Marketplace funding
Marketplace funding and top 7 ways to raise funds for marketplaces

Marketplace funding and top 7 ways to raise funds for marketplaces

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Marketplaces are growing in numbers in all niches. Consequently, so have marketplace funding and venture capitalists helping entrepreneurs raise funds for marketplaces. Furthermore, Public and private unicorn marketplaces have accelerated in value since January 2020. An increase in funding for online marketplaces has helped online marketplaces scale up. Moreover, a quarter of all unicorn startups enter the eCommerce industry as marketplaces.

Public and private unicorn marketplaces have grown in value

Source: Dealroom.co

Consequently, fashion marketplaces ranked first in substantial valuation growth during the pandemic at 142 percent. Meanwhile, food delivery marketplaces followed at 132% and digital health marketplaces at 120 percent.

Also read: Excelling fashion eCommerce for success in the fashion business

raise funds for marketplaces

Source: Dealroom.co

*All data has been sourced from the source.

Here’s a breakdown of everything you will find in this article:

Table of contents

  1. List of top investors in online marketplaces
  2. Online marketplaces that raised millions of dollars
  3. Top 7 ways to raise funds for marketplaces and other businesses
  4. The best stage to raise funds for marketplaces
  5. Our marketplace solution users who received huge marketplace funding
  6. What do marketplace experts say about marketplace funding?
  7. Conclusion

The 2021 report suggests that marketplaces continue catching huge investments in their basket. Furthermore, The most popular categories for online marketplaces investment include fashion, digital health, travel, real estate, and more. Thus, funding for online marketplaces is a must-have for turning an idea into a robust solution reaching millions of people globally.

List of top investors in online marketplaces

Here’s a list of top investors in online marketplaces to help you find the most relevant venture capitalists for your marketplace funding in different countries:

Sr. No.

Name of venture capitalists

Country

Other relevant information

1.

New Enterprise Associates

USA

Investment type includes debt, early-stage venture, late-stage venture, post-IPO, private equity, seed. Furthermore, investments include in the technology and healthcare sector

2.

Accel

USA

For instance, prior marketplace investments include BlaBlaCar, Delivroo, Etsy, Trulia

3.

A16Z crypto

USA

For instance, investment type includes early-stage ventures with investments made in crypto companies and protocols

4.

Action Capital

Germany

Prior marketplace investments include Expertlead and Lemonone

5.

FJ Labs

USA

Investment types: early-stage venture and seed with investment sectors, including online shops and consumer-facing startups

6.

Atomico

United Kingdom

Prior marketplace investment includes Jobandtalent

7.

Novator

United Kingdom

Investment types include early-stage venture, late-stage venture, private equity. In addition, investment sectors, include various tech startups

8.

Axel Springer

Germany

Prior marketplaces include big names such as Uber, Airbnb, Wunderflats, and WayUp

9.

Algebra Ventures

USA

Early-stage ventures with investments in fintech, healthcare, and blockchain technology

10.

Big Sur Ventures

Spain

Prior marketplace investments include Biddus and Celebrents

Other well-known venture capitalists firms that can help in marketplace funding include Advancit Capital, Endeit Capital, Adevinta Ventures, Aventures, and more. Moreover, other big marketplaces that received funding from these venture capitalists include Lyft, Medwing, Fixico, Paulcamper, Outdoorsy, and more.

Online marketplaces that raised millions of dollars

Fashion has become one of the hottest sectors for marketplace funding. In its last round of funding for online marketplaces, the second-hand clothes marketplace, Vinted valued at €3.5 billion (£3bn).

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Moreover, Venture capitals are also backing up companies in the global social commerce market. For instance, Evermos, an Indonesian social commerce startup, raised $30 million in Series B marketplace funding. In November 2021, Facily, a Brazil-based social commerce marketplace, topped off its coffers with a $250 million Series D round in funding for online marketplaces.

