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B2B marketplaces will be the next billion-dollar e-commerce startups
Merritt Hummer is a partner at Bain Capital Ventures, where she invests in the fintech, e-commerce and proptech sectors.
Startups involved in B2B e-commerce such as Faire and Mirakl have burst out of the gates in 2020. Almost overnight, these startups transformed into consequential platforms, earning billion-dollar valuations along the way. The B2B e-commerce industry has broad reach, encompassing everything from commerce infrastructure and payments technology to procurement and supply-chain solutions. But one area of the B2B e-commerce sector holds outsized promise: marketplaces.
These venues for buyers and sellers of business-related products are exploding in popularity, fueled by better infrastructure, payments and security on the back-end and companies’ increased need to conduct business online during the pandemic.
Even before the pandemic, B2B marketplaces were expected to generate $3.6 trillion in sales by 2024, up from an estimated $680 billion in 2018, according to payments research firm iBe TSD. They were already growing more quickly than most B2C marketplaces that predated them, and when COVID shutdowns hit, many companies scrambled to shift all purchasing online. A survey of business buyers conducted by Digital Commerce 360 found that 20% of purchasing managers spent more on marketplaces, and 22% spent significantly more, during the pandemic.
For many entrepreneurs running B2B marketplaces, the pandemic created new demand for their platforms. Yet to convince businesses to make a permanent shift to online purchasing, B2B marketplaces cannot simply remain stagnant, serving as simple transactional platforms. Those that innovate now to introduce adjacent services will emerge as winners in the next few years, with some inevitably becoming billion-dollar companies.
As a venture capital investor in B2B e-commerce companies, I’m carefully watching the industry and have seen several forward-thinking business models emerge for B2B marketplaces. The predominant revenue model of B2C marketplaces, the gross merchandise value (GMV) take rate, or percentage of each transaction, doesn’t always translate well in the B2B world. Instead, B2B marketplaces are discovering creative new ways to monetize their networks, ensuring their approach is tailored to the complex and nuanced world of B2B e-commerce. I’ll delve into each of these models below, providing examples of marketplaces that have successfully begun implementing them.
What makes B2B transactions unique? Before discussing how B2B marketplaces can deploy new business models, it’s important to think about how B2B transactions typically work.
Payment methods: There are four main ways to make a B2B payment: paper check, ACH transfer, electronic fund transfer (wires), and credit/debit cards. Nearly half of B2B payments are still made by paper check, but digital payment solutions are quickly gaining.
Financing: It is customary in B2B transactions to pay “with terms,” such as net 30 or net 60, effectively giving a line of credit to the business buyer that enables them to send payment after delivery of the good or service. Supply-chain financing and dynamic discounting are two mechanisms business buyers use to settle invoices with suppliers on preferred timelines.
Bulk discounts: Business buyers often expect and receive discounts in return for placing high-volume orders. While not a concept unique to B2B, negotiated or custom volume discounts can complicate the checkout process.
Contractual pricing: Businesses often enter into enterprise-level pricing agreements with their suppliers. In some B2B verticals, such as the veterinary supplies market, there is little consistency and transparency regarding the market price of any given item; instead, each buyer pays a bespoke price tied to contractual agreements. This dynamic typically benefits suppliers, which can price discriminate based on buyers’ ability and willingness to pay.
Delivery method and timing: Unlike consumers, businesses may place orders for goods but delay delivery for weeks or months. This is particularly common in the commodities market, where futures contracts specify a commodity to be delivered on a certain date in the future. B2B transactions typically include a negotiation on delivery method and timing.
Insurance: Business buyers frequently purchase insurance as part of their transactions, particularly in high-value verticals such as jewelry. Insurance is designed to protect against damage to the goods in transit or theft.
Compliance: In some verticals, particularly those related to healthcare and chemicals, there is a heavy compliance burden to ensure goods are properly sourced and transported. Is the seller legally registered to sell and transport sensitive goods such as medical equipment or pharmaceuticals?
