5 minutes

In the second of this two-part question-and-answer session with Patrick McGovern of Bowery Capital, who explains what venture investors are looking for when evaluating today's business marketplaces.

Editor’s note: B2B marketplaces are the fastest-growing B2B digital sales channel. A big reason is that marketplaces keep developing new value propositions for the industries they serve. But with nearly 750 B2B marketplaces nationwide and more on the way, investors have a range of business models, vertical markets and companies to choose from.

And make no mistake, B2B marketplace investors are getting very picky about where they eventually will park their money. In the second of this two-part Q&A, Patrick McGovern of Bowery Capital shares his thoughts on which B2B marketplaces are getting funded — and which ones aren’t. Read part one here.

Digital Commerce 360: How are investors evaluating marketplace companies these days differently than last year?

Patrick McGovern: Investors today index much more on net revenue rather than gross merchandise volume. Moving take rates up over time is often difficult to do without driving buyers/sellers off your marketplace, and venture-backed B2B marketplaces have struggled with this. Facilitating millions or billions of gross merchandise volume (GMV) is not worth much if you cannot monetize any of it. Net revenue is also the equivalent of topline revenue for a SaaS (software as a service) business in the sense that you need to pay for everything else out of that line item. And with today’s focus on capital efficiency, net revenue has replaced GMV as the new North Star.

DC360: How are inflation, supply chain disruption, the war in Europe and the upcoming election impacting how investors are feeling about deal-making?

PM: Investors do not love uncertainty, and things like political shifts and wars all drive uncertainty. I will say on the marketplace side, supply chain disruptions can often actually help B2B marketplaces as a shock to the supply chain will lead participants to seek out new channels for procurement, which will often lead them to experiment with transacting on a marketplace.

DC360: B2B marketplaces continue to acquire capital. What trends are driving this? How long will this trend continue, and why?

PM: Aggregate dollars into marketplaces are down over the last few years. At a very high level, I think we saw the first generation of B2B marketplaces in the dot-com era (e.g., IronPlanet). Then, we saw a second generation launched between 2014 and 2020, which tried to offer more than just websites (RFQs, SaaS tools, and logistics), and I think that wave may have just about crested. But I imagine we will see a third wave once AI agents get reliable enough to take over a lot of the account management burden, at which point macro-level dollars into the category will once again accelerate.


DC360: We have written about the $300 million Mirakl attracted and their growth plans. Are there any other prominently announced deals of late such as this one?

PM: The most recently announced deal on the B2B marketplace side that made waves in venture circles was the May 2024 announcement of a $30 million Series B investment led by Avenir Growth into Nivoda, an online marketplace for gemstones that had previously raised an $11 million Series A led by Headline in early 2023.

Nivoda sells high average order volume (AOV) items with a healthy take rate that also by their small nature avoid the transportation challenges faced by many high-AOV goods like construction equipment. They are one to watch.

DC360: We have written about ACV Auctions’ IPO in the past. 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?

PM: ACV Auctions ($3 billion market cap), Xometry ($600 million market cap), and Freightos ($100 million market cap) remain the three publicly traded vertical B2B marketplaces, with ACV by far the leader in terms of their scale. All three companies remain well below their IPO listing price, and they have vastly different users. ACV facilitates the trading of used cars between dealerships, fleets, rental car companies, etc. Xometry offers on-demand custom manufacturing. Freightos is a marketplace for buying air cargo capacity. Their take rates also vary, but unpacking why that is would be a longer discussion.

When I look at the public and private markets’ appetite, or lack thereof, for these businesses, the big question mark I see is Faire. They are the late-stage marketplace with the highest valuation (the last round was at $12 billion), the most venture dollars in the business ($2 billion), and frankly the most buzz around it. There have been rumors of a potential IPO coming down the pike but with the IPO window closed that seems like it is off the table for the moment. I think when they IPO that will really set a bar for the rest of the later-stage private marketplaces.


Patrick McGovern is a senior associate at Bowery Capital, a venture capital firm that specializes in business software. Before Bowery, McGovern worked as an independent consultant advising early-stage B2B SaaS and marketplace businesses. He can be reached at [email protected].

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