Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

The State of Marketplaces - March 2020

Battery Ventures' March 2020 Marketplace Conference Presentation

  • Login to see the comments

The State of Marketplaces - March 2020

  1. 1. The State of Marketplaces – 2020 Roger Lee, General Partner, Battery Ventures Justin Da Rosa, Vice President, Battery Ventures Courtney Chow, Associate, Battery Ventures March 2020
  2. 2. Disclaimers The information provided in this presentation is solely intended for the use of entrepreneurs, corporate CEOs and founders. The information is current as of the date it was published. The contents are not intended to be used in the investment decision making process related to any product or fund managed by Battery Ventures. No assumption should be made that the investments identified within were or will be profitable. It should also not be assumed that recommendations made in the future will be profitable or equal the performance of the companies identified within. Content obtained from third-party sources, although believed to be reliable, has not been independently verified as to its accuracy or completeness and cannot be guaranteed. Battery Ventures has no obligation to update, modify or amend the content of this presentation nor notify readers in the event that any information, opinion, projection, forecast or estimate included, changes or subsequently becomes inaccurate. 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. For a complete list of portfolio companies, please click here. The Battery Marketplace Index tracks 40 of the world’s largest marketplace companies. To be included, companies need to be listed on one of the major global stock exchanges and boast a market capitalization of $500 million or more. You can track the Battery Marketplace Index here. This presentation is being provided for informational purposes only. Nothing herein is or should be construed as investment, legal or tax advice, a recommendation of any kind or an offer to sell or a solicitation of an offer to buy any security. (As of Nov 2019) 1
  3. 3. 2 All Marketplace Conference Profits Will Be Donated to COVID-19 Relief COVID-19 Solidarity Response Fund
  4. 4. Who is Battery? Stage agnostic $8.9B Battery’s global offices Capital raised since inception 3
  5. 5. Note: Contains all Battery Ventures marketplace investments since the firm’s inception. No assumption should be made that the investments identified above were or will be profitable. For a complete list of portfolio companies, please click here. Battery Marketplace Investments E-Commerce @ Community & Content Services Travel Exchange $375+ million invested 4 Acquired by
  6. 6. Source: Cap IQ (as of Mar 2019) – Refers to Enterprise Values. Battery Marketplace Index is market cap-weighted & pro-rated. * Denotes a current or former Battery portfolio company. No assumption should be made that the investments identified above were or will be profitable. For a complete list of portfolio companies, please click here. Battery Marketplace Index (as of Mar ’19) 5 Marketplaces (50%) 0% 50% 100% 150% 200% 250% 300% Mar ’12 Sep ’12 Mar ’13 Sep ’13 Mar ’14 Sep ’14 Mar ’15 Sep ’15 Mar ’16 Sep ’16 Mar ’17 Sep ’17 Mar ’18 Sep ’18 Mar ’19 Battery Marketplace Index +199% NASDAQ: +158% 467.5B 34.8B 4.0B 5.9B 0.6B 6.6B 33.3B 8.4B 22.3B 29.0B 7.5B 8.1B2.8B 78.5B 22.5B 10.7B 17.8B 156.7B 1.6B 1.3B 19.1B 8.0B 7.1B 3.0B 25.3B15.0B1.9B 7.8B 7.4B 9.0B 6.7B 2.0B 40.4B 2.2B 11.7B 2.2B * * * 4.5B
  7. 7. The Tide Has Turned from “Growth at All Costs” to a Balance of Growth & Profitability AUG 19 Shut Down Permanently Slashed IPO Price Range Restructured Organization Laid Off 20-80% of its Staff Discontinued Physical Product Marketplace Laid Off ~40% of its Staff Raised ~$430M in ’19 in Flat Rounds Raised $100M in Flat Round Undisclosed Layoffs Shut Down 12 Markets Divested India’s UberEats to Zomato Withdrew IPO Indefinitely Cut More Than 1K Jobs Market Cap Down 50% Since IPO Delayed IPO Laid Off 100 Staffers OCT 19 SEP 19 DEC 19 JAN 20 FEB 20 NOV 19 6