With all of these considerations, it’s no wonder B2B e-commerce has been slower to digitize than B2C. From product discovery through the checkout process, a consumer buying a bag of licorice looks nothing like a retailer buying 100,000 bags of licorice from a distributor. The good news for B2B marketplace founders is that, based on the parameters above, there are many creative ways to extract value from transactions that go beyond the GMV take rate. Let’s explore some of the creative ways to monetize a B2B marketplace.
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Email creation startup Stensul raises $16M
Stensul, a startup aiming to streamline the process of building marketing emails, has raised $16 million in Series B funding.
When the company raised its $7 million Series A two years ago, founder and CEO Noah Dinkin told me about how it spun out of his previous startup, FanBridge. And while there are many products focused on email delivery, he said Stensul is focused on the email creation process.
Dinkin made many similar points when we discussed the Series B last week. He said that for many teams, creating a marketing email can take weeks. With Stensul, that process can be reduced to just two hours, with marketers able to create the email on their own, without asking developers for help. Things like brand guidelines are already built in, and it’s easy to get feedback and approval from executives and other teams.
Dinkin also noted that while the big marketing clouds all include “some kind of email builder, it’s not their center of gravity.”
He added, “What we tell folks [is that] literally over half the company is engineers, and they are only working on email creation.”
Image Credits: Stensul
The team has recently grown to more than 100 employees, with new customers like Capital One, ASICS Digital, Greenhouse, Samsung, AppDynamics, Kroger and Clover Health. New features include an integration with work management platform Workfront.
Plus, with other marketing channels paused or diminished during the pandemic, Dinkin said that email has only become more important, with the old, time-intensive process becoming more and more of a burden.
“We need more emails — whether that’s more versions or more segments or more languages, the requests are through the roof,” he said. “The teams are the same size … and so that’s where especially the leaders of these organizations have looked inward a lot more. The ways that they have been doing it for years or decades just doesn’t work anymore and prevents them from being competitive in the marketplace.”
The new round was led by USVP, with participation from Capital One Ventures, Peak State Ventures, plus existing investors Javelin Venture Partners, Uncork Capital, First Round Capital and Lowercase Capital . Individual investors include Okta co-founder and COO Frederic Kerrest, Okta CMO Ryan Carlson, former Marketo/Adobe executive Aaron Bird, Avid Larizadeh Duggan, Gary Swart and Talend CMO Lauren Vaccarello.
Dinkin said the money will allow Stensul to expand its marketing, product, engineering and sales teams.
“We originally thought: Everybody who sends email should have an email creation platform,” he said. “And ‘everyone who sends email’ is synonymous with ‘every company in the world.’ We’ve just seen that accelerate in that last few years.”
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Illinois is taking a data-driven approach to its mask-wearing ad campaign
Here’s an example of ad targeting that’s actually good for public health: In a campaign encouraging people to wear masks, the Illinois state government has been focusing its digital ad dollars on the counties with the highest COVID risk.
To achieve this, the government’s been working with Civis Analytics, the data science company founded by Dan Wagner, who was previously chief analytics officer for Barack Obama’s 2012 reelection campaign. The campaign kicked off in August, but the state is now sharing more details about its work, including a map that shows the week-by-week risk assessment that it used for targeting.
Crystal Son, Civis’ director of healthcare analytics, explained that every week, her team pulls together the latest county-level COVID data for Governor J.B. Pritzker’s team, who then use it to determine where ad dollars for the It Only Works If You Wear It campaign should be spent.
Cameron Mock, chief of staff at the Governor’s Office of Management and Budget, said in a statement that the government is using “a one-of-a-kind formula to concentrate media dollars in the areas with the most risk.”
Mock continued, “The risk-based formula uses trends of cases and mobility on the county level to designate higher, medium and lower-risk counties. It then uses a pro rata share to dedicate the most dollars to the highest-risk areas.”
