Jan 16, 2023 · 53m · news
a16z GP Jeff Jordan: The Ultimate Guide to Two-Sided Marketplaces | 20VC #966 · 20VC with Harry Stebbings
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this comprehensive discussion, Andreessen Horowitz General Partner Jeff Jordan shares critical frameworks for building, scaling, and managing two-sided marketplaces, drawing on his operating experiences at eBay and OpenTable. He highlights the strategic importance of supply fragmentation, the volatile dynamics of customer acquisition, and the shift from operator to empathetic board advisor.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 27.5% of the talking time here. How this is scored →
Harry as informed peer 4.4 Guest teaching 4.3 Guest disagreement 1.7 Harry pushing back 3.3
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 17:57 Jeff rejecting Harry's marketplace capital efficiency claim
Jeff openly pushes back on Harry's assertion that marketplace start-ups are capital inefficient with a sharp 'Disagree,' citing Airbnb and Incredible Health as proven counterexamples.
Hardest push from Harry ▶ 40:17 Harry challenging the Craigslist unbundling thesisHarry directly refutes Jeff's thesis, arguing that home service marketplaces consistently fail due to fundamental platform leakage and low user transaction frequency.
Biggest teaching moment ▶ 6:09 Jeff teaching supply fragmentation dynamics using OpenTableJeff educates Harry on defensive moats by contrasting OpenTable's highly fragmented restaurant supply against Fandango's vulnerable movie theater oligopoly.
Harry holds his own ▶ 19:19 Harry analyzing float liquidity from payment delay durationHarry demonstrates keen investment expertise by explaining how extended gaps between customer payment and service delivery generate crucial float liquidity for businesses like Airbnb.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| The Operator-Investor Dynamic: Playbooks, Board Influence, and Advice | 3 | 3 | 1 | 2 | Harry asks how Jeff's operational career informs his investing and questions if legacy operating playbooks become irrelevant today. Jeff politely reframes his role as a non-prescriptive advisor in the passenger seat. | |
| Having Difficult Conversations and Fiduciary Duty on Boards | 4 | 4 | 1 | 3 | Harry challenges investors who avoid tough conversations out of fear of bad founder NPS. Jeff agrees and uses OpenTable versus Fandango to illustrate why supply side fragmentation builds a defensive moat. | |
| Reaching Critical Mass and Curation in Marketplaces | 3 | 4 | 1 | 2 | Jeff outlines how marketplaces hit critical mass around 10 percent supply density and why creating owned supply introduces dangerous channel conflicts like in Instacart's case. | |
| Customer Acquisition, Diversity of Demand, and the Evolution of Lead Gen | 4 | 3 | 1 | 2 | Harry cites stats showing young consumers shifting search to TikTok, while Jeff warns against relying heavily on paid marketing due to margin erosion. | |
| Growth Strategies in Tight Markets and Capital Efficiency (Airbnb vs. Uber) | 7 | 6 | 4 | 7 | Harry provocatively claims that marketplace businesses are inherently capital inefficient. Jeff flatly disagrees, citing Airbnb and Incredible Health, prompting Harry to analyze how payment duration drives float liquidity. | |
| Reaching the Target Customer and Scaling Beyond Initial Verticals | 4 | 5 | 1 | 2 | Harry asks how founders can handle VC objections about market size when launching in hyper-niche segments. Jeff uses eBay's collectibles history to show how initial zealot communities unlock broader verticals. | |
| Retaining Mental Plasticity, Market Timing, and Decisions vs. Outcomes | 4 | 4 | 2 | 3 | Harry challenges Jeff on market timing risk versus market size risk. Jeff explains decision quality versus outcome quality and how early e-commerce failures refined his investing thesis. | |
| Assessing Cohort Curves and the Myth of Negative Network Effects | 5 | 6 | 2 | 3 | Harry introduces negative network effects in quick-commerce delivery. Jeff confirms a16z passed on fast commerce as a rehashed Cosmo model and explains how Instacart optimized fulfillment to reach profitability. | |
| Volatility in Customer Acquisition Costs and Channel Diversification | 4 | 4 | 1 | 2 | Harry cites Barry McCarthy's discovery engine tactics, and Jeff details how CAC increases during scale, advocating for segregated experimental ad budgets. | |
| Market Marketplace Equilibrium and The Thesis of Unbundling Craigslist | 7 | 5 | 3 | 8 | Harry directly confronts Jeff's thesis on unbundling Craigslist, arguing that platform leakage and low transaction frequency ruin home service models. Jeff defends his belief in market timing while conceding the structural risks. | |
