say. But before deals get done, investors are putting marketplace operators looking for funding under a scrutinizing eye. They’re looking for a return on investment on well-rounded companies with excellent top- and bottom-line potential. Loren Straub and Michael Brown of investment firm Bowery Capital, which specializes in digital commerce, discuss what is driving the investment area of online B2B marketplaces — and why investors are looking far beyond growth in gross merchandise volume.

Digital Commerce 360: How much investor capital will flow into new and existing B2B ecommerce companies in 2022 vs. 2021?

Straub and Brown: What we see at our own firm and then what we are hearing is that there has been a refined focus on the later-stage market. The early stage is also still exciting. On the later-stage investment deals, there is a renewed focus on take rates, net income and earnings before interest, taxes, depreciation, and amortization (EBITDA), and overall balance sheet and profitability. We are just not seeing the gross merchandise volume (GMV) growth at all costs work for the investor class anymore.

On the early-stage side, you are still seeing seed and series deals done at the same pace as prior years. We have not seen a huge slowdown even as the market matures. There are still so many problems in the industry cloud segments that B2B ecommerce can solve. We are early, and firms are just waking up to the theme.

DC 360: What areas are attracting the most money? Which ones not so much?


Straub and Brown:  The areas that have been attracting the most amount of money is transport/logistics marketplaces (Flexport, Convoy, and ShipBob) and then retail marketplaces (Faire, Ankorstore, and Fashinza). Of all the markets, these are two of the largest with a volume of legacy vendors, minimal digitization, and a real need for process improvement. In spaces like retail, you have an emerging “IT (information technology) buyer” that is digitally native and just will not put up with the old way of doing things. This, combined with how large these spaces are from a TAM/ spend standpoint, is a major trend of why you see these types of companies growing so fast and getting funding. [Editor’s note: TAM stands for total addressable market.]

The one area that we are seeing major challenges in are labor and staffing marketplaces and labor-related marketplaces in B2B. These segments are highly verticalized (Workrise/RigUp in exploration and production — E&P in the energy market — is the most visible, as an example). There are challenges we have observed, and we pass on most of the stuff we see in these industry cloud segments. First, they usually grow very locally and regionally, which presents challenges on the demand side. Second, the supply side is a tricky “customer.”

They do not always cooperate with the rules and regulations, try and shift the conversation outside the marketplace, and usually are acquired at an excessive cost. What we see is fast growth early on into the tens of millions of GMV and then a real struggle to scale outside of one or more geos. We are seeing a new wave of these businesses funded in recent years in areas like health care staffing, field maintenance staffing, and agricultural staffing. We continue to track this trend and are curious how the new crop is going to grow.

DC 360: How are inflation, supply chain disruption and the war in Europe impacting how investors are feeling about deal making?


Straub and Brown: On inflation and supply chain disruptions, we think that digitization is helpful to this problem. Software purchasing becomes deflationary in a sense. If a company can increase efficiency or make more money by shifting to a digital platform — recession or no recession — they are going to do it over time. This is obviously a broad statement. But the CIO surveys from Gartner, Forrester, Goldman Sachs and elsewhere support increased spending. There are areas of spend that are going to see slowdown as budgets get tighter, but the business ecommerce area does not feel like one to us.

DC 360: How many B2B ecommerce companies are attracting capital this year and how many last year?

Straub and Brown: The best data we have is Crunchbase. If you look at B2B ecommerce companies that raised a round in 2021, the number is 119. As of the end of May, we are already at 63 (52%) companies funded. So, it is on pace to last year. We saw quite a few $100 million and $200 million rounds last year. It does not look like this is letting up. I would say the deal announcements are much larger than last year’s. Flexport ($935 million in January), Ankorstore ($283 million in January), Faire ($450 million in February), Moglix ($250 million in January), Convoy ($260 million in April) and Material Bank ($175 million in May). Investors just keep going.

DC 360: B2B marketplaces continue to acquire capital. What trends are driving this? How long will this trend continue, and why?


Straub and Brown: First, many of the maturing companies in B2B ecommerce have a plan in place to become a “full stack” ecommerce business. The ambitions can be distilled down to being a multi-offering company. Not necessarily multiple products. Offerings within the core product. Two important things to understand. First thing: B2B marketplaces connect supply and demand online and allow for transactions on that online marketplace. That is the core idea.