Image Credits: State of Illinois
This formula divides counties into five tiers, with Tier 1 being the highest risk and Tier 5 being the lowest. Tiers 4 and 5 still receive a baseline level of ad spend, but Tier 3 counties see more spending and Tiers 1 and 2 receive the maximum amount.
While the mask campaign isn’t limited to online advertising, the formula is only being used on the digital side because it’s more difficult to adjust funding for more traditional ad channels on a week-by-week basis.
“Each county has unique and changing circumstances due to the virus, so we designed this campaign to respond to the on-the-ground situation in all 102 counties in Illinois,” said Alex Hanns, deputy press secretary to Governor Pritzker, in a statement. “As an area’s risk increases, so too will its concentration of public health messaging. As the pandemic continues and another wave of coronavirus looms, the state of Illinois will continue to listen to scientists and follow the data to keep our residents safe.”
Son said she’s not aware of any other campaign responding to COVID-19 that uses a similar model to prioritize spending in the highest-risk geographies. Is it working? While this data doesn’t show the effects of a specific campaign, according to Carnegie Mellon University, 89% of Illinois residents wear masks — currently the 15th-highest usage rate in the U.S.
In the future, Son said she’s hopeful that we’ll see other organizations adopt “a much more customized communications approach” for healthcare.
“We still have the habit in healthcare of treating groups of people as if they are homogenous, as if they all act the same and think the same,” she said. “There are widespread applications beyond mask-wearing for more tailored approaches.”
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Lawmatics raises $2.5M to help lawyers market themselves
Lawmatics, a San Diego startup that’s building marketing and CRM software for lawyers, is announcing that it has raised $2.5 million in seed funding.
CEO Matt Spiegel used to practice law himself, and he told me that even though tech companies have a wide range of marketing tools to choose from, “lawyers have not been able to adopt them,” because they need a product that’s tailored to their specific needs.
That’s why Spiegel founded Lawmatics with CTO Roey Chasman. He said that a law firm’s relationship with its clients can be divided into three phases — intake (when a client is deciding whether to hire a firm); the active legal case; and after the case has been resolved. Apparently most legal software is designed to handle phase two, while Lawmatics focuses on phases one and three.
The platform includes a CRM system to manage the initial client intake process, as well as tools that can automate a lot of what Spiegel called the “blocking and tackling” of marketing, like sending birthday messages to former clients — which might sound like a minor task, but Spiegel said it’s crucial for law firms to “nurture” those relationships, because most of their business comes from referrals.
Lawmatics’ early adopters, Spiegel added, have consisted of the firms in areas where “if you need a lawyer, you go to Google and start searching ‘personal injury,’ ‘bankruptcy,’ ‘estate planning,’ all these consumer-driven law firms.” And the pandemic led to accelerated the startup’s growth, because “lawyers are at home now, their business is virtual and they need more tools.”
Spiegel’s had success selling technology to lawyers in the past, with his practice management software startup MyCase acquired by AppFolio in 2012 (AppFolio recently sold MyCase to a variety of funds for $193 million). He said that the strategies for growing both companies are “almost identical” — the products are different, but “it’s really the same segment, running the same playbook, only with additional go-to-market strategies.”
The funding was led by Eniac Ventures and Forefront Venture Partners, with participation from Revel Ventures and Bridge Venture Partners.
“In my 10 years investing I have witnessed few teams more passionate, determined, and capable of revolutionizing an industry,” said Eniac’s Tim Young in a statement. “They have not only created the best software product the legal market has seen, they have created a movement.”
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Small business payments and marketing startup Fivestars raises $52.5M
It’s a difficult time for small businesses — to put it mildly. And Fivestars CEO Victor Ho said that many of the big digital platforms aren’t really helping.
Ho argued that those platforms (whether they offer delivery services, user reviews or marketing tools) all have the same underlying model: “They seek to take over a small business’ customer base and then charge them a tax to start reaching those customers.”
Superficially, a company like Fivestars, which has created software to support small business payments and marketing, might not sound that different.