| Board Dynamics, Building Trust, and Navigating Compressed Timelines | 4 | 4 | 1 | 2 | Harry explores VC-founder misalignments, and Jeff highlights that VCs manage portfolio risk while founders carry N-of-1 risk, using Grateful Dead lyrics to describe board discipline. | |
| Quick-Fire Round: Books, Andreessen's Growth, and Investment Advice | 4 | 4 | 2 | 3 | In a quick-fire round, Harry asks about hit rates and investor efficiency. Jeff breaks down his investment miss on DoorDash caused by inaccurate assumptions about market structure. |
Statements from this episode (34)
Jordan: Hollywood Entertainment's 1990s video-on-demand push was 20 years early
“It was great idea. It was about two decades too soon. And that Netflix ended up doing it after, but”
Jordan: Investing strategy centers almost exclusively on network effects
“And largely as an investor, I'm a kind of a one trick pony. Everything I would like to talk about as an operator and an investor typically involves a network effect.”
Jeff Jordan: Board members should not prescribe decisions to founders
“You know, I try never to be prescriptive. You should do this. I try to say in my experience, I faced something similar. I tried A, B and C and here's what happened. But you know, just, I don't want the entrepreneur to do what I say because Then, you know, I'm …”
Stebbings: Non-operator VCs fear telling founders hard truths due to NPS
“I think one of the biggest problems with Venture State is venture investors, who especially haven't been operators, are too nervous to tell founders the truth because they don't want a bad MPS.”
Jordan: Aggregating fragmented supply creates defensible marketplace moats
“Open table by contrast had, you know, the target market was 30 or 40 or 50,000 restaurants, almost all of which were the, had one, the owner only managed one restaurant. And so it was brutally hard to aggregate, but once you're aggregated, you know, it's bruta…”
Jordan: OpenTable scaled via a 'come for tools, stay for network' model
“Open table is pretty interesting because it was a long slog before it became an overnight success because aggregating supply did take time. It was a classic come for the tools, stay for the network. Play.”
Jordan: Onboarding premier supply builds instant marketplace credibility
“We typically try to go to the very best restaurants and work our way down, so if French laundry's on there. You can't book it, but it's on there. You know, that, that gave some credibility”
Jordan: OpenTable hit geographic tipping point at 10% supply capture
“It's something like 10% of the target market supply where diners finally said, okay, this is so much more convenient than calling a restaurant one at a time, getting put on hold, getting voicemail, getting all this and that. So I would, I'm going to forego the…”
Jeff Jordan: Most successful marketplaces are perpetually supply-constrained
“Most markets, even successful marketplaces typically are supply constrained.”
Jordan: Instacart avoids dark warehouses to prevent channel conflict with grocers
“But at that point you're competing with your customer and, you know, that channel conflict is something that Instacart has no desire to do. They want to be the go to partner for the for the gross, the physical grocer.”
Stebbings: 45% of millennials use TikTok over Google for search
“I saw an unbelievable stat, which is like, 45% of millennials use TikTok instead of Google as their primary search engine.”
Jordan: Reluctant to invest in startups relying on paid marketing
“So I am reluctant to invest in companies that, that require heavy paid marketing to build their audience. You know, the best Concepts typically don't need, you know, they're so compelling, they don't need to buy users.”
Jordan: Amazon was the only profitable e-commerce business due to low defensibility
“Early on, I was a big proponent of that e-commerce was going to clean the clock of the department stores. I got the thesis half right. Share did shift. No one could make money other than Amazon because of there's just no defensibility, no barriers to entry.”
Jordan: a16z advises portfolio startups to delay raising capital
“We're today counseling our businesses, try to be try not to need to go to market for as long as you sustainably can without hurting the business.”
Stebbings: 97% of capital invested in Uber will not return 1x
“Point being though, Jeff, like if we're just being blunt, I think I sort of start like seven, 97% of the money that's gone into Uber will not return one X, just given the quantum of money.”
