What is Golden Ventures' investment thesis around B2B marketplaces?

We've been investing in B2B marketplaces for quite some time. Before they became en vogue, we looked at this as this massive opportunity that's largely untouched. Since we’re seed investors, we’re looking for markets where significant dollars are flowing between businesses. These are often older, more established buying patterns where the innovation is launching the marketplace itself.

Our thesis stems from the general concept of what a market inefficiency or failure is: an inefficient delivery of goods or services in a free market. This is most often represented by the supply side not delivering what the demand side desires. For example, there's this great Bezos quote, which I'll paraphrase. It's something like, “What I love about consumers is they’re divinely discontent; their expectations are never static – they go up.” He highlights the ever-changing needs and desires of the demand side. While he’s referring to consumers in B2C marketplaces, I think that translates over to B2B marketplaces as well. What is good today is not going to be good enough tomorrow. This is a complex value proposition, particularly for SMBs, to deliver on without technology.

We believe the future of B2B marketplaces starts with vertical SaaS solutions. These initially look like software-enabled workflows that streamline operational inefficiencies between supply and demand, making online transactions possible where previously they may not have been. We are looking for companies that commoditize the undifferentiated heavy lifting that supply and demand engage in to deliver their goods or services more efficiently. So what does that look like in practice? We have this loose framework, supported by a few tenets.

The first is this idea of being in the natural workflow of buyers and sellers. In B2B marketplaces, there's still a lot of human involvement to facilitate a transaction. This isn't just about matchmaking buyers and sellers. A whole workflow follows, including sourcing, procurement, logistics, fulfillment, contracts, payment, terms, etc. -- all these things still involve humans across multiple entities. So the software-enabled solution needs to support all or parts of this pre-existing workflow.

Secondly, we look for solutions that can be comprehensive for all transactions on the demand and/or supply side. In the absence of that, you have multi-tenanting across the legacy and new interfaces, creating headwinds for adoption. For example, many vertical SaaS solutions start with something that just aids the supply side in handling all their orders, regardless of whether that’s a lead from the marketplace or an existing customer. Being able to serve all customers creates alignment between the groups. We talk a lot about entrenchment: the idea that if one side of the marketplace is going to do this, they have to commit fully, which requires them to adjust their workflows, adapt their software and hire/staff to support the workflow. This is a non-trivial ask for SMBs and enterprises.

Finally, one of the most important parts is that you have to enable transactions. That's everything from KYC/AML, payments, credits, dispute resolution, etc. This locks the company into the workflow, ensures consistency and presumably creates value on all transactions. 

It’s important to note that an early-stage company rarely can accomplish all of the above, but we like to see that as part of the broader vision.