But Ho said that the startup actually takes the “opposite” approach, because Fivestars isn’t trying to build up a big “walled garden” of its own customers that businesses pay to access. Instead, businesses pay for the software, which they use to build a database of their own customers; they don’t have to pay to reach those customers.
“The incentives are more aligned,” he said.
Image Credits: Fivestars
The Fivestars platform includes its own payment product, integration with other point-of-sale systems, marketing automation that delivers personalized messages to customers and a broader network of 60 million shoppers, allowing for cross-promotion across different Fivestars businesses.
The startup is announcing today that it has raised $52.5 million in new funding, combining a Series D equity round as well as debt and bringing its total funding to $145.5 million. The round was led by Salt Partners, with participation from Lightspeed Venture Partners, DCM Ventures, Menlo Ventures and HarbourVest Partners.
Ho said Fivestars actually closed the round before the COVID-19 pandemic, but the team decided to hold off on the announcement because it seemed like a bad idea to “flaunt” the company’s bank account when so many of its customers were suffering.
The company has seen “record usage” during the pandemic, with 1 million new shoppers joining the network every month. At the same time, Ho acknowledged that the pandemic has caused Fivestars to shift its strategy. Originally, the goal for the funding was “just to keep growing our portfolio of merchants across our existing products,” but he said, “What changed pretty dramatically through this period for us was emphasizing the payments piece and the network” and focusing on “what small businesses need more than ever.”
Ho also noted that during the pandemic, the company has provided customers with more than $1 million worth of credits and also made more of its products free to use.
“It’s very clear that small businesses are incredibly resilient,” he added. “Particularly when it comes to the category of experiences — you’re not going to take your wife on a date to Pizza Hut; when you go to Paris, you’re not going to go to generic chains.”
In the funding announcement, Natasha Teague of Fort Lauderdale health food store Tropibowls described the Fivestars platform as “a huge help.”
“The value of being able to communicate with our customers and share updates in real-time has been immeasurable,” Teague said in a statement. “The power of Fivestars’ expansive network and payment tech has made our reopening process seamless and a lifesaver as we navigate new needs as a result of the pandemic.”
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With a new focus on marketing software, NewsCred relaunches as Welcome
The company formerly known as NewsCred has a new name and a new product: Welcome.
Co-founder and CEO Shafqat Islam explained that this follows a broader shift in the company’s strategy. While previously known as a content marketing business, Islam said NewsCred has been increasingly focused on building a broader software platform for marketers (a platform that it uses itself).
Eventually, this led the company to sell its content services business to business journalism company Industry Dive and its owner Falfurrias Capital Partners over the summer. Now Welcome is officially unveiling its new brand, which it’s also using for its new marketing orchestration software.
“It’s not often that startups like ours get to close one chapter and open another chapter,” Islam said. “We kind of went back to being a Series A, Series B startup, iterating and working very closely with our customers.”
While today is the official launch of the Welcome platform, Islam said the company has been moving the software in this direction for the past year, and that this side of the business has already seen significant growth, with daily average users up 300% year-over-year.
Islam also suggested that while this was the right time to come up with a new company name, it’s something that’s been discussed repeatedly in the past.
Image Credits: Welcome
“Every time we raised money in last 10 years, the new investor would say, ‘What about the name? Can we change it?’ ” he recalled. “We could never do it, because we had this content heritage built up and enough brand equity. Finally, with this deal, and with the launch of the new software … we came up with the name Welcome.”
While there’s no shortage of marketing software out there already, Islam said marketers need an orchestration system to manage their projects and workflows — most of them, he said, are stuck using “horizontal” project management tools that aren’t really built for their needs, such as Asana or Jira.
“Marketers have very specific needs,” Islam said. “It could be a simple thing like … marketers work with campaigns, so what are your specific campaigns, marketing briefs or marketing-specific workflows? Our approach was: How do we create something that’s really specific to marketers versus all horizontal solutions out there?”
He also noted that “close to half the engineering team works on the interoperability problem,” so that Welcome can integrate all the other tools that marketers are using, like HubSpot and Marketo. The goal, Islam said, is to become “something marketers standardize on,” the way that salespeople log into their Salesforce accounts every day.
