The Exchanges

Q I, I'm talking of kind of the size of markets, though, and kind of the transactions that go in place on them. I'm intrigued, uh, as a VC now myself, I always hear GMV, GMV, GMV with regards to marketplaces. But you've stated before that not all GMVs equal. So, teach me here. What do you mean by this, and how then do you view, say, transaction size and frequency?

A Yeah, I think transaction size and frequency are very important dimensions for thinking about marketplaces. And, I think a lot of people build kind of the wrong marketplace. So everybody tried to do the Uberification of everything once Uber was wildly successful. But Uber has a special characteristic, which is incredibly high frequency. You know, if I'm going on business travel, I might use Uber eight times in a single day. And then at the other end of the spectrum, you have super low frequency and very high transaction size, which might be things like real estate. You know, how often do you buy a house? It's just not very often. And so those marketplaces work very, very differently. Where people run into mistakes is where they might try to do the, the Uber for locksmiths. To me, that's just a terrible market because you just don't use locksmiths very often. I think I've maybe used them twice in my life and it's a hundred dollars each time. So building an Uber there just makes no sense. Uh, there, there's not a good opportunity.

AI assessment note: “transaction size and frequency are very important dimensions for thinking about marketplaces”

Q I, I'm talking of kind of the size of markets, though, and kind of the transactions that go in place on them. I'm intrigued, uh, as a VC now myself, I always hear GMV, GMV, GMV with regards to marketplaces. But you've stated before that not all GMVs equal. So, teach me here. What do you mean by this, and how then do you view, say, transaction size and frequency?

A Yeah, I think transaction size and frequency are very important dimensions for thinking about marketplaces. And, I think a lot of people build kind of the wrong marketplace. So everybody tried to do the Uberification of everything once Uber was wildly successful. But Uber has a special characteristic, which is incredibly high frequency. You know, if I'm going on business travel, I might use Uber eight times in a single day. And then at the other end of the spectrum, you have super low frequency and very high transaction size, which might be things like real estate. You know, how often do you buy a house? It's just not very often. And so those marketplaces work very, very differently. Where people run into mistakes is where they might try to do the, the Uber for locksmiths. To me, that's just a terrible market because you just don't use locksmiths very often. I think I've maybe used them twice in my life and it's a hundred dollars each time. So building an Uber there just makes no sense. Uh, there, there's not a good opportunity.

AI assessment note: “transaction size and frequency are very important dimensions for thinking about marketplaces.”

Q Can I ask, how do you look then to kind of address company evaluation with both the metric and the much more thoughtful approach? Is there a kind of methodology or is that going completely against the grain of being non-data driven?

A No. So, I mean, obviously I look at a ton of data, but what I really look to first is, first of all, do I, do I love the founding team? And, you know, obviously that's, that's a must have. And then I just kind of think about the service. And one of my favorite mental tests is to just look at a service and say, Hey, once I learn about this new startup, will I completely switch all of my behavior to this new thing? And there's a company I recently invested in called script dash, which is a pharmacy and they do same day delivery. What they do is they go to doctors and they say, Hey, you should refer all your patients to script dash. And so the message doctors give, gives to patients is, Hey, you know, Harry, Here's this prescription. Would you like it delivered to your house tonight? And not surprisingly, everyone says yes. So that's one of these things that is just such an obvious, oh my God, this is so much better on every single dimension that people will switch completely. And so I have to, I have to fall in love with the team first, then with the product and the service, and then the data has to back it up. I might have those two things. And then I'd look at the data and say, oh, actually maybe I was wrong about something because the data kind of stinks. You know, actually usage is falling off a cliff, so I must have been wrong about something. But if I get those first two th…

AI assessment note: “fall in love with the team first, then with the product and the service”

Q No, I agree. What are your theses around bridge rounds? Often I hear investors say, kind of, it's a peer to nowhere and just sign of a lack of product market fit. Is that something you subscribe to, or would you have a much more agnostic view to the bridge round?

