Marketplaces that Will Work in

5 Marketplaces that Will Work in 2013<br /><br />Since eBay pioneered the concept of digital marketplaces back in 1995, scores of such portals have popped up on the web, with varying degrees of success. Those marketplaces, like eBay, which have effectively reduced transaction costs between buyers and sellers by aggregating supply and demand and creating new profit opportunities in the process, have thrived. Others, like the thousands of B2B marketplaces that sprang up during the Dot Com bubble, have floundered. Most people would rather have a root canal than shop for dental, health or any other kind of medical insurance. Each individual has vastly different benefits needs, but most plans offered by employers are of the one size fits all variety. Enter Liazon, which helps employees find the most cost effective plan for themselves, and save employers money in the process. Liazons Bright Choices exchange allows employers to choose a dollar amount to allocate to employee benefits and employees then have control over these benefit dollars and can build a specific health insurance portfolio that is tailored to their unique needs. We love what Liazon is doing for two reasons: first, as a digital marketplace, it uses technology to create value for consumers, similar to what we believe equity crowdfunding portals will do for entrepreneurs and investors. faces over the long term is healthcare, and Liazon helps lower costs by allowing people to buy services they actually need, and in turn employers can more cost efficiently provide health coverage for their employees. Employers seem to be taking note, as Liazon landed at 132 on Inc. magazines 2012 list of the 500 fastest growing private companies. Makes a complicated process easier and lowers the costs? Thats a big improvement beyond the way the world currently works. And thats why we love Liazon. The ubiquitous source for restaurant reservations. What we love about OpenTable is the barriers to entry it has created and the network effect it enjoys. The more restaurants that use OpenTable, the more potential diners search OpenTable for reservations. The more diners on OpenTable, the more restaurants that want to join, and so on. With over 26,000 restaurants in North America on the OpenTable platform and an installed base of equipment in each, not only is it a hassle for restaurants to decamp from the service, but also it would be very challenging for the next OpenTable to successfully enter the marketplace. One other thing I love about OpenTable their amazingly bold vision from day one. Ive talked to people that have tried to install similar software or hardware door by door. It is incredibly difficult to acquire customers. Which is exactly why OpenTable isnt going to lose its position anytime soon. While Uber has done a great job enabling town car drivers to increase their capacity utilization, Airbnb is the original and king of the capacity utilization equation. For the uninitiated, Airbnb allows people to rent out their homes or individual rooms in their homes to complete strangers, the same as a hotel would. While the concept is revolutionary in hindsight, 15 top tier VCs passed on the idea, which has spawned imitators in the pet boarding, taxi service, car sharing and room rental spaces. But what we really love about Airbnb is the value the team placed on product design distinct from engineering in the early stages and the premium they placed on trust. As the Fast Company article linked above notes, when Airbnbs founders realized that shoddy photography was hampering rentals, they decided to offer the services of more than 2,000 photographers at no charge to owners of prospective rental properties. When an Airbnb property was trashed, they overhauled their customer service and liability policies. Whether higher quality photos or a 24 hour customer support line, each action helped improve trust between owners and renters, the critical element of Airbnbs success. Here at CircleUp, it is critical that we build trust between investors and the entrepreneurs. We try to do that in a variety of ways, but we admire how Airbnb used their product design visual and interaction to build between renters and owners. Product design was critical to the marketplaces growth but Ive also been impressed by their innovative features. HomeAway dominated this market before Airbnb. Readers can name a lot of reasons why Airbnb has taken over, but one that interests me is capacity utilization. While other houses focused solely on renting an entire house/apartment the obvious solution, Airbnb innovated and saw excess capacity in the form of one room, a bed, or a couch. To some users that seemed cute, but that cute idea led to the usage of excess capacity great for both renters and owners. I need someone to pick me up dog food, background checked TaskRabbits the moniker for those doing the errands in your neighborhood bid on your task, and the lowest bidder completes it, with TaskRabbit serving as the payment intermediary. I particularly love two elements about TaskRabbit. First, is the integration of the social graph to provide real identity to TaskRabbits versus other marketplaces like Craigslist where the anonymity of the platform has had negative consequences. Second, TaskRabbits revenue model the TaskRabbit and the company simply share in the revenue when the TaskRabbit acquires a new customer provides a much better customer acquisition platform than services like Angies List which charges the consumer for content or service providers that charge on a per lead basis. Simply, the incentives are better aligned for everyone. In 2012, over $1 billion worth of scarves, ottomans, jewelry and other handmade, vintage and raw material items will be sold on Etsy, the online bazaar that lets people sell their homemade wares to customers across the world. Etsys 2012 transaction volume is nearly double the total from 2011 and 3x 2010s volume. aggregating supply and demand, creating incremental profit opportunities what we love about Etsy is the community they have created. For example, sellers have their own stores on Etsy, Etsy hosts in person community events for enthusiasts, there are Etsy teams where those who share common interests can collaborate and Online Labs offers video tutorials on a host of Etsy topics. By creating a vibrant community that extends offline, Etsy has made its buyers and sellers that much more sticky and made it more difficult for competitors to replicate its success in a marketplace with virtually no natural barriers to entry.<br /><br />The five examples of great digital marketplaces I mentioned all remove friction from offline marketplaces whether it is the hotel room, health insurance or restaurant reservation market. At CircleUp, we are similarly trying to remove unnecessary friction from the fundraising and investing markets through equity based crowdfunding. For those more interested in the characteristics of successful digital market places, Benchmark Capitals Bill Gurley has a fantastic blog post on the topic.<br /><br />Disclosure: My brothers VC firm is an investor in TaskRabbit.<br /><br />Not sure how you can make that preposterous conclusion on Open Table. The company has very limited growth opportunities, sells at a P/E of 52 and relies on heavy short interest to cover when analysts prise it for no particular reason. It had its one groupon that failed miserable, went international and is losing its shirt there and not only can , but will, lose major restaurant chain customers that represent a substantial portion of its revenues when a self implemented reservation and seating system comes viable. Almost no one searches for a random restaurant, 80% of diners know the specific restaurant they want, and that bodes poorly for Open Tables big restaurant chain clients like Ruths Chris, etc. Open Table will probably be around for another decade or so but the growth period is over or closer to over. Flat earnings for two decades gets you $30 $40 max. Now PV that back and tell me what the stock is worth.<br /><br />The recently released Uglii Spatial Marketplace System is also aiming to remove friction from offline marketplaces. Its two main tools for achieving this are an authenticated listing of participating businesses and an extensive taxonomy, currently including over 700,000 products and services! These are two features that John Knorr, the driving force behind the Uglii system, has long held to be key weaknesses in existing trading arrangements.<br /><br />I am the founder and CEO of CircleUp, an equity based crowdfunding platform focused on consumer and retail companies. Before I started CircleUp, I worked in consumer focused private equity at TSG Consumer Partners and Encore Consumer Capital. My experience in private equity exposed me to many great consumer and retail businesses that were too small to obtain funding through the traditional private equity channels. I created CircleUp to open up these investment opportunities to more investors, helping the best of these businesses gain access to capital while lowering the cost of investment for individual and small institutional investors. I received my MBA from Stanford and BA from Duke. I also hold Series 24, 63, and 82 licenses.