Today, the wealth of marketplaces at our fingertips is immense and more personalized than ever. With just a few swipes on a smartphone screen, and in a matter of minutes, a consumer can make plans on Bumble, schedule a dinner reservation on OpenTable, order a new outfit on RentTheRunway.com and request a car pickup on Uber.

But just twenty years ago, eBay and Craigslist were perhaps the only well-known online marketplaces connecting buyers and sellers of various products and services, which showcases the rapid development and growth of this software sector.

In many ways, 2023 was a watershed year for online marketplaces. As consumers shifted to purchasing all their goods online during COVID in 2020, the majority of online marketplaces – with the exception of the travel category – saw an unprecedented rise in order volume, revenue and subsequent share prices. Yet, in 2021-2022, as COVID restrictions eased but recessionary fears and interest rates rose, consumers began to pull back spending in certain categories, resulting in a sharp decline in growth rates, multiples and share prices. Many businesses that had “growth-at-all-costs” mindsets had to fundamentally re-orient themselves to profitability in order to prove sustainable, long-term shareholder value.

But what exactly have this year’s marketplace “winners” proven to us – and what can marketplace founders learn from them?

We created a new report — “The State of Marketplaces” — to answer those questions and explore the successes and challenges publicly-traded marketplace businesses experienced in the last year. In doing so, we aim to guide founders through the fundamentals of what drives value in a marketplace.

Download “The State of Marketplaces” report here. 

The post Efficient, “Unhinged” and More Personalized Than Ever: The State of Marketplaces 2024 appeared first on Battery Ventures.

The global pandemic undoubtedly introduced a world of change, accelerating long-term underlying trends in the space of mere weeks. New habits formed, forever transforming what we value, how and where we shop and how we live and work. Nearly three years later, new economic and market dynamics, including high inflation and geopolitical uncertainty, continue to disrupt consumer behavior and outlook.

Despite the challenges posed by the past year, we remain optimistic and believe there is significant potential for innovation and growth in consumer technology, particularly as consumer intention, preferences and priorities evolve in response to macroeconomic pressures. In this report, we seek to unpack the key drivers influencing consumer behavior over the past 12 months — and ultimately, map these behaviors back to emerging market opportunities.

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Just look at Salesforce and Google, both of which grew rapidly during the 2000/2001 dotcom bust. Or now-iconic tech names like Uber, Airbnb and WhatsApp—they got off the ground during the 2008-2009 recession and subsequently flourished, despite some bumps along the way.

OK, I get it. This concept is a little self-serving. Of course, we want to believe our industry will continue to mint super-successful companies, despite stock-market volatility and an IPO drought! But I genuinely believe there’s a lot of truth to this idea—and that digging a little deeper reveals some key characteristics of companies that have been able to scale during recent economic downturns. And they offer lessons to today’s earlier-stage startups as they move through this current, uncertain period. Here are four tips:

1. Business models that offer opportunities to earn extra income, or help make ends meet, can shine.

Peer-to-peer marketplaces are the strongest examples here, in my mind. For example, Uber in its early days was an alternative for drivers who might otherwise have entered the taxi industry. The ride-hailing company helped people make up lost income during the 2008 recession and again during the Covid-19 pandemic. TaskRabbit, a marketplace for freelance labor, was founded in 2008 and afforded an alternative to traditional employment. These types of marketplaces provided a literal lifeline, in many cases, as people dealt with layoffs and other unfortunate circumstances. I’m certain we’ll see more creative, peer-to-peer marketplaces become mainstream in the near future.

One emerging peer-to-peer marketplace I’m intrigued by now is Turo, a car-sharing marketplace. Another is Neighbor, a platform where people rent out extra space in their homes and garage for others to use as storage. This may sound odd, but ten years ago people never expected to hail a ride from a stranger via their phones, or to rent out their spare bedroom or apartment for extra cash. Challenging times, coupled with easy-to-access internet technology, can be catalysts for dramatic change in consumer behavior.