A So, you know, I learned something really interesting when I first got into venture capital. At Jackson Square Ventures, the partners here, we've invested in four unicorn companies, and three of them, Equalogic, DocuSign, and Responsys, they all had bridge rounds. Some even had down rounds in their history, and we all read the tech press and everything like that, and everybody thinks it's just up and to the right all the time. Every round is doubling, and that's just not the case. DocuSign was a fascinating story because we had led a round, and then shortly after that, some regulations changed, and basically they lost 25% of their revenue overnight. It just Evaporated. And so they couldn't raise. And we had the conviction. The team was still intact. The thesis was still intact. This was a temporary setback. So we led a bridge round. We are now the largest shareholders in DocuSign. And of course, it's gone on to be a phenomenal company. So, you know, sure, it's always a hard decision when you're thinking about bridging a company, but it's definitely not the case that, you know, you're just always throwing good money after bad. That's, that's, that's simply not true.

AI assessment note: “it's definitely not the case that, you're just always throwing good money after bad.”

Q Can I ask, how do you look then to kind of address company evaluation with both the metric and the much more thoughtful approach? Is there a kind of methodology or is that going completely against the grain of being non-data driven?

A No. So, I mean, obviously I look at a ton of data, but what I really look to first is, first of all, do I, do I love the founding team? And, you know, obviously that's, that's a must have. And then I just kind of think about the service. And one of my favorite mental tests is to just look at a service and say, Hey, once I learn about this new startup, will I completely switch all of my behavior to this new thing? And there's a company I recently invested in called script dash, which is a pharmacy and they do same day delivery. What they do is they go to doctors and they say, Hey, you should refer all your patients to script dash. And so the message doctors give, gives to patients is, Hey, you know, Harry, Here's this prescription. Would you like it delivered to your house tonight? And not surprisingly, everyone says yes. So that's one of these things that is just such an obvious, oh my God, this is so much better on every single dimension that people will switch completely. And so I have to, I have to fall in love with the team first, then with the product and the service, and then the data has to back it up. I might have those two things. And then I'd look at the data and say, oh, actually maybe I was wrong about something because the data kind of stinks. You know, actually usage is falling off a cliff, so I must have been wrong about something. But if I get those first two th…

AI assessment note: “I have to fall in love with the team first, then with the product”

Q But I do want to move to the world which we're both very much in love with, and that's the world of marketplaces. So, the space is hotter than ever. With that in mind, and the proliferation of marketplace offerings, you've said we'll see the rise of the master marketplace. I'm intrigued. What do you mean by this prediction?

A So I've been really fascinated by this trend, and a few companies that I think are breaking new ground in this. So one is a company called Masterclass, and Masterclass has absolutely world-class experts providing online education. So I'm taking a cooking class from Gordon Ramsay. There's no other way in the world I would get access to that. Serena Williams is teaching a tennis class, and there's a bunch of others, world-class experts. Another one is in healthcare, a company called Grand Round. Grand Rounds gets the world's best doctors to effectively form a panel and deal with some of the hardest healthcare cases. And, you know, I think the contrast is, until recently, most marketplaces, I think, have focused mostly on somewhat commodity-level services. And, you know, you could look at something like 99 Designs. 99 Designs does tons of logo designs, but the vast majority of high-end designers don't really participate in that platform. And they don't want to because the rates are too low. It's a contest model. And if companies can afford the high end services, they'll just go direct and they'll still work on kind of a word of mouth basis. They'll ask around like, Hey, does anybody know a great designer? That's not the most efficient. And so I think the, the previous generation of marketplaces, there was a lot of commodity. There will still continue to be that, but I think there'…

AI assessment note: “workflow is just completely different for commodity level and, and master level”

Q No, I agree. What are your theses around bridge rounds? Often I hear investors say, kind of, it's a peer to nowhere and just sign of a lack of product market fit. Is that something you subscribe to, or would you have a much more agnostic view to the bridge round?

