The Marketplace+ Model

Trading notes with Colin Gardiner of Yonder Ventures.

Colin Gardiner is a self-described “marketplace geek” and the GP of Yonder Ventures. He invests in early-stage marketplace companies, often as the first institutional check, and writes about marketplaces on his Substack, Take Rate. An economist by training, Colin cut his teeth at the Federal Reserve before pivoting into the startup world. He was kind enough to sit down with us to discuss his outlook on marketplace investing and the ways in which this practice is as much an art as a science.

Preston DeGarmo: In a previous interview with Joe Magyer, you attributed your preference for B2C marketplaces to the fact that they can become truly ubiquitous to the point that they touch everyone in a society. Yet you also invest in more niche B2B marketplaces. What tends to get you excited about the latter?

Colin Gardiner: In B2B marketplaces, I’m excited by opportunities where inventory is brought online for the first time. That’s a common theme across both consumer and B2B. Airbnb and Uber, for instance, succeeded by bringing supply online that hadn’t previously been available. The same principle applies to B2B—unlocking pent-up demand by enabling something new to be transacted digitally.

Commodity marketplaces can seem exciting at first, but are often tough to scale due to thin margins and limited differentiation. They tend toward zero-margin over time because of perfect information among players. To succeed, a marketplace has to add real value (through logistics, escrow, or another challenging part of the value chain) or else risk becoming redundant.

Commodity marketplaces often resort to strategies like becoming blind markets, buying from one party and selling to another. That can work, but it introduces inventory risk—if prices swing, the marketplace can end up holding the bag. These businesses can thrive during boom cycles when prices and frequency of purchases are up, but in downturns, they’re hit hard.

PD: AI can make supply-side aggregation significantly easier. Do you see that as a threat to vertical marketplaces, potentially eroding their moats or making it easier for copycats to spring up overnight?

CG: AI definitely has potential to solve for one of the key, zero-to-one building blocks for marketplaces. As an early-stage marketplace, the most important thing you can do is find unique supply that other people don't have and aggregate it. After that, it's realistically about demand aggregation at scale and owning that as well. They're two different parts of the same life cycle. And I would agree that AI has the potential, once supply is already aggregated, to make it very easy for competitors to come in and then compete on the demand side.

It comes back to this question of: Do you have a really compelling distribution strategy or some other unfair advantage?

PD: In your experience, is the supply constraint typically solved first? Or do some marketplaces aggregate demand first, followed by supply?

CG: It can go both ways. Think about Facebook, for instance. What did they do? They built up demand first and then layered in supply-side products, advertising, and eventually Facebook marketplace. If you can fund it, starting with demand-aggregation at scale can be a legitimate strategy.

I think about a Marketplace+ model. Every marketplace ultimately becomes a marketplace plus something else. And maybe you start with that plus first. Maybe you start with SaaS first, or social media first, or a community, or an insurance product, whatever it may be. And then you layer the marketplace on top of that, or you start with the marketplace and layer those other items on.

PD: You invest mainly at the pre-seed stage. What markers do you typically focus on as someone writing what’s often the first institutional check?

CG: At pre-seed, the things that are important in the long run, but are very hard to understand short-term due to the time aperture, are repeat purchases and LTV. Long term, they have to pencil out. Early stage, you can only do a pro forma on it and project a hazy outline.

It’s essential that product-market fit happens early. If you can't connect supply and demand early on, is there really a point in building your marketplace? Marketplaces need to show traction early on, including monetization, as opposed to the truly pre-seed context of, “Hey, we need to raise money to build a product.” You would like to see that they're able to connect supply and demand meaningfully.

This is different than SaaS where you may actually need to raise money to buy the time to build the product, and then go to market and find design partners. So you're just taking a risk on a different angle. For SaaS, you're taking a lot of execution risk upfront along with technology risk. Whereas with marketplaces, there's less technical risk because they're very commoditized and you know what you need to build.

PD: You've probably heard the Bill Gurley quote about doing unscalable things early. What kind of unscalable things do you observe marketplace founders doing that are highly effective?

CG: Founder-led sales is probably the number one unscalable thing that is really effective. It is often the most important and valuable thing a CEO can do in the early days, right? And so I get really concerned when I don't see founders willing to be out there in market selling their product. A lot of VCs love technical founders, but one issue with technical founders is sometimes they don't want to go do sales. And for vertical marketplaces in particular, the technical side of it may be less important than actually having a really strong GTM. Great founders don't just outsource things immediately. They actually try it. They go through some of the pain so they can understand what good is, so they can actually ask good questions and scale it correctly.

PD: In some ways, building a marketplace is as much an art as a science. What are some of the intangible qualities that go into it?

CG: There’s no one-size-fits-all advice, but when you're trying to aggregate supply that isn't a commodity (and therefore easy to aggregate), you're going to have to be out of your office, boots on the ground, interacting with the physical world. Take Airbnb, for example, or any property-based marketplace where that supply isn't already doing what you want it to be doing at the outset. You probably need to go meet those first few adopters. The earliest Airbnb hosts talked about meeting the founders like that. There's a lot of zeitgeist around that. I think the unscalable piece is getting out there and convincing people to see the world in a new way. That's very hard to do as just a keyboard warrior sending emails to people and hoping they come online.

PD: Are there any particular industries you look at as particularly ripe for new marketplaces to emerge where they haven't to date?

CG: Certain markets are actually better for demand and supply aggregation because it hasn’t happened before. Whereas markets that already have a really strong agent-broker model, that have been semi-aggregated already, are going to be harder to operate in due to entrenched distribution and aggregation models. In those markets, you have to be an industry expert to win. And you probably have to play really nicely with brokerages and figure out how to include them.

If you just come in with the Silicon Valley mindset of "Hey, I'm going to disrupt this thing,” it probably won't work, because there's already an incentivized way of doing business, and that's very hard to disrupt. Versus coming into markets where demand and supply are largely not aggregated — that’s the holy grail. And so I see a lot of opportunity with excess markets, for example. Think of any category of products where too much is produced. What do they do with that surplus? Is there a mismatch between supply online and demand, where more supply could come online and solve that?