2. Provide a cheaper and/or easier alternative to a current product or service.

In many industries, the most-sustainable, lower-cost provider will capture the most market share over the long-term—and this is especially true when times get tough. Post-recession, Airbnb (founded in 2008) provided a cheaper alternative to the standard hotel, in addition to helping property owners earn more income. A 2016 study by Morgan Stanley found 49% of Airbnb users used the service instead of staying in a hotel–and the top reason for using the platform was price. Similarly, in e-commerce, Warby Parker, founded in 2010, made it easy to purchase an affordable pair of fashionable eyeglasses online.

Online deals-and-coupon provider Groupon*, a company I was fortunate to have invested in, became incredibly popular after its 2008 launch amid a tough economy. When consumer pocketbooks tightened, people looked for new ways to save, and Groupon’s deals provided a way to enjoy a restaurant meal for less or enjoy an experience like an amusement park at a deep discount. The company also helped local businesses, which were feeling the effects of reduced consumer spending and needed better ways to attract local customers.

3. Similarly, “freemium” revenue models are effective go-to-market strategies during tough times.

In 2008, email marketing-automation service Mailchimp saw businesses cut back spending on many types of marketing. The company’s response? Give its service away for free—or at least up to 2,000 daily emails’ worth. Mailchimp’s “freemium” strategy—offering some portion of its service gratis but charging more for larger deployments and added features—was a fairly new concept at the time, though it’s very popular for tech businesses today. The strategy worked for Mailchimp: Within a year its user base grew from 85,000 to 450,000.

Another company that demonstrated the power of free was Slack, founded in 2009 as an online-gaming company. The company was nimble enough to pivot, however, and later built the now-ubiquitous online business and collaboration tool. Within 24 hours of the that product’s beta launch in 2013, over 8,000 people signed up. Within a year Slack had 285,000 daily active users, and over a million the following year. Today the more-sophisticated, paid version of the product is used by more than three million users.

4. Durable businesses provide sticky, mission-critical software.

Software has become an essential part of almost every business and industry. But the most powerful software products are ones that customers rely on to perform a critical business function and use daily, like a core system of record. These are “sticky” products–think Salesforce’s sales CRM, or time-and-attendance software–that users are loathe to give up, even during times of cost-cutting. For this reason, startups offering products on a subscription basis, often through long-term, enterprise contracts, often do well during tough times.

Businesses whose products produce some sort of “network effect”, meaning they become more valuable as more people use them, also can have an advantage. These offerings include SaaS-enabled marketplaces that aggregate a scattered supply in a given industry, like labor or materials. Or they could be consumer applications like communications platform WhatsApp, which was founded in 2009. Users of this service have an incentive to join and stay on the platform because their peers are also there.

It’s unclear how the economy will fare in the coming months. But some tech startups may have an advantage if a recession appears—and executives able to persevere and make tough, strategic decisions will always have a better shot at success in the end.

A version of this article originally appeared on Forbes. 

The post Four Tips for Startups Trying to Grow During a Recession appeared first on Battery Ventures.

We witnessed this first-hand on a recent trip to the region. The moment we landed in Sao Paulo, we were immersed in this burgeoning tech ecosystem. Large posters advertising the company Nomad, a neo-bank, welcomed us at the airport; between meetings later on our trip, we ordered takeout via Rappi (food delivery), which was delivered on a Mottu (motorcycle-rental platform for gig workers). We saw companies use their Flash* employee-benefits card to pay for coffee.

Our trip to Mexico City a few months earlier was equally thrilling—and quite fintech focused. During our time there, we drove past billboards for Clara, a corporate spend-management platform, and Houm, a startup helping people find their dream homes. We discovered that street artists and local shops took Clip (point-of-sale) payments. People eagerly chatted with us about which stocks they were trading on Flink (an investment-brokerage platform).

