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How do you raise funds for your online marketplace startup? Top
funding rounds & sources
Sep 26, 2022
With the changing consumer preferences toward online shopping and
ordering, the popularity of digital marketplace platforms continues
to rise. The demand for marketplace apps has surged across a number
of industries, including
e-learning, ride-sharing, art, fashion, real estate, freelance,
and human resource management.
Regardless of the sector, in which you aim to launch an online
marketplace startup, you will need resources to put your idea into
life. However, even if the initial budget allows for creating a
technology startup, there are still risks of failure. In 2021,
20% of small businesses went down
within the first year, 50% fell through during five years, and 65%
— within 10 years. According to CB Insights,
38% collapsed because of running out of cash.
Therefore, it is essential to learn the ins and outs of raising
funds to prevent financial bottlenecks. In this article, you will
find out how to attract investment and increase the chances of
building a successful marketplace startup. On top of that, you will
gain insights into the current landscape of investing in
marketplaces. Let’s begin.
Online marketplace startup investment in 2021
Dealroom reports that online marketplace platforms fundraised
$139 billion in 2021, hitting the all-time record.
At the moment, there are 520 marketplace unicorns, with 145 of them
launched last year. Combined, the value of online marketplace
startups has increased by $1.9 trillion.
Non-fungible token (NFT) marketplaces showcased the fastest growth
in 2021. Providing digital content authors with brand new
opportunities to attract the audience, earn a profit, and confirm
NFT marketplace apps
have gained huge popularity recently.
In fact, NFT marketplace startups managed to attract over $1.5
billion in 2021, which was 50x more than the previous year. The
sales volume generated through NFTs marketplaces climbed to $11.6
billion in Q4 2021, raising by 8.9x from Q2. On top of that, the NFT
trading volume amounted to $23 billion in 2021, up from just $95
million in 2020.
While NFT marketplace startups were the first, grocery and food
delivery marketplaces became second and third, respectively.
According to Statista, global investment in online food delivery
and logistics marketplace platforms accounted for
$7.1 billion in the Q3 of 2021,
reaching a three-year peak. Fashion marketplace startups have also
demonstrated excellent results, with 22 unicorns created in 2021.
To raise capital, you have to showcase a product idea and
demonstrate value while passing through several marketplace startup
investment stages. Each phase is completed to attract enough money
to extend a marketplace startup and obtain the necessary results.
Taking from 3 months to a year, funding rounds differ in business
size and finance amount while the basic requirements are generally
the same. As your technology startup grows, fundraising sources and
company valuation change. Let’s have a look at the core marketplace
startup investment stages.
This phase comes so early that sometimes it is not even included in
the list of marketplace funding rounds. Pre-seed funding generally
refers to the period when marketplace startup owners are getting
underway. As practice shows, pre-seed funders are usually company
founders themselves, or their family, friends, or relatives.
After identifying user pain points, a marketplace platform owner
looks for financial support. The investment sum can be relatively
low, since the primary objectives are to proceed with market
research, competitor analysis, and online marketplace development.
In order to raise capital, you should have at least a business plan,
app prototype, and a team of diverse experts, involving the CEO,
CTO, CFO, and CMO. In addition to that, you will need to hire
software designers, developers, and quality assurance engineers.
There are many potential investors in a seed funding situation:
friends, family, incubators, accelerators, angel investors, and
venture capital (VC) firms. During this round, technology startups
can attract from
$10,000 to even $2 million.
When your online marketplace startup has high potential in terms of
a user base,
key performance indicators,
and revenue, you can try to
raise capital through Series A. At this marketplace investment
stage, startups generally strive to attract a larger audience and
scale business operations.
If you are thinking about how to get funding in Series A, you should
identify a marketplace monetization model
and prepare a business development strategy for generating long-term
profit. You also have to maintain a sustainable growth year for the
In addition to that, you will need a minimum viable product (MVP) or
at least a prototype and professional team. To
build a marketplace MVP,
you should have a budget of $40,000–$200,000 if you outsource
the project to an IT partner charging $20–$50 per hour.
