The world just recently learned about the phenomenal growth of OfferUp, as reported last week at New York Times, Forbes, and Geekwire. We at Jackson Square Ventures first met the founders Nick Huzar and Arean van Veelen over 3 years ago and later led their Series A round in August 2013. We’ve been thrilled to be part of the incredible journey so far, and we’re confident that OfferUp is building one of the next great marketplace brands. OfferUp’s vision is to revolutionize local buying and selling – making it simpler and more trusted than ever before.
I want to tell the story of their Series A financing. Let’s rewind to 2013 and talk about why we invested and how we saw the early network effects of the business.
In late 2012, OfferUp did not have significant traction. I met with Nick and talked about the business. about the vision made sense. Of course there is a better way to buy and sell locally than using Craigslist. Nobody likes Craigslist. And yet, they are still one of the biggest commerce platforms in the world. It felt inevitable that all this local, peer to peer commerce would move to mobile, but it hadn’t happened yet. For some reason, something wasn’t working. No matter what they tried early on, they couldn’t get enough liquidity on the platform.
Liquidity in this case means the percentage of items that sell once they are listed and the time it takes for them to sell on the platform. (I wrote a post about “liquidity hacking”). There were plenty of users and plenty of listings but the challenges of a local marketplace are substantial. You need users and listings within a short driving distance of each other. You need items listed that are of interest to the browsing buyers on the app. You need bid and ask prices to be reasonable, and lastly, you need users to coordinate times to meet in person. This is no small feat and there is a startup graveyard of companies that had ambitions to build this type of marketplace and disrupt Craigslist.
And herein lies a word of caution to all marketplace investors – many good marketplace ideas fail when they meet the harsh realities of liquidity. So, the first time I met with Nick and Arean at OfferUp I said, “great idea, great team, great product, and you need liquidity before we would invest.“
About 9 months later, we chatted again. They had been testing and iterating like crazy to achieve liquidity. And they had refined the formula to get lots of items to start selling in their home market of Seattle. Without revealing how it was done, I will say that that they were able to demonstrate a few critical things:
1 – Network Effects – This came across in a single simple chart – the percentage of items that sold by week. It was steadily increasing every single week. That is a wonderful sign – it means that more users = more buyers = more items sold = more happy sellers = more users.
2 – Engagement – users were not just coming once and leaving. DAU/MAU rates and retention rate benchmarks are well known in the mobile industry. The engagement and retention of OfferUp was very high, even 2.5 years ago.
3 – Expanding the Market – I believe that anytime you can radically lower the effort required to perform an action, you can dramatically expand the market. This is true for Uber (Bill Gurley explains expanding the market in How to Miss by a Mile). I’d argue it’s true for Tinder (the market being random hookups in this case). In OfferUp’s case, while it’s difficult to quantify how much you’re expanding the market from the early days of a marketplace, there was some solid evidence. First, you only needed to use the product for 30 seconds to see how incredibly simple it was to post an item for sale. Second, you could imagine your own user behavior. If it only took 30 seconds, are there more things at home that you might sell? I went home after our meeting and listed for sale my old espresso machine that I hadn’t used in 2 years. Third, that user behavior was backed up by some initial data demonstrating that a typical seller lists a LOT of items relative to the observed behavior on Craigslist.
4 – A Marketplace for Everyone – I really like marketplaces that anyone can use. I don’t think I’ll ever invest in a luxury marketplace catering to the rich. I like when users see a key value proposition is the cost savings. I like it when the market appeals to everyone in the country, and especially when it works well outside of San Francisco. OfferUp works everywhere and a casual look at the items for sale will quickly demonstrate that this is not a marketplace for high-end vintage furniture or exclusive fashion pieces.
Nick and Arean and the small OfferUp team had demonstrated all of these things back in 2013 with a tiny budget, a dedicated team, and a very big vision. While they demonstrated those 4 characteristics above, they were still at a very small scale. It took years of expansion to additional cities and laser-focused execution to get to today.
As NYT reported, their hard work has paid off in major ways: OfferUp is the largest mobile marketplace in the US, they’ve raised $90M total, and they’ve reached a stunning $3B in transactions so far in 2015.
Their growth continues and the vision is becoming reality. OfferUp is on a mission to revolutionize local commerce – making it simpler and trusted for everyone.