These marketplaces raised millions of dollars in marketplace funding

  1. Karma: Raises $12 million, a Stockholm-based platform, helping restaurants and supermarkets reduce food waste.
  2. Lyft: Raised $600 million in a Series I round in funding for online marketplaces. Fidelity Management & Research Company led the investment.
  3. Udemy: A San Francisco-based online learning platform raised $50 million in a total funding amount of $223 million.
  4. Printify: An online startup from Riga, Latvia, raised $1 million in seed investing led by Google AdSense.
  5. Fat Llama: A London-based peer-to-peer platform for rentals raised $10 million in Series A funding for online marketplaces.
  6. Delegate: A Singapore-based site for event organizations and investing contractors raised US$1 million investing in a pre-Series A round.
  7. Planned: Raised $1.13 million in a seed round in marketplace funding. Montreal-based event planner platform had several venture capitalists, including iNovia Capital, Telegraph Hill Capital, and Interaction Ventures.
  8. Tractor Zoom: An auction platform for farm equipment raised $1 million in a seed round.
  9. StockX: Raised $44 million in Series B in marketplace funding from GV, Battery Ventures, and other investing partners.
  10. ChefHero: A Toronto-based startup that allows restaurant owners to order wholesale food and supplies, raised $12.6 million in Series A funding for online marketplaces.

Also read: Top 10 marketing strategies to promote your online grocery marketplace

Top 7 ways to raise funds for marketplaces and other businesses

How to get funding for an online marketplace

How to raise funds for marketplaces in 7 simple ways?

1) Crowdfunding

Crowdfunding has become one of the most popular and most effective ways to raise funds for marketplaces or any type of business. Crowdfunding is an approach to raising funds through individual investors’ collective, community-based effort. Even if you have never heard of the term, you’ve probably seen several examples of raising funds online from a community.

Different platforms, including Kickstarter, Rockethub, and GoFundMe, have made the concept of strangers funding a business project more acceptable. In addition, entrepreneurs can use these and other crowdfunding platforms and run a campaign to raise funds for marketplaces. However, most crowdfunding platforms charge contributing transactions fees as well as a percentage of your overall earnings.

Furthermore, there are three types of crowdfunding:

  • Reward crowdfunding
  • Equity crowdfunding
  • Debt crowdfunding
  • Donation-based crowdfunding

Pros of crowdfunding:

  • Firstly, crowdfunding has become popular for the security, flexibility, and freedom it offers entrepreneurs in marketplace funding.
  • Secondly, when you crowdfund your marketplace project, you are indebted to regular people instead of banks or investors.
  • Moreover, crowdfunding not only allows you to raise funds for marketplaces but also draws attention to your business idea.
  • Furthermore, even if you cannot raise funds for your online marketplace, you just have to return them to the sponsors without interest.
  • Additionally, crowdfunding saves you the hassle of going through a tedious application process.
  • Talking about benefits for investors, they prefer a low-risk venture. And, with crowdfunding, they get just that.
  • Lastly, crowdfunding offers early-stage support for small businesses.

Cons of crowdfunding:

  • Meanwhile, entrepreneurs can find themselves in a challenging situation regarding the requirement of additional funding for online marketplaces with crowdfunding.

2) Business line of credit

It is one of the most outstanding solutions to get marketplace funding for online marketplaces. The business line of credit acts as a hybrid between a traditional bank loan and a business credit card. Moreover, the business line of credit is an excellent eCommerce funding solution for incremental business expenses. Furthermore, this marketplace funding method allows access to a fixed amount of capital to meet short-term business goals. Some of the basic information you need to apply for a business line of credit include the following:

  • Business license
  • 2 to 3 months of bank statements
  • Tax returns
  • A business bank account
  • Standard financial documents, including P&L or cash flow statement

Moreover, you can set aside a certain amount for spending on the most urgent requirements from a pre-approved amount. It helps you keep your business spending in check without getting into too much debt.

Pros of the business line of credit:

  • Firstly, it can help you build your business credit rating, positioning you for better loan terms in the future.
  • Secondly, the business line of credit offers great flexibility. Once approved, you can withdraw funds whenever you need them for any legitimate business requirements.
  • Furthermore, you don’t have to pay interest on the unused amount of the loan. You only pay interest on the portion of funds used with the business line of credit.