In Series A, technology startups can attract $2–$15
Last year, the average Series A funding amount was
are the key investors during this stage. Examples of globally
recognized venture capitalists are Intel Capital, Sequoia Capital,
and Google Ventures.
Series B is quite similar to Series A in the context of key players
and processes. The main difference between the two startup funding
roused is the involvement of new VC firms that focus on providing
After building a marketplace app, you can use Series B to raise
finance for taking your business to the next level, meet the growing
demand, and increase revenue. Helping achieve success and scale,
Series B funding can enable you to find capital for recruiting the
best specialists, marketplace promotion, and raising salaries.
In 2021, the average pre-money valuation of Series B tech startups
Technology startups that raise funds via Series C round have already
achieved great financial results and aim to find additional
investment to extend a digital marketplace platform, hire new
employees, and enter new markets. If your online marketplace startup
has reached this stage, this means that you have proved your
business idea and showcased impressive success.
In this round, operational and investment risks are significantly
lower compared with the previous rounds. As a consequence, more
investors put their money into your company, including private
equity firms, large secondary market groups, hedge funds, and
investment banks apart from those players mentioned above.
With the goal to raise capital through Series C, you should have an
established user base, high revenue, and sustainable growth history.
Initial public offering
Prior to initial public offering (IPO), a company is considered
private. Typically, such a company has grown with a small number of
shareholders that can involve marketplace owners, their friends and
family, as well as professional investors, like angel investors and
Also known as stock launch, IPO is the process of issuing shares to
the public for the first time. This way, an online marketplace
startup is transformed from a privately held business into a public
company. By selling shares to either institutional or individual
investors, you can raise equity capital, monetize investments, and
enable trading of existing or future holdings.
Through an IPO, startups can attract millions of dollars.
IPO has two phases. The first is a pre-marketing stage, during which
you can make a public statement to increase awareness and stimulate
interest. The second part is the IPO, with underwriters engaged in
every aspect of documentation, marketing, and due diligence. Here
your task is to choose underwriters—at least one investment bank—to
introduce terms, proposals, and valuations in the agreement.
It is worth noting that IPO procedures are regulated by various laws
across different countries. In the US, for instance, IPOs are
governed by the United States Securities and Exchange Commission
under the Securities Act of 1933.
Since IPO allows you to raise finance from the entire investing
public, this may become a significant step for your marketplace
startup, with new opportunities to expand. What’s more, this model
helps improve company prestige and public image whilst facilitating
acquisition deals. As you have to provide quarterly and annual
reports, you will manage to increase credibility and obtain more
favorable credit borrowing terms in comparison with a privately held
However, this marketplace startup funding source has a few
drawbacks. First and foremost, IPOs are usually expensive. The costs
of maintaining a public company are ongoing and comprise accounting,
legal, and marketing expenses.
Data transparency can be a disadvantage, too. You will have to
disclose financial, tax, enterprise, and other sensitive information
that could aid your rivals. Meanwhile, reporting generally requires
time and effort. In addition, fluctuations in share price may be a
distraction for management.
As a rule, technology startups use IPO after reaching a valuation of
nearly $1 billion. However, you can qualify for an IPO if your
online marketplace startup has already proven its profitability
potential and your product stands out from the competitors.
A number of marketplace startups used IPO to raise capital,
involving Airbnb, Scout24, and Delivery Hero. Based in Germany,
Scout24 runs digital marketplace platforms for multiple industries,
from finance to real estate. In 2015, Scout24 entered the stock
market, issuing 38.64 million shares at the price of €30 per each.