A So, you know, I learned something really interesting when I first got into venture capital. At Jackson Square Ventures, the partners here, we've invested in four unicorn companies, and three of them, Equalogic, DocuSign, and Responsys, they all had bridge rounds. Some even had down rounds in their history, and we all read the tech press and everything like that, and everybody thinks it's just up and to the right all the time. Every round is doubling, and that's just not the case. DocuSign was a fascinating story because we had led a round, and then shortly after that, some regulations changed, and basically they lost 25% of their revenue overnight. It just Evaporated. And so they couldn't raise. And we had the conviction. The team was still intact. The thesis was still intact. This was a temporary setback. So we led a bridge round. We are now the largest shareholders in DocuSign. And of course, it's gone on to be a phenomenal company. So, you know, sure, it's always a hard decision when you're thinking about bridging a company, but it's definitely not the case that, you know, you're just always throwing good money after bad. That's, that's, that's simply not true.

AI assessment note: “it's definitely not the case that, you know, you're just always throwing good money after bad.”

Q Is there a kind of line whereby it makes sense? Is that like a 10,000 dollar transaction size?

A I don't have a specific threshold. You know, OfferUp is, is a great example of the other way to address this, and OfferUp sells its peer-to-peer marketplace. It's the largest mobile marketplace in the U.S., and they've now raised two hundred and twenty million or so. What they did is a more horizontal approach, so you can buy and sell everything, and you can do couches and cars and strollers and bikes, you name it, and so the frequency of any one of those Types of transactions might be fairly low, but when you span every single category and you can literally buy anything, the frequency is, is very high. And OfferUp has done that in peer-to-peer commerce. Thumbtack has done that in local services, and the horizontal approach is, is much better in those cases.

AI assessment note: “I don't have a specific threshold. You know, OfferUp is, is a great example”

Q But I do want to move to the world which we're both very much in love with, and that's the world of marketplaces. So, the space is hotter than ever. With that in mind, and the proliferation of marketplace offerings, you've said we'll see the rise of the master marketplace. I'm intrigued. What do you mean by this prediction?

A So I've been really fascinated by this trend, and a few companies that I think are breaking new ground in this. So one is a company called Masterclass, and Masterclass has absolutely world-class experts providing online education. So I'm taking a cooking class from Gordon Ramsay. There's no other way in the world I would get access to that. Serena Williams is teaching a tennis class, and there's a bunch of others, world-class experts. Another one is in healthcare, a company called Grand Round. Grand Rounds gets the world's best doctors to effectively form a panel and deal with some of the hardest healthcare cases. And, you know, I think the contrast is, until recently, most marketplaces, I think, have focused mostly on somewhat commodity-level services. And, you know, you could look at something like 99 Designs. 99 Designs does tons of logo designs, but the vast majority of high-end designers don't really participate in that platform. And they don't want to because the rates are too low. It's a contest model. And if companies can afford the high end services, they'll just go direct and they'll still work on kind of a word of mouth basis. They'll ask around like, Hey, does anybody know a great designer? That's not the most efficient. And so I think the, the previous generation of marketplaces, there was a lot of commodity. There will still continue to be that, but I think there'…

AI assessment note: “workflow is just completely different for commodity level and, and master level.”

Q You spoke about customers that are having satisfaction with regards to the transaction. I'm intrigued. What are your thoughts then on the share of wallet and the importance of this within a marketplace?

A Yeah, for, for share of wallet, I think it's also just kind of attention and attention. If somebody's using Craigslist to hire, and they're using Indeed to hire, and they're using your other marketplace to hire freelancers as well, you don't really have that great lock-in yet. And the best way to do that is just provide a much better service than everybody else that's unquestionably better on every dimension. And then you get that share of wallet and that mind share. If people can switch too easily back and forth, you just don't really have that defensibility yet. And, and you're not building that boat. You know, I think you really need people to completely move all their behavior to your marketplace, and that's when you can win.