  8. 8. 7 “[W]e need to reduce our burn rate to a sustainable level from which we can focus on pursuing the mission and growing the business over the long term. We do not want to be dependent on outside capital, so self-reliance and careful management of our resources are crucial to our future.” — ADAM D’ANGELO, QUORA CEO (JAN 2020) “We recognize that the era of growth at all costs is over…. investors increasingly demand not just growth, but profitable growth” — DARA KHOSROWSHAHI, UBER CEO (FEB 2020)
  9. 9. ¹ (Cap IQ) From Mar 19, 2019 to Feb 20, 2020. Data shows market cap % change since Mar 19, 2019. The Last Twelve Months Has Been Turbulent for Marketplace Businesses… 8 Marketplace stocks took a turn in 2019 with the Uber & Lyft IPOs and exacerbated by the WeWork implosion. This took place while the broader indexes were up >10% (20%) (10%) 0% 10% 20% 30% 40% Mar ’19 Apr ’19 May ’19 Jun ’19 Jul ’19 Aug ’19 Sep ’19 Oct ’19 Nov ’19 Dec ’19 Jan ’20 Feb ’20 Battery Marketplace Index +4%¹ NASDAQ: +13%¹
  10. 10. 9 Then, COVID-19 Came Along … COVID-19 Worldwide: The Pandemic’s Impact on the Economy and Markets U.S. GDP is collapsing as we enter what is expected to be the worst economic contraction since the Great Depression… April 6, 2020 ‘The Market’s in Panic Mode.’ Stock Markets Plunge 12% Amid Coronavirus Fears …The negative superlatives for American stocks are piling up. The S&P wiped out its gain in 2019 and is now down almost 30% from its all-time high… March 16, 2020 Stocks Plunge, With Dow in Bear Market: Live Updates …On Wednesday, World Health Organization officials officially designated the spread of the Coronavirus as a global pandemic… March 11, 2020
  11. 11. Note: (Cap IQ) Share price data as of Apr 27, 2020. 10 … And, the Battery Marketplace Index Only Plunged Further 18%Average LTM Share Price Change of the Battery Marketplace Index
  12. 12. LTM Share Price Change of the Battery Marketplace Index Note: (Cap IQ) Share price data as of Apr 27, 2020. Top half measured as companies whose stock price performed better than the average, Bottom half measured as companies whose stock price performed below the average. For companies with less than 12 months of trading history, share price change is measured relative to IPO price. But, That’s Not the Full Story 11 70% 36% 15% (18%) (50%) (60%) (65%) (80%) (60%) (40%) (20%) 0% 20% 40% 60% 80% Top Decile Top Quartile Top Half Average Bottom Half Bottom Quartile Bottom Decile
  13. 13. 12 So, what separated the winners from losers?
  14. 14. 13 efficiency.
  15. 15. 14 How do I measure efficiency?
  16. 16. ¹ Note: Chegg’s 2019 Adjusted EBITDA = $125M (Chegg’s 2019 Annual Report) and Uber’s 2019 Adjusted EBITDA = ($2.7B) (Uber’s 2019 Annual Report) ² Per Cap IQ as of Apr 27, 2020. For Uber, change is relative to IPO share price The Rule of 40: Explained 15 2019 Net Revenue $411M $14.1B 2019 Net Revenue Growth % 28% 26% 2019 EBITDA¹ $53M ($8.2B) 2019 EBITDA Margin % 13% (56%) Rule of 40 41 (30) LTM Share Price Change² +4% (33%) EV / NTM Revenue Multiple² 10.8x 3.9x Rule of 40 = Revenue Growth + EBITDA Margin A B A B
  17. 17. 70% 36% 18% (18%) (47%) (60%) (65%) (80%) (60%) (40%) (20%) 0% 20% 40% 60% 80% Top Decile Top Quartile Top Half Average Bottom Half Bottom Quartile Bottom Decile LTM Share Price Change of the Battery Marketplace Index Note: (Cap IQ) Share price data as of Apr 27, 2020. Top half measured as companies whose stock price performed better than the average, Bottom half measured as companies whose stock price performed below the average. For companies with less than 12 months of trading history, share price change is measured relative to IPO price. The Rule of 40: Efficiency Drives Superior Returns 16 Rule of 40 ~= 50 Rule of 40 ~= 10
  18. 18. Rule of 401 vs EV / NTM Revenue Multiple2 Note: 1 Rule of 40 calculated as LTM revenue growth + LTM EBITDA margin from Cap IQ as of Apr 27, 2020, 2 EV / NTM Rev Multiple from Cap IQ as of Apr 27, 2020. The Rule of 40: Efficiency Drives Superior Returns 17 8.3x 4.4x 2.4x 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x 9.0x Rule of 40: 40+ Rule of 40: 30-39 Rule of 40: <30
  19. 19. 18 How can you improve the rule of 40?