Islam also argued Welcome will take advantage of the way that the pandemic has accelerated changes in the enterprise sales process.
“I personally believe the way people buy software is changing,” he said. “The days of wining and dining and selling to the CMO, that still exists, but that’s not how everyone wants to buy anymore.”
To adapt to this new world, Islam said the startup is adopting a more “bottoms up” sales approach, with a free version of the platform due for release next month.
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Is the Twilio-Segment deal expensive?
The Twilio-Segment acquisition was the biggest story of the weekend, and in our current IPO lull, it is the most discussed deal of the moment.
So it hasn’t been a surprise to see folks working to figure out if the $3.2 billion price tag Twilio expects to pay for Segment is cheap, reasonable or expensive.
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We had the same question.
The all-stock transaction is another big deal from Twilio, which previously scooped up SendGrid. Some expected Twilio to be picked up by a larger company after it went public, I’ve been told. Instead, Twilio has become the acquiring entity, boosting its size and adding to its total addressable market (TAM) through deal-making.
But a smart company can still overpay while executing a generally intelligent strategy. So, does the Segment deal look cheap, or expensive? While we don’t have all the data we’d like, a few useful VCs dropped hints about the size of Segment in my DMs.
Our hunt begins with Twilio’s own release on the matter. From there, we’ll bring in some historical data from the deal that Twilio compares the Segment transaction to, compare the resulting multiples to today’s market norms and close with a discussion of the acquiring company’s rising share price. The synthesis of all the elements will give us an answer. And we’ll have some fun at the same time.
The deal
A quick refresher on the deal: Twilio will spend $3.2 billion in shares of itself to purchase Segment. Per the company, the transaction is worth about 6% of the combined entity.
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Greycroft, Lerer Hippeau and Audible back audio measurement startup Veritonic
Veritonic is announcing that it has raised $3.2 million in Series A funding led by Greycroft, with participation from Lerer Hippeau and Amazon-owned audiobook service Audible.
CEO Scott Simonelli, who founded the New York startup with COO Andrew Eisner and CTO Kevin Marshall, told me that his goal is to create a new category of “audio intelligence” — namely, measuring and predicting the effectiveness of any piece of audio content or advertising.
The company is focused on marketing initially, with its first product, Creative Measurement, analyzing any audio ad and showing marketers how it scores compared to similar content, as well as identifying which parts of the audio are most effective. And Veritonic is launching a new product, Competitive Intelligence, which helps businesses see how and where their competitors are spending on advertising and provides alerts when those competitors launch a new ad.
Simonelli said that until now, audio measurement has been limited to things like creating audience panels with a few hundred people, which simply doesn’t scale, given the enormous growth in the audio market.
Veritonic, on the other hand, has analyzed thousands of audio files, correlating the content with data about how people responded and using that analysis to predict how people will respond to new audio. Simonelli said the company can add more “fuel” by going out and gathering more human response data, but even without additional data, it can provide an instant prediction on an ad or campaign’s effectiveness.
Image Credits: Veritonic
Simonelli also noted that Veritonic has spent the past five years developing technology that’s specifically attuned to the challenges of measuring audio effectiveness — like the fact that audio is experienced over time and, even more than other media, needs to be memorable.
“We can look at a sonic profile and predict and evaluate how somebody is going to respond,” he said.
The ultimate goal, he added, is to create the “benchmark for audio advertising,” which means working with a variety of players in the industry. For example, he said that when you look at other audio investments in Greycroft’s portfolio (such as podcast network Wondery or podcast analytics company Podsights): “Veritonic makes every one of those audio investments more valuable.”
Veritonic’s made pretty good progress on that goal already, with partners including Pandora, SiriusXM and NPR, and brand clients like Pepsi, Visa and Subway. It was previously backed by Newark Venture Partners (whose founder Don Katz previously founded Audible).