The “why now” for this fintech renaissance in Sao Paulo, Mexico City, and the rest of Latin America is clear, and we think highlights a profound opportunity for founders building new fintech companies. The region is at an incredible inflection point when it comes to overall technology usage, adoption and innovation. Whether it’s empowering consumers and businesses with new financing and credit options, driving e-commerce adoption, or building out crucial infrastructure and streamlining operational logistics, a new generation of tech companies has emerged within the region – companies that are growing quickly and are anxious to alleviate acute pain points in the B2C and B2C realms. We believe there is significant value to be created here.

Fertile Soil for Innovation

No matter how you approach it, LatAm represents a huge addressable opportunity for Internet and fintech entrepreneurs specifically– both in terms of population and economic potential. The region is home to more than 600 million people (Brazil with around 200 million and Mexico with around 120 million, respectively). GDP is roughly one-third that of China’s (World Bank 2020), yet it is relatively similar on a per capita basis and significantly more than India’s.

What’s more, LatAm’s demographic skews younger than most advanced economies (the median age in the region is 31 years old), resulting in a high internet and mobile-penetration rate. (Brazil has the second highest time spent online by country in the world, 10 hours on average!) With this construct, we see significant opportunities for digitization of both consumer and business behaviors across LatAm emerging, particularly post-COVID. The pandemic has functioned as an excellent forcing function and accelerant of digital adoption.

Nonetheless, most technology sectors in the region are quite antiquated, notably in the financial services sector. There is vast inequality and structural disadvantages across the region. Most notably, large swaths of the population are unbanked and have little (if any) access to financial products and tools such as credit, while traditional institutions and incumbents have historically not catered to the majority. However, recently, government support and fintech-friendly regulation have leveled the playing field for newer players. In 2018, Mexico established a regulatory framework for fintech startups to better compete with traditional financial institutions. Brazil authorized its Open Banking initiative in 2019, and the first phase went online in early 2021; other nations, like Peru and Argentina, are following suit.

Simultaneously, we are excited by the wave of talent propelling innovation, spurred by early success stories like dLocal, Nubank, Rappi, and MercadoLibre. We are encouraged by the surge of brilliant technology entrepreneurs who are creating companies in a number of categories, which are highlighted below, and have the potential to revolutionize financial services as we see it.

Consumer-Facing Fintech: Driving Financial Inclusion

Today, there’s a considerable gap between consumer behavior and expectation versus the status quo of most consumer-facing experiences. For fintech, this is more apparent than in most categories: while consumer digital penetration is at an all-time high, digital financial innovation is still on the rise.

To put in perspective, internet usage in Latin America jumped to 72% of the total population in 2020 – up from 50% in 2015, primarily driven by young and connected populations. In the region, 74% of people now possess a smartphone and digital penetration is rife, yet financial innovation has been slow to follow suit: The consumer-finance industry in LatAm is still largely dependent on cash. According to a 2018 report by Mexico’s National Banking and Securities Commission and National Institute of Statistics and Geography, for instance, more than 52% of Mexico’s population was unbanked as of 2018. Additionally, just 31% of the population has access to credit products and 30% of the population has no access to any financial product. More than 86% of payments are made in cash. This is primarily due to structural disadvantages: Latin American banks have typically catered to the affluent at the expense of other economic groups, resulting in a very high level of financial insecurity and exclusion from the financial system throughout the region.

However, these structural disadvantages present a tremendous opportunity for financial innovation and the delivery of financial goods and services to a larger part of the population. Whether it’s giving consumers access to bank accounts (like Neon or Nubank), credit cards (like Stori or Vexi), ways to grow wealth (like Flink, Warren, or Fintual), or mandatory employee benefits (like Flash*), consumer-facing fintechs are introducing a whole new subset of consumers to the financial system, often for the first time.

