Covid-19 upended consumer habits in a number of ways—many of which boosted the value of consumer-marketplace companies in the first, scary months of the pandemic. People who were stuck at home eschewed restaurants in favor of takeout from Instacart or DoorDash, for example. Those nervous about going to the doctor might have booked a telehealth appointment on Teladoc; shoppers reticent to hit the furniture store at the mall scooped up home goods on Etsy or Wayfair* instead. You get the picture!

But now that we’re coming out of the pandemic and beginning to return to normal life, that picture is a little muddied. Indeed, as people begin to flock back to restaurants and hotels and movie theaters, among other places, some marketplace companies that prospered amid Covid-19 are struggling, at least for now. In fact, as we write in our new “State of Marketplaces—2021” report, we’ve seen a bifurcation in stock performance between public marketplace companies optimized for the pandemic—we call these “stay at home” stocks—and those benefitting from a return to normalcy, which we dub “recovery” stocks.

In the first bucket are companies like Netflix (entertainment), Teladoc (online health), Chegg (online learning) and Robinhood (online investing), among others. In the second group are companies benefitting from the recovery, such as Uber and Lyft (ride sharing), Eventbrite (live event planning and ticketing), and Expedia and Airbnb (travel). Over the last 12 months through Oct. 18, for example, according to CapIQ data, the share prices of companies in our Battery Marketplace Index we classify as linked to “experiences” surged 94%, while shares of travel-related companies were up 58%. Conversely, “stay at home” stocks continued to re-calibrate in the new reality: education-technology stocks in the index sank 28%, while digital-health stocks were down 36%.

Source: CapIQ (as of Oct 18, 2021) – Chart shows share price change since Oct ’20; only includes companies in the BV Marketplace Index (excluding those companies based in China)

Overall, the Battery Marketplace Index dropped 11% in the same 12-month period. Much of that decline was also driven by a decline in the value of marketplace companies based in China, which were hit by new regulations from the Chinese government that crimped growth.

Long term, we’re still extremely bullish on marketplaces of all stripes, including digital health, education, finance, travel, hospitality and e-commerce. We’re also excited to announce that we added 11 new public companies and over $400 billion dollars in value to our Battery Marketplace Index in the last 12 months: Airbnb*, Robinhood, Coupang, Coursera, Coinbase*, Poshmark, DoorDash, DiDi, Bumble, Wish and ZipRecruiter.

In our minds, there’s never been a better time to be a marketplace founder. Our advice for early-stage companies, as spelled out in our report, is to solve a specific problem in a narrow category and demonstrate clear value creation first; this means to iterate quickly and focus on customer engagement, repeat rates, NPS scores, and organic growth loops. Other tips include:

• Early Stage: Grow, Grow, Grow (After Finding PMF!). Once you’ve nailed product market fit, lean in heavily on growth verses profitability. A great example here is Uber, which followed this playbook in its early days, morphing from an exclusive “black-car” service into a massive ride-on-demand company that is literally transforming the transportation industry. If Uber had not focused on growth and winning over markets in its early days, by offering deep discounts and other promotions to recruit customers and drivers, it wouldn’t be where it is today.
• Growth Stage: Scale Efficient Growth. As your company scales into its next stage, it’s important to create defensibility and build moats to your business, as well as prioritize “unit” or “cohort” profitability. Aggregated or summary financials can be very misleading, and it is important to show how your users behave over time. After that, you can translate those cohorts into an appealing financial profile where older cohorts demonstrate strong margin and profitability.
• Pre-IPO: Create Optionality and Demonstrate Long-Term Viability. For companies lucky enough to get to the pre-IPO stage, it’s important to create optionality and make your marketplace even more durable and sticky. One way to do this is by embedding financial functionality like payments or financing into your product. This can improve your product experience, lower customer acquisition costs and generate higher lifetime customer value—in addition to expanding margins.

Given the pandemic, we understand that these are difficult times to start and build a company, but we are confident that many great businesses will emerge during this period. We are just scratching the surface on how marketplaces will change our lives, and we are very excited by the next generation of platforms doing so.

Battery Ventures State of M… by Battery Ventures