The 0% Take Rate Marketplace Valuation Conundrum

I wrote a post not that long ago about how take rate (or rake) is one vector for disrupting incumbent marketplaces. Recently I have seen a number of startups that have taken this to its logical extreme: charge nothing at all. Several of these companies are growing very rapidly. But there is an important catch here: how should they be valued?

Several of the startups in question are raising rounds based on a GMV metric, i.e. the size of their marketplace. Now we have a lot of experience with marketplaces and therefor have a fair number of historical valuations for comparison. Those give us some sense of what a reasonable multiple on GMV would look like *based* on the take rate for rates as low as 20 bps (basis points), i.e. 0.2% take rate.

But 0% take rate? That gets a lot harder. The argument that startups make is something like “we are optimizing for growth now and will charge later and are targeting a take rate of x%” – as you would expect though valuations are quite sensitive to what x actually winds up being. There is a big difference between 20bps and 5% (25x to be precise).

So if this is your strategy then I have two recommendations. First, don’t wait too long to start charging – it will take you time to figure out how to get it right. Second, base your valuation on a lower x than you think you can reasonably achieve. Otherwise you run a high risk of finding yourself in the post-money trap.