AI assessment note: “And then you get that share of wallet and that mind share.”

Q Are there any ways to prevent disintermediation of such sorts with, with the likes of Thumbtack providing the services they do? Is there any way to keep that kind of enclosed network?

A Well, for sure, the best way is to just keep adding value after the match. You know, consumers have a somewhat rational behavior of if they feel they're paying fees that exceed the value they're getting, they're going to try to disintermediate. And, you know, you might be able to stop them From maybe mass contact information or something, but those are basically bad ways to do it. You don't want users begrudgingly using your service, and that's actually an important test I look at for every investment is, hey, do users outgrow the service? And the same thing, when you're in a marketplace, you have buyers and sellers. Do they both want to work on the marketplace, or is one side kind of forcing the other? And that's not a good situation. You really want both sides profiling Preferring to work on the marketplace because it's so much better. So I think you, everybody really needs to think about what's the value you're adding for the buyer and for the seller, and sometimes people ignore one of the sides.

AI assessment note: “the best way is to just keep adding value after the match.”

Q You spoke about customers that are having satisfaction with regards to the transaction. I'm intrigued. What are your thoughts then on the share of wallet and the importance of this within a marketplace?

A Yeah, for, for share of wallet, I think it's also just kind of attention and attention. If somebody's using Craigslist to hire, and they're using Indeed to hire, and they're using your other marketplace to hire freelancers as well, you don't really have that great lock-in yet. And the best way to do that is just provide a much better service than everybody else that's unquestionably better on every dimension. And then you get that share of wallet and that mind share. If people can switch too easily back and forth, you just don't really have that defensibility yet. And, and you're not building that boat. You know, I think you really need people to completely move all their behavior to your marketplace, and that's when you can win.

AI assessment note: “I think you really need people to completely move all their behavior to your marketplace”

Q Now, I'm intrigued. Is this an attractive sphere for VCs? Is it not a potentially smaller TAM with the kind of Deeper specialization and kind of higher commodity goods almost.

A Yeah, so I definitely don't think it applies to every vertical. You know, I'm, I'm on the founding team at Rev, which does audio transcription. It's a commodity marketplace. I don't think there's an opportunity to build a master transcription marketplace because there's just not enough of a difference in quality between what we do as the commodity and what a master could do. Our quality is extremely good, so there's no, no opportunity to create that master marketplace. Something like the legal industry might be very different. Healthcare might be very different. Education might be very different. Graphic design and coding might be very different. You know, there's obviously everybody thinks of, hey, engineers are maybe, you know, a great one is worth 10 X a bad one. And so anytime you have that big spectrum of quality, I think you might have a great opportunity for a master marketplace. The TAM is really just going to depend on the industry. And I don't have a strong feeling yet about where the TAMs are going to be bigger or smaller. It just depends on the vertical.

AI assessment note: “The TAM is really just going to depend on the industry.”

Q Are there any ways to prevent disintermediation of such sorts with, with the likes of Thumbtack providing the services they do? Is there any way to keep that kind of enclosed network?

A Well, for sure, the best way is to just keep adding value after the match. You know, consumers have a somewhat rational behavior of if they feel they're paying fees that exceed the value they're getting, they're going to try to disintermediate. And, you know, you might be able to stop them From maybe mass contact information or something, but those are basically bad ways to do it. You don't want users begrudgingly using your service, and that's actually an important test I look at for every investment is, hey, do users outgrow the service? And the same thing, when you're in a marketplace, you have buyers and sellers. Do they both want to work on the marketplace, or is one side kind of forcing the other? And that's not a good situation. You really want both sides profiling Preferring to work on the marketplace because it's so much better. So I think you, everybody really needs to think about what's the value you're adding for the buyer and for the seller, and sometimes people ignore one of the sides.