“We are excited to be a part of Veritonic’s continued growth and success,” said Greycroft’s Alan Patricof in a statement. “I’m personally very passionate about the future of voice, and the team at Veritonic deeply understands how to use audio to drive recall, stickiness and brand awareness — which is hugely important in a highly-competitive consumer brand landscape.”
Simonelli added that Veritonic will use the new funding to expand its data science and sales teams. Eventually, he hopes to start analyzing non-advertising content as well — for example, since Audible is an investor, he said, “Analyzing every audiobook on the planet is something we’re ready for and excited to do.”
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Airship acquires SMS commerce company ReplyBuy
Airship is announcing that it has acquired mobile commerce startup ReplyBuy.
The startup (which was a finalist at TechCrunch’s 1st and Future competition in 2016) works with customers like entertainment venues and professional and college sports teams to send messages and sell tickets to fans via SMS. It raised $4 million in funding from Sand Hill Angels, Kosinski Ventures, SEAG Ventures, Enspire Capital, MRTNZ Ventures and others, according to Crunchbase.
Airship, meanwhile, has been expanding its platform beyond push notifications to cover customer communication across SMS, email, mobile wallets and more. But CEO Brett Caine said this is the first time the company is moving into commerce.
While sports and concerts tickets might not be a booming market right now, Caine suggested that the company is actually seeing increased purchasing activity “in and around the Airship platform” as businesses try to drive more in-app purchases. He also suggested that both the COVID-19 pandemic and increased restrictions on mobile data collection and ad targeting are going to “accelerate direct-to-consumer motion by large brands.”
Airship isn’t disclosing the deal price, but Caine said the seven-person ReplyBuy team will be joining the company, with CEO Brandon O’Halloran becoming Airship’s general manager of commerce and CTO Anthony Saia leading the commerce engineering team.
“Nobody directly connects more brands to mobile consumers than Airship,” O’Halloran said in a statement. “Joining Airship offers ReplyBuy the opportunity to serve the global market with a more comprehensive solution across more industries, and provide more valuable mobile customer experiences.”
Caine added, “These are really key roles, demonstrating the importance, in our view, of extending commerce to the customer engagement experience.”
He also said that Airship will continue to support ReplyBuy as a standalone product, while also integrating and extending its capabilities to other areas of the Airship platform.
“This one-to-one commerce at scale is a key part of the ReplyBuy solution,” he said. “We’re going to bring it into all the digital channels that Airship powers [to create] a seamless, fast, easy experience around commerce.”
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Demand Sage raises $3M to make sales and marketing data more accessible
Demand Sage, a new startup from the founders of recently acquired mobile analytics company Localytics, announced this morning that it has raised $3 million in seed funding led by Eniac Ventures and Underscore VC.
When I spoke to CEO Raj Aggarwal, CTO Henry Cipolla and CPO Randy Dailey back in February, they outlined a vision to make it easier for marketers to get the data and insights they need, initially by automatically generating Google Sheets reports using data from HubSpot.
More recently, Demand Sage has been expanding into sales data.
“From our solid base with marketers we noticed sales leaders pulling us in to help them too,” Aggarwal told me via email. “We’ve been able to give them visibility they didn’t have, in areas such as where deals are getting stuck and which activities actually drive revenue. It makes sense since there is a ton of overlap between the sales and marketing functions, especially in SMBs.”
Aggarwal also said that Demand Sage has expanded its product lineup beyond pre-built report templates by introducing a no-code “Report Builder,” and by testing out an insights tools that could, for example, help salespeople determine which deals need their attention.
In a statement, Vinayak Ranade, CEO of Demand Sage customer Drafted, said, “With every sales and marketing tool I’ve used, eventually you give up and export data to a spreadsheet to dig into the numbers,” whereas with Demand Sage, it’s “like having a Google Sheets power-user that automatically makes the spreadsheets that you really want to see.”
As for how the business has fared during the pandemic, Aggarwal said, “Demand has really jumped. Companies need more cost-effective solutions and greater flexibility as business models shift.”
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