Jordan: Upfront customer payments made Airbnb cash flow positive early
“Airbnb raised way less money than, you know, the other leading marketplaces at the time. It's got a couple of characteristics and that are very nice. One of which is they get paid in advance. And so, you know, when you make your summer vacation over the holida…”
Jordan: Incredible Health could have gone from Series A to IPO
“Iman at Incredible had the just had this dream of, she called it A to IPO. She arguably could have never raised a B round and gone public. The business has that kind of momentum. And because she was quote unquote accidentally profitable, the bookings came in w…”
Jordan: a16z invested in Incredible Health at $60M valuation
“When you raise at 1.65 billion, I think our round was 60 post. You know, you are, you're not taking a lot of dilution.”
a16z does not base investment decisions on current market size
“We strive as a firm not to base investment decisions on current market size, because a lot of the best businesses created new markets to create new markets.”
eBay's original business plan and Benchmark investment focused solely on collectibles
“Jeff Skoll wrote the business plan for eBay with Pierre. And I got a copy of it when I joined the business and they were focused entirely on the collectibles market. Now their argument was collectibles market in in the U S I think was a hundred, you know, it w…”
Jordan: Best marketplace growth strategy is enabling organic user behavior
“The most successful growth strategy we had back in the day was just look what people were listing. And then try to enable it to be found on a much more systemic basis.”
Jeff Jordan: Top e-commerce investments like Fanatics generated uninspiring returns
“And I actually got two of the best e-commerce companies out there, fanatics and Zulu and it still is an uninspiring outcome.”
Jordan: Instacart lost 75% of users yearly, but remaining users spent 3-4x
“In the case of Instacart the number of users declined pretty precipitously from, you know, first purchase to, you know, 10 purchase a year out, you know, they, the number of users declined something like three quarters. But the users that stayed spent you know…”
Jordan: a16z passed on fast commerce, viewing it as Kozmo.com 2.0
“We didn't make a bet in in fast Fast commerce. That's one word. Some of us internet veterans remember Cosmo and... Our concern was it's Cosmo redo, redo without anything really new on top of it. So we did not place a bet in that in that sector.”
Jordan: Instacart lost $20-$25 per order when a16z first invested
“From recollection, they were billing something like 10 or 12 dollars per order when we invested, and they were losing 20, 25 dollars per order on each one”
Jordan: Instacart reached significant profitability through process optimizations
“Each of those took, you know, many minutes off of each order, and, you know, time is money, and so, you know, that's just the example of the kind of continuous optimizations they were making, trying to get, take minutes and seconds out of the process, and in d…”
Jordan: Startups must separate experimental marketing budgets from core spend
“I love the companies that have a, they segregate an experimental budget from their core, core acquisition budget, just to, because if you bundle them together, it, It's a barrier against experimentation. If you're constantly optimizing Google and Facebook, but…”
Jordan: The demand side of a marketplace is more strategic than supply
“I have a belief that the demand side is, you know, kind of the, is the more, more strategic side, because suppliers typically will go wherever the demand is, and so for me, keeping a healthy demand Bucket, you know, is what your suppliers are looking for?”
Jordan: Unbundling Craigslist for home services fails due to low frequency
“I think there is a real issue with leakage. The other is a issue with frequency except for lawn care and home cleaning. Almost all services are very, very infrequent and it's, it was very hard to build a brand.”
Jordan: Founders Pick Board Members as Bosses for a Decade
“The most important thing is pick your board members selectively. You know, the founder who comes in, you know you know, gets 10 term sheets spends an hour with each of the GPs and then picks one. I don't know how you know, You, you're actually picking your bos…”
Jordan: A Month-Long Venture Fundraising Window Signals Startup Struggle
“And if it's a month, it's often an adverse signal. So it's, you know, that they can't raise.”
Jordan: VC-Founder Misalignment Stems from VC Portfolio Risk Dynamics
“I think the biggest one is VCs have a portfolio and the founders have N of one. And so, yeah, I try to be very explicit on that. You know, the founder says, okay, I have a fork in the road. You know, what, which, what's your point of view on where I should go?…”