AI assessment note: “the best way is to just keep adding value after the match.”

Q And going back to the not all GMV being equal, how does that then make you think about, say, the value post-match being made?

A Before I jump into that too much, a big part of what I mean by that not All GMB is equal is, you know, think of two different cases. One is, hey, somebody comes into your marketplace and spends a thousand dollars one time, and then they're gone. Or somebody comes in, spends 10 dollars a hundred times with a hundred different providers. That is much more valuable because you've got so much more data and network effects and connections happening within your network, as opposed to just a more of a single transaction. So that's a big part of what I mean by this not all GMV is equal. In terms of the value after the match, I think that's just incredibly important for marketplaces to think about. You know, if you're just a matching service, it can be very difficult to scale. You could run into disintermediation challenges of, hey, once, once I went to this marketplace and met you, Harry, we decide, hey, we don't really need this marketplace anymore because we got the match, so we're done here. I think the best marketplaces really continue to add value well after that match is made.

AI assessment note: “I think the best marketplaces really continue to add value well after that match is made.”

Q And going back to the not all GMV being equal, how does that then make you think about, say, the value post-match being made?

A Before I jump into that too much, a big part of what I mean by that not All GMB is equal is, you know, think of two different cases. One is, hey, somebody comes into your marketplace and spends a thousand dollars one time, and then they're gone. Or somebody comes in, spends 10 dollars a hundred times with a hundred different providers. That is much more valuable because you've got so much more data and network effects and connections happening within your network, as opposed to just a more of a single transaction. So that's a big part of what I mean by this not all GMV is equal. In terms of the value after the match, I think that's just incredibly important for marketplaces to think about. You know, if you're just a matching service, it can be very difficult to scale. You could run into disintermediation challenges of, hey, once, once I went to this marketplace and met you, Harry, we decide, hey, we don't really need this marketplace anymore because we got the match, so we're done here. I think the best marketplaces really continue to add value well after that match is made.

AI assessment note: “In terms of the value after the match, I think that's just incredibly important”

Q Is there a kind of line whereby it makes sense? Is that like a 10,000 dollar transaction size?

A I don't have a specific threshold. You know, OfferUp is, is a great example of the other way to address this, and OfferUp sells its peer-to-peer marketplace. It's the largest mobile marketplace in the U.S., and they've now raised two hundred and twenty million or so. What they did is a more horizontal approach, so you can buy and sell everything, and you can do couches and cars and strollers and bikes, you name it, and so the frequency of any one of those Types of transactions might be fairly low, but when you span every single category and you can literally buy anything, the frequency is, is very high. And OfferUp has done that in peer-to-peer commerce. Thumbtack has done that in local services, and the horizontal approach is, is much better in those cases.

AI assessment note: “I don't have a specific threshold.”

Q Now, I'm intrigued. Is this an attractive sphere for VCs? Is it not a potentially smaller TAM with the kind of Deeper specialization and kind of higher commodity goods almost.

A Yeah, so I definitely don't think it applies to every vertical. You know, I'm, I'm on the founding team at Rev, which does audio transcription. It's a commodity marketplace. I don't think there's an opportunity to build a master transcription marketplace because there's just not enough of a difference in quality between what we do as the commodity and what a master could do. Our quality is extremely good, so there's no, no opportunity to create that master marketplace. Something like the legal industry might be very different. Healthcare might be very different. Education might be very different. Graphic design and coding might be very different. You know, there's obviously everybody thinks of, hey, engineers are maybe, you know, a great one is worth 10 X a bad one. And so anytime you have that big spectrum of quality, I think you might have a great opportunity for a master marketplace. The TAM is really just going to depend on the industry. And I don't have a strong feeling yet about where the TAMs are going to be bigger or smaller. It just depends on the vertical.

AI assessment note: “The TAM is really just going to depend on the industry.”