As a consequence, the startup managed to generate a revenue of €1.15
Raising finance from your network
Raising finance from your own network means that you showcase a
marketplace startup idea to friends, family, relatives, colleagues,
or former partners. As a rule, this is the fastest and easiest way
to attract investment. In this case, you should explain a product
concept, for example, by demonstrating a simple prototype or
While this approach generally requires no agreements, we recommend
that you sign a contract for eliminating the chances to ruin
relationships. The contract should contain points such as sum,
repayment deadlines, and repayment procedure, as well as protect
your intellectual property. When providing their financial support,
people primarily invest in you, not in a software solution, which
leads to increased responsibility.
By implementing this fundraising strategy, you will be able to
quickly receive an initial budget and launch an online marketplace
startup. Contribution amounts raised through this marketplace
investment source basically range between
Crowdfunding is another effective way to raise finance for an online
marketplace startup. In crowdfunding, a company uses platforms like
to attract investment through donations from individuals or
communities. This model allows for selecting from thousands of
projects to invest even as little as $10. Crowdfunding platforms, in
turn, earn income by charging a percentage of the capital raised.
Through crowdfunding, it is possible to raise
$1–$5 million. Thanks
to crowdfunding, technology startups access a large network of
people and businesses through respective websites and social media
channels, thereby expanding a traditional pool of inventors such as
friends, family, and venture capitalists.
Furthermore, this approach can help you increase awarenesses about
an online marketplace startup and reach a wider audience. When using
reward-based crowdfunding, you can provide investors with benefits
for participation in marketplace testing and release, this way
boosting their engagement and growing a community of potentially
It is worth noting that a lot of crowdfunding platforms operate
according to an all-or-nothing model. So, if you do not accomplish
an investment goal, people who have put up their money will get it
When choosing a crowdfunding platform, take into account that some
websites have a narrow focus and may not bring you money. To draw
the attention and raise capital, you need to come up with a business
plan and prove the advantages of your offering.
Ghost Marketplace and Billion Vegans are examples of well-known
startups that used crowdfunding to attract investment.
Accelerators and incubators
With the goal to receive aid in business growth, early-stage
startups often search for accelerators and incubators, which are
organizations that offer mentorship, recommendations, and resources
to raise capital.
Lasting up to a few months, accelerator and incubator programs
include a Demo Day when startup owners can present their product
concept and draw the attention of the investor community. While
accelerators and incubators can be involved in all phases of
marketplace startup development, the majority of them tend to assist
Inversely to incubators, accelerators usually do not provide
startups with office space but have a physical location to hold
various events, for instance, with invited guest speakers.
Although marketplace startup fundraising through accelerators and
incubators is an appealing option, it may be challenging to get into
the program. For example, leading accelerators, such as
Y Combinator, generally accept less than 2% of candidates.
As a rule, they take startups that have created an MVP and already
showcased excellent business results. Incubators, in turn, can work
with startups that have come from their own network of advisors or
select companies through the application process.
A typical investment from accelerators and incubators is
$20,000–$150,000 in exchange for 5–15% of
marketplace startup equity.
US — Y Combinator, Techstars, 500 Startups, Alchemist Accelerator,
StartUp Health, Plug and Play, Cogo Labs, Google Launchpad
Europe — Startupbootcamp, Zero Gravity, Accel Springer Plug and
Play Accelerator, World Startup Factory, and Startup Wise Guys.
US — Idealab, Z80 Labs, AngelPad, Tech Ranch, Excelerate Labs.
Europe — CodeBase, Seedcamp, Startup Lab, Entrepreneur First,
Sting, High Tech XL, Bethnal Green Ventures.
The key advantages of marketplace fundraising through this model are
community support and mentorship regarding development, marketing,
public relations, and legal issues. Therefore, incubators and
accelerators are not just funding sources for startups.
By participating in respective programs, it is possible to create a
network of potential investors, establish partnerships, and promote
an online marketplace startup. However, you are likely to encounter
intense competition. Furthermore, this approach requires a lot of
time and effort whilst there are no success guarantees.
are among the leading marketplace startups that have taken advantage
of this investment method.
