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Consumer
Roger Lee, Justin Da Rosa, Courtney Chow  |  December 1, 2020
Covid 19-Related Regulatory and Behavioral Shifts Drive Big Growth at Marketplace Companies—and Lead to IPOs

Despite all the upheavals of 2020, shares of many technology companies—particularly online-marketplace businesses—have continued to shine.

Over the past 12 months, as of Nov 8th, the Battery Marketplace Index, which tracks the performance of the world’s largest marketplace companies, has performed even better than the tech-heavy NASDAQ Composite index. The marketplace index has risen more than 82% during this period, compared to 41% for the NASDAQ, according to CapIQ data. Virtually all of that performance delta has come since the Covid-19 health crisis accelerated in March.

What’s more, in the coming weeks, five different marketplace businesses are scheduled to go public: Instacart, DoorDash, Wish, Roblox and Airbnb. These five marketplaces have become household names for changing the way we shop, buy groceries, get meals, play games online and travel. We anticipate that with their IPOs, these companies could easily contribute up to $100 billion in new public equity value.

So, what’s behind this? Why is the Battery Marketplace Index outperforming the NASDAQ so dramatically? And, more important, what can investors and founders learn from the past six months to make sure they’re positioned for success going forward? We dive into this today at The Marketplace Conference Online, Battery’s bi-annual event for the marketplace- entrepreneur community.

At a high level, it is perhaps no surprise that over the last six months, changes in consumer behavior have had a dramatic impact on businesses. Companies indexed to remote work; online learning; digital health; online entertainment; and e-commerce have benefitted enormously. In fact, some of these industries have experienced two to three years’ worth of behavioral shifts in just three months’ time. This has driven big revenue growth for those companies (think Fiverr, Teladoc and Chegg, among others).

Conversely, companies indexed to travel (particularly business travel) or live events and ticketing (which require large groups of people to gather together) have seen huge slowdowns as consumers stopped traveling and moved much of their entertainment to online or digital channels.

For better or worse, we believe many of these behavioral shifts are here to stay. In my latest “State of Marketplaces” report, we identify five positive “tailwinds” impacting marketplaces, as well as some negative “headwinds.” The tailwinds entrepreneurs should be riding are:

  • Regulatory and policy changes promoting digital health. These include new reimbursement rules for virtual health visits, which are benefitting companies like Teladoc.
  • The rise of the freelancer. The normalization of remote work means that companies can tap talent from anywhere—including from popular freelance networks like Fiverr and Upwork.
  • The rise of digital education. With many schools closed, companies that offer online learning tools for children are thriving—and so are businesses selling “upskilling” or “reskilling” education content to adults.
  • The efficiencies linked to online shopping. This one is obviously a no-brainer; with stores closed, or facing capacity restrictions, more of us are shopping online and likely will continue to do so even after the pandemic is over.
  • Digital entertainment. Shuttered movie theaters and live performance spaces mean there are new digital distribution avenues for movies and other entertainment, which could actually boost profit margins for some.

As young marketplace companies try to draft off these Covid tailwinds, and build businesses appropriate for the new pandemic normal, we would also recommend that you continue focusing on efficiency and hewing to the all-important “Rule of 40”. That’s the rule designed to keep your sales-and-marketing spend from getting too high relative to your revenue growth. This will help to ensure your business not only survives but thrives as we head into the next decade.

The State of Marketplace – … by Battery Ventures

 

Battery Ventures provides investment advisory services solely to privately offered funds. Battery Ventures neither solicits nor makes its services available to the public or other advisory clients. For more information about Battery Ventures’ potential financing capabilities for prospective portfolio companies, please refer to our website.

Battery Ventures has no obligation to update, modify or amend the content of this post nor notify its readers in the event that any information, opinion, projection, forecast or estimate included, changes or subsequently becomes inaccurate.

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