Cons of the business line of credit:

  • Firstly, lower credit scores are accepted.
  • Secondly, the business line of credit comes with higher rates of interest.
  • Lastly, the application process to apply for a business line of credit is quite complicated.

3) Venture capital funding

It explores equity-based fundraising for online marketplaces and other businesses. A popular marketplace funding method, venture capital funding proves extremely beneficial in cashing in high investments. Furthermore, venture capital firms invest in projects and ideas they believe can generate high returns in the future.

Startups receive private equity funding for online marketplaces. Moreover, venture capitalists get equity and the power to influence the direction of your company’s business operations in return for their investments.

Pros of venture capital funding:

  • Firstly, entrepreneurs don’t have the obligation to repay the invested funds with this marketplace funding method.
  • Secondly, venture capitalists have a widespread network. Thus, it offers start-up companies an opportunity to market and promote their business idea in the industry.
  • Moreover, VCFs can help you expand your business operation quickly and exponentially.
  • Lastly, you can raise large amounts of capital without having to pledge your personal assets.

Cons of venture capital funding:

  • Firstly, it can take comparatively longer to raise funds for marketplaces with venture capital funding.
  • Furthermore, venture capitalists actively participate in a business’ decision making, leaving less financial freedom and ownership control.
  • Lastly, the overall cost of raising funds through venture capital funding is quite high.

4) Bootstrapping

Yet another great source to generate marketplace funding. Furthermore, also known as self-funding, you invest your money and the operating revenues of your startup. Since you rely on your savings and personal finances to fund your venture, you don’t have to provide investors with the decision-making right. Eventually, you have complete ownership of your online marketplace business.

Pros of bootstrapping:

  • Firstly, it’s an eCommerce funding method that allows you to retain 100% ownership control of your business.
  • Secondly, you don’t rely on external funding. Thus, you have to worry about comparatively lesser debt when your business operations don’t go as planned.
  • Eventually, bootstrapping pushes entrepreneurs to create a business model that works.

Cons of bootstrapping:

  • Firstly, it’s a high-risk marketplace funding strategy for any online marketplace platform.
  • Secondly, the burden of investment lies on a single source.
  • With this method of funding for online marketplaces, you run the risk of running out of funds, and eventually, business failure.
  • Furthermore, you lack the support of investors on several financial and investment matters.

5) Incubator and accelerator programs

Several new entrepreneurs have turned to incubator and accelerator programs to acquire funding for online marketplaces. Furthermore, US startups have used incubator and accelerator programs. In addition, this marketplace funding method is gaining traction globally, primarily due to online programs. Moreover, incubator and accelerator programs help you access plenty of resources, tools, guidance, and more from seasoned professionals.

Besides, business incubators and accelerators programs collaborate with venture capitalists to push startups through their early stages by providing marketing, networking, infrastructure, and financial assistance. In addition, an incubator and accelerator program allows you to learn how to build, scale, and manage your business.

Most importantly, you meet with investors and give out a pitch deck to persuade investors to acquire marketplace funding for your startup in the end. For instance, some of the most popular incubator programs include Y- Combinator, 500Startups, and Startupbootcamp.

Pros of incubator and accelerator programs:

  • Firstly, incubator and accelerator programs give you an opportunity to not only raise funds for marketplaces but also to build a network.
  • Secondly, some programs are extremely difficult to get into. For instance, Techstars. Thus, getting into one such program helps you stand out and build brand recognition.
  • Furthermore, these programs offer business development workshops and panel discussions.

Cons of incubator and accelerator programs:

  • With this marketplace funding method, you have to align your business requirements with incubator and accelerator programs.
  • Furthermore, these programs have a rigorous and competitive application process.

6) Inventory financing

A marketplace funding method for companies going through a period of unexpected growth. Furthermore, inventory financing fulfills short-term cash requirements. For instance, replenish low inventory. As the name suggests, inventory financing is particularly designed to meet business inventory requirements.