Also known as angel funders, business angels, or
informal/private/seed investors, angel investors are individuals who
give financial support to startups or early-stage companies,
basically in return for ownership equity. Unlike venture capital
firms, angel investors generally invest their own money.
The majority of angel investors have excess funds to support risky
startups in search of a higher profit compared with traditional
investment opportunities. Angel investors tend to provide finance at
the early stages of a startup operation. This method offers more
favorable terms, since angel investors mainly focus on helping
entrepreneurs get off the ground rather than on potential income
they may earn.
Contribution amounts from angel investing can vary from
$5,000 to $150,000. It is worth noting that some private
investor groups can establish a syndicate and provide
funding up to $1 million
for selected online marketplace startups.
Angel investors usually aim to receive between 20%–25% of the
revenue you will generate through a digital marketplace platform.
However, the price depends on the initial contract. Although it may
seem to be too costly, less expensive funding sources (for example,
banks) are not typically available for early-stage marketplace
Nevertheless, private investors often do not charge repayment in
case of an online marketplace startup failure, which is a
significant advantage. Therefore, this option has fewer risks than
using business loans. What’s more, angel investors are ready to
share their knowledge in growing a company to help you achieve
When looking for investment opportunities, take into account that
informal investors receive a stake in your marketplace startup,
leading to a lower level of independence in decision-making.
As business angels primarily invest in the entrepreneur and team,
this method is all about trust and relationships. To find an angel
investor, you can turn to a network of friends, family, and
partners. You can also visit various events, for example,
conventions, meetups, and fundraisers.
Another way is to use online platforms
(Angel Capital Association,
Angel Investment Network,
Gust, etc.) that connect startups with the right people. With
the view to draw attention, create a clear and memorable pitch that
explains product value. In addition, you need to outline a business
plan describing a path towards ROI.
Venture capital is another popular method of tech startup financing
that you should consider. VC firms or funds invest in startups and
emerging companies that have showcased great results (annual
revenue, scale of operations, team extension) or have high growth
potential. In return, VC capitalists receive an ownership stake or
Aiming to offset the risks, VC firms get control over marketplace
startup decisions. Series A is the first VC funding round. After
providing finance, VC funds charge an annual management fee, which
typically accounts for nearly 2% of assets under management (AUM).
However, some VC funds do not require paying a fee except as a
percentage of returns received.
Contributions made by VC firms may vary from
$300,000 to $3 million.
Along with crowdfunding and angel investing, VC is a great
investment source for online marketplace startups with a limited
operating history that currently are not able to issue a debt
offering or obtain a bank loan. VC firms tend to offer strategic
advice to marketplace startup owners regarding business models,
monetization, and advertising.
If you are wondering how to raise finance through VC, it is
important to begin by creating a business plan and product pitch.
Then, you should introduce a clear strategy of how you are going to
attract users and generate profit. To find a VC fund, you can use
online platforms such as
Additionally, it is possible to
directly connect with venture capitalists via their own blogs (for
feld.com), email, LinkedIn, or Twitter.
World-famous marketplace startups such as Flipkart, Airbnb, eBay,
and Uber have used venture capital to raise funds.
With the view to help you raise funds for an online marketplace
startup, our software experts have identified a few valuable
recommendations to increase success chances. When preparing a
marketplace investment strategy, you should:
Create a product pitch highlighting a unique selling proposition,
your goals, and the benefits you are going to provide investors
Outline a business plan describing a clear path toward ROI,
including a marketplace monetization strategy.
Develop a prototype or a
for explaining the solution concept and demonstrating value.
Determine at which startup funding round your marketplace startup
is at the moment.
Find relevant and trustworthy investors. For this purpose, you
should analyze their investment profiles, check out what types of
projects they have already put their money into, and at which tech
startup development stages they tend to support.
If you aim to launch a marketplace startup, you are welcome to
contact our team. We will get back to you within 1 business
day and help address all issues. To ensure data confidentiality and
protect your intellectual property rights, we are ready to sign a
non-disclosure agreement. Project consultation is free of