But as the marketplace matures, founders and executive teams begin to contemplate additional offerings to better serve their customers. They launch a financing product to support the buyer. They will manage shipping by picking it up from supply and delivering it to demand. Then they will oversee analysis and business intelligence of a company’s purchases. I am just giving the reader some ideas. That is what we mean when we say, “full stack.”  That is the most important trend we are seeing.

Second thing. Depending on the industry, once you reach a certain level of scale, the “pull” by your existing customer base becomes a capital problem. What I mean is marketplaces service large multinationals. For example, if you run a steel marketplace and do a decent job helping Arcelor Mittal get rid of their excess steel grades at their Calvert, Alabama, foundry through your platform, they are going to ask you to expand into their other market. They put excess steel grades from their foundries in their European Union (EU) markets. That is where these marketplaces are going.

Companies are looking to grow internationally as quickly as they can to service their customer base. That is tough to do unless you invest in product, engineering, logistics, payment, and beyond resources. Mostly, it is a capital problem. Summarizing this, these two things are costly to build, which is why the scale-stage players are attracting so much capital.


DC 360: 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: I would highlight two areas. As I mentioned above, transport/logistics supply chain marketplaces remain hot. They are excellent businesses and easy digitization plays. Flexport raised $935 million in January and continues to march toward domination within that side of the industry. Convoy raised $260 million in April. ShipBob raised $200 million in June last year for ocean freight. The list goes on. Retail supply chain disruption is also exciting. Ankorstore raised $283 million in January, Fashinza raised $100 million in May, and Faire raised $450 million in February. Similar companies but different geographies. This is another space attracting capital.

DC 360: We have written about ACV Auction’s IPO. Are there any others like these or already public companies? What are their similarities and differences? Is there a disconnect between the public and private investors?

Straub and Brown: Xometry is really the only other pure-play B2B ecommerce comparable. Xometry completed their IPO in mid 2021 and priced at $44 but debuted at around $70 and stayed in that range for the first month or so. It has since fallen $50% to $33/share.


ACV Auctions went public in 2021 at $30 per share and their stock price has fallen 70% since IPO. ACVA’s stock has been trending downward since reaching a high of $37 per share in April 2021, primarily due to the company being accused of “shill bidding.” There were also general manager (GM) issues, but we think it is more the news on shill bidding. In 2022, while still losing value, the stock has started to stabilize around $9 per share. Both companies have solid fundamentals with low nine figures revenue, are growing 50% to 80% year over year, and are trading at a $1 billion to $2 billion market capitalization range. [Editor’s note: Shill bidding refers to the practice of placing bids on a marketplace or other auction items to drive up the price.]

They both “take out” the go-between or broker, which is a classic B2B marketplace theme. One difference worth noting is Xometry is much more managed and assigns a price to a job that comes in and posts it for anyone on the supply side to claim (XMTR has internal tooling to estimate a cost that will be accepted by the market but profitable); ACVA is much less managed and runs traditional auctions to match buyers and sellers.

On the disconnect, it is still early days. Who knows where it ends? We have two public companies to speak of and not much of an IPO pipeline right now. There are rumors but, in the pipeline, right now you only have Farmers Business Network and Transfix that have public news reports talking about their IPOs. Faire was next in line to go out but raised a significant amount of money privately, so will stay out of the public markets.

One theme we have been thinking a lot about is, there is an explosion of these B2B marketplaces in recent years. Most would not go public because of their unit economics, prior funding-round valuations, and ability to raise capital in the private markets. So, what is the merger and acquisition market like if these companies cannot really sell to a strategic organization? I say this because if a B2B marketplace sold to a strategic, they would lose the independence.


We saw this with many of the players launched in the 1990s and early 2000s. Supply and demand shift off the marketplace back to an analog format or they gravitate to a new marketplace. Part of our conclusion is that these may remain private equity specials – ThomaBravo, for instance, has been a prolific buyer of B2B ecommerce companies. One other thought or trend is sovereign wealth or permanent capital. You have been seeing this with some of the recent fundraises in B2B ecommerce.

Michael Brown is a founder and managing partner at Bowery Capital and based in New York. Loren Straub is a general partner at Bowery Capital and based in San Francisco.

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