Pros of inventory financing:

  • Firstly, inventory financing can help when your business experience a sudden increase in demand for your products.
  • Secondly, this eCommerce funding method offers flexible funding options with no requirements for personal guarantees.
  • Furthermore, you can use inventory financing for expanding your product lines and increasing your sales channel.
  • This method to raise funds for marketplaces helps you with bulk purchases.
  • Moreover, inventory financing facilitates the restocking of popular products. Consecutively, you can prepare for seasonal fluctuations.

Cons of inventory financing:

  • Inventory financing is not available for service businesses.
  • Secondly, other drawbacks include high fees and short-term funding.
  • Moreover, inventory financing cannot be used for other financial requirements.
  • Lastly, large-scale businesses find inventory financing less suitable.

7) Invoice financing

This marketplace funding method is most suitable for companies with irregular cash flow. Moreover, it’s quite normal to extend the pay-off time for B2B customers. Ultimately, it makes your cash flow uneven and affects your production.

Furthermore, in this method to raise funds for marketplaces, the investor provides you with an upfront cost between 70% to 90% of the outstanding invoice. Also, the invoices serve as collateral against the investment.

Pros of invoice financing:

  • Firstly, this method of funding for online marketplaces reduces outstanding daily sales.
  • Secondly, invoice financing offers a more predictable cash flow.
  • Furthermore, you gain the ability to extend payment terms.

Cons of invoice financing:

  • Firstly, invoice financing charges more fees than traditional financing.
  • Secondly, invoice financing only solves cash flow problems.

The best stage to raise funds for marketplaces

Early-stage companies attract more investment opportunities, particularly in the seed and pre-Series A rounds. However, companies already running can also receive huge marketplace funding from different sources. Furthermore, before you pitch for your online marketplace business, you should run a discovery phase, polish your business idea, create a solid pitch for investors, and raise funds for further development.

Best stages to raise funds for marketplaces

  • At an early stage: You can attract investment for an MVP development and a marketing campaign. Furthermore, you only have to prove your online marketplace business in the pre-seed and seed rounds.
  • Series A round: You can receive investments for your full-featured online marketplace business project in the Series A round. Your MVP is your business portfolio, and pitching it can help you gain marketplace funding. Furthermore, you shall also have to show traction to prove your idea’s validity with an MVP.
  • Seed stage: At the seed stage, you have a prototype ready for your online marketplace business ready. Moreover, you only have to validate the potential demand for your products or services. At this stage, you launch your prototype, determine market needs, and test the products on potential customers.
  • Growth stage: Once you have developed a fully functional prototype, you can raise another round of marketplace funding for growing and expanding your business. Furthermore, at this stage, you have to provide a solid business plan along with an estimated growth forecast.

Our marketplace solution users who received huge marketplace funding

Here are some success stories of marketplace solution users from CedCommerce that helped them scale their business operations:

  • MyPetrolPump has raised $1.62 million as a part of its seed funding round. MyPetrolPump is a Bengaluru-based on-demand fuel delivery service platform. With participation from US-based seed accelerator Y Combinator, Venture Highway Capital led the investment round. Eventually, the company plans on expanding business operations in different cities.
  • WafiApps, a leading eCommerce marketplace, provides home delivery services across Bahrain. Eventually, the company has successfully closed a Series A marketplace funding round at an undisclosed seven-digit valuation. Furthermore, Angel Investors and veterans from the banking and payments industry led the investments round.

What do marketplace experts say about marketplace funding?

Here are some points entrepreneurs should consider before searching for funding for your marketplace.

  • Be sure about all aspects of your online marketplace business, including your idea, team, plan B in case of failure.
  • Learn more about your customers to build a user flow while looking for marketplace funding.
  • Furthermore, Adopt a human-based approach while marketing your business.
  • One of the best chances you have for getting marketplace funding is making the most of your niche.

Conclusion

The process of raising marketplace funding can prove complex and extremely challenging, particularly with the availability of several options for funding for online marketplaces. Additionally, different funding methods come with their share of benefits and drawbacks. Furthermore, selecting an investment source requires careful analysis on your part. Several factors can influence your choice of investment option, particularly your business type and model.

Create an online marketplace that investors want to invest in.

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