At Battery, we are intrigued by, and gravitate toward, platforms that are or becoming the de facto “primary” account for consumers, generate high “share of wallet” on spend, and/or offer ongoing points of engagement on a daily or weekly basis. This category is certainly early; in turn, we believe there is significant opportunity for innovators to create sticky and lasting products while also enabling access to consumer features and services that were previously unavailable to a large part of the population.

Business-Facing Fintech: Empowering Companies (of All Sizes) to Operate, Grow, and Flourish

In general, the B2B financial-software and digital-payments ecosystem is still quite nascent in LatAm, similar to where the U.S. was 10 to 15 years ago (Bill.com and Coupa* were both founded in 2006). Today, affordable, cloud-based accounts payable and receivable automation technology, digital payments and lending is virtually non-existent in the region.

For the roughly 29 million SMBs in Latin America, this problem is particularly acute: While intra-business communications and payments are made and recorded with a patchwork of legacy tools, WhatsApp threads and manual processes, businesses are also required by law to record all transactions into government systems of record. To ensure compliance, SMBs must engage in lengthy processes of manual record-keeping, or hire costly accountants – which means that ledgers are frequently prone to mistakes and inconsistencies.

Our thesis is that this will dramatically change over the next few years as digital transformation accelerates in the region. Pen-and-paper and other legacy-tech solutions will be replaced by next-gen SaaS and digital offerings, and B2B payments will be no different. Interestingly, this shift is already occurring. In Brazil, for example, just over one-third of the country’s SMBs conduct 50-100% of business transactions using digital-payment platforms and messaging apps. That number is projected to jump to 72% by 2025, according to recent research reports.

We are excited by a new generation of products that have emerged to help companies address these traditional pain points across a variety of business use cases: Xepelin*, for example, offers a B2B payments suite for small businesses, helping cash-strapped businesses finance their invoices and improve their working capital cycles. Clara helps companies manage their expenses by providing corporate credit cards, while Clip provides POS systems for merchant acquiring.

The “Picks and Shovels” of Fintech: Providing Infrastructure to Enable Innovation

As fintech innovation and startups scale in LatAm (there are around 1,445 fintech startups in Brazil alone, an increase of roughly 6x since 2017), one thing has become abundantly clear: Building and launching financial products is extremely tough – requiring plenty of upfront time, capital, and localized know-how. Incumbents have historically underserved the market with outdated solutions (built on rigid legacy architecture), long implementation cycles, and high costs. Early fintechs – such as Nubank – had no choice but to build from the ground up, on top of their own infrastructure to guarantee a modern, seamless consumer experience.

In turn, we are excited by the “picks and shovels” of fintech: the tools that enable companies to build innovative companies by abstracting away the operational burden and technological complexities of building financial products in-house. Similar to what we saw in the U.S. with the emergence of Plaid (handling banking data); Marqeta (card issuing and processing); Persona (identify verification and KYC compliance); and Pinwheel (payroll), in Latin America we are seeing an emergence of B2B infrastructure companies. These include Belvo and Datanomik (which make open-banking APIs); Pismo (core banking and payments); Pomelo (card issuing & processing); and idwall (identity-verification and KYC compliance), among others.

These “picks and shovels” bring forth an opportunity not only for fintechs – who desire to go to market quickly and focus on core competencies – but also non-fintechs, who might want to provide financial services to their existing user bases (to unlock new products and verticals, increase revenue per use, drive retention, improve margins, etc).

There is a clear need for these “picks-and-shovels” companies to condense years of technical construction and maintenance into a set of APIs – acting as key infrastructure and an accelerant for the ecosystem’s go-forward innovation.

The Time is Now.

Over the past year, our conversations with hundreds of founders and operators have reinforced and galvanized our belief that now is an incredibly exciting time to build fintech companies in this region.

Investing in fintech in LatAm is an ongoing effort for our team and firm. If you’re building a company aligned with our thesis (or think there’s something we’ve missed), we’d love to hear from you!

The post Field Notes: The FinTech Promise of Latin America appeared first on Battery Ventures.