  20. 20. Battery Growth Magic Number > 0 Migrate to subscription pricing Battery CX Magic Number – 10x ROI 19 Battery’s 3 Rules for an Efficient Marketplace
  21. 21. 20 Battery Growth Magic Number > 0 Rule # 1:
  22. 22. 21 Battery Growth Magic Number = (Rev Growth %) – (S&M % of Rev) Battery Growth Magic Number > 0 Battery Growth Magic Number <= 0
  23. 23. ¹ Cap IQ as of 2019, 2 Cap IQ as of Apr 27, 2020 Rule # 1: Battery Growth Magic Number > 0 22 2019 Revenue Growth1 28% 28% 8% 2019 S&M % of Revenue1 15% 13% 49% Battery Growth Magic Number 13 15 (41) LTM Share Price Change2 +4% +18% (43%) EV / NTM Revenue Multiple2 10.8x 7.8x 1.6x A B A B
  24. 24. Average Battery Growth Magic Number vs LTM Share Price Change of the Battery Marketplace Index Note: (Cap IQ) Share price data as of Apr 27, 2020. Top half measured as companies whose stock price performed better than the average, Bottom half measured as companies whose stock price performed below the average. For companies with less than 12 months of trading history, share price change is measured relative to IPO price. Rule # 1: Battery Growth Magic Number > 0 23 22 10 (2) (14) (25) (30) (20) (10) 0 10 20 30 Top Quartile Top Half Average Bottom Half Bottom Quartile +36% +18% (18%) (47%) (60%) Battery Growth Magic Number LTM Share Price Change
  25. 25. ¹ Forbes. ² Yelp’s Q1 ‘20 Shareholder Letter. Rule # 1: Battery Growth Magic Number > 0 24 Encourage Organic Traffic & Virality Consumers as Creators / Contributors Chegg has a library of 35M user-generated Q&A; “evergreen” content that continues to compound in value over time Deep Content Library Chegg owns the solutions to textbook questions of major publishers (34K ISBNs); all indexed in SEO Product-Led Growth Human-Led GrowthVS. Create Less Dependences on Paid Marketing Acquisition Data-Driven Decisions 80% of Netflix content watched is influenced by its recommendation system¹ Unique & Original Content A massive data set of consumer behavior allows Netflix to create original content tailored to new & existing users Hyper-Local and High Commissioned Sales Teams are not Scalable Headcount Drives Majority of Cost Yelp is dependent on their 3.5K+ local sales force² to drive business development & revenue
  26. 26. 25 Rule # 2: Migrate to Subscription Pricing
  27. 27. Rule #2: Migrate to Subscription Pricing 26 The higher percentage of longer-term plans, the better: increased cashflow, more predictable revenue, higher retention & lifetime value (LTV) Transactional Monthly Subscription Annual Subscription
  28. 28. Month 12 Retention Rates: Monthly Subscription vs Annual Subscription Cohorts Rule #2: Migrate to Subscription Pricing 27 Month 12 retention rates for annual subscribers hover ~50-60%+, which is ~3x higher than Month 12 retention rates for monthly subscribers 20% 15% 55% 50% 60% 45% 0% 10% 20% 30% 40% 50% 60% 70% Company A Company B Company C Company D Monthly Subscription Annual Subscription + 2.8x + 3.3x
  29. 29. 28 Rule # 3: Battery Customer Experience (CX) Magic Number – 10x ROI
  30. 30. 29 Battery CX Magic Number = Net Revenue / CX Cost Per Transaction Battery CX Magic Number > 10x Battery CX Magic Number <= 10x
  31. 31. Source: American Express, Forbes, HubSpot Research, Salesforce, Glance Rule #3: Battery CX Magic Number – 10x ROI 30 The Importance of High-Quality Customer Service 90% of Americans use customer experience as a factor in deciding whether or not to do business with a company The Power of Great Customer Service Customers are willing to spend 17% more for a company with excellent service 93% of customers are likely to make repeat purchases with companies who offer outstanding customer service The Cost of Poor Customer Service 57% of customers have stopped buying from a company because one of their competitors provided a better experience 62% of customers say they share bad experiences with other people 78% of customers have backed out of a purchase due to a poor customer experience
  32. 32. Note: Based on Battery Venture’s proprietary research of both public and private companies, both within the Battery portfolio and not. Rule #3: Battery CX Magic Number – 10x ROI 31 A B A B Company A Company B Company C Company D Company E Company F Company G Company H Industry Services Hospitality Fashion Mobility Mobility Hospitality Services Mobility Net Revenue Per Transaction $100 $30 $20 $2 $4 $12 $4 $6 CX Cost Per Transaction $3 $2 $3 <$1 <$1 $2 $2 $3 Battery CX Magic Number 33.3x 15.0x 6.7x 6.7x 6.0x 6.0x 2.0x 2.0x
  33. 33. Source: Zendesk Survey, Coleman Parkes Research, Based on Battery Venture’s proprietary research. Rule #3: Battery CX Magic Number – 10x ROI 32 Product-Led Growth Company A Battery CX Magic Number: 33.3x Company G Battery CX Magic Number: 2.0x Comprehensive Knowledge Base / FAQ’s 67% of respondents preferred self-service vs speaking to a support agent, while 91% of consumers would use an online knowledge base if it were tailored to their needs Providing an easily accessible and reliable knowledge base will be sufficient for customers’ easier-to-answer questions, while allowing agents to focus on tougher, more nuanced asks Collaborative Community Forum Vetted by Moderators Customers can engage with one another and company representatives – ask & answer questions, search topics, socialize, and get product updates Mature chatbots can answer 50%+ of customer questions Best in class CX can address 80-90% of customer questions through automated, no touch self-service platforms High Dependency on Customer Phone Support For this particular company, 80% of their customer support contacts are serviced via phone This heavy reliance on phone support becomes time consuming and less productive for agents. Agents must spend more time on each interaction and phone calls limit the number of customers they can help at once Additionally, there’s significant cost associated with maintaining a skilled team of live support, especially those seeking 24/7 support Human-Led Growth
  34. 34. Rule #3: Battery CX Magic Number – 10x ROI 33 Service Level Agreement (SLA) on Wait Time: Phone (<2 Min), Chat (<2 Min), Email (<4-8 Hours) First Resolution Rate: 80-85% Manager : Agent Ratio = 1 Manager: 12-15 Agents Contacts Per Issue: 1.2 - 1.3 1 2 3 4 Contact Rate (Out of Every 100 Transactions): 15 - 30% 5
  35. 35. Battery Growth Magic Number > 0 Migrate to subscription pricing Battery CX Magic Number – 10x ROI 34 Battery’s 3 Rules for an Efficient Marketplace
  36. 36. 35 The Great Recession Launchpad Founded 2008Founded 2007 Founded 2009 Founded 2009
  37. 37. Source: Cap IQ Market Cap ($USD) as of Apr 27, 2020 | * Denotes a current or former Battery portfolio company. No assumption should be made that the investments identified above were or will be profitable. For a complete list of portfolio companies, please click here. We’re Just Getting Started … EquityValue $10B $36B 1998 2008 2020 Time $1.3T * * * 36
  38. 38. * * * Source: Cap IQ Market Cap ($USD) as of Apr 27, 2020 | * Denotes a current or former Battery portfolio company. No assumption should be made that the investments identified above were or will be profitable. For a complete list of portfolio companies, please click here. We’re Just Getting Started … EquityValue $10B $36B 1998 2008 2020 Time $1.3T $6T * * * 2025 37
  39. 39. The Team Roger Lee rlee@battery.com Justin Da Rosa jdarosa@battery.com Courtney Chow cchow@battery.com Download slides here: https://www.battery.com/powered/ 38

×