Four steps to evaluate a network effects business - Sameer Singh (SpeedInvest / Breadcrumb.vc)

Please note: The transcript is automated, meaning that there will be mistakes.

Sameer Singh: I am scared of trends. Generally, when a trend shows up, it's either bullshit Mhmm. Or it's too late. And usually a combination of both.

Sjoerd Handgraaf: Welcome to TwoSided, the marketplace podcast brought to you by Sharetribe. Hello, and welcome. I am Sjoerd, CMO at Terrified, and I am your host. Welcome to the second episode of season three of 2 Sided, where we'll talk to Sameer Singh, an angel investor known from his excellent blog on network effects, breadcrumb.feecy, former Atomico Angel, and currently venture partner at Speedinvest. I've known Sameer for quite a while now, and I regularly revisit some of his writings.

They're really terrific, and we'll discuss these a bit in the episode. But perhaps more importantly, we also discuss how Sameer evaluates marketplace businesses. For example, how to evaluate network effects. Sameer walks us through his 4 step evaluation process for investments where he focuses on unique multiplayer interactions and defensibility. We'll also talk about the challenges in early stage marketplaces.

We discuss common mistakes made by aspiring marketplace founders, such as picking overly narrow markets or trying to tackle too many problems at once. I'm sure that does sound familiar for many of you. And finally, we discuss future trends in marketplaces, although Sameer basically says he doesn't really believe in trends. And so instead, he wants to emphasize the lasting power of network effects and will explore some opportunities that are driven by behavioral shifts that Sameer sees, especially when it comes to Gen z and AI technology. I think another terrific episode packed with valuable tips and insights.

And if you're building a marketplace, you're going to love this. Now here is my chat with Sameer Singh. Hi, Samir. Welcome to the show.

Sameer Singh: Hey, Stuart. Thanks for having me.

Sjoerd Handgraaf: Yeah. Thanks for coming on. Luckily, we're in the same time zone. I think that has been different than some of the previous recordings. So but still, appreciate you very much coming here and and sharing your knowledge and experience.

But before we dive into all of that, could you tell a little bit about, yourself? Like, what did you do before, you became an investor focusing on marketplaces?

Sameer Singh: Long story. I mean, the short version is I spent five years working for a startup called App Annie, which is not very well known in European circles, but reasonably well known in Silicon Valley circles.

Sjoerd Handgraaf: Mhmm.

Sameer Singh: They raised $1.60,000,000 from Sequoia, IVP, Greycroft. Company had an interesting trajectory. My role was basically to work with customers and help them understand how to use App Annie data. Turns out lots of customers had network effects, which was a topic I was familiar with because the way App Annie found me is when I was in India, I was writing a blog about mobile ecosystems and operating systems and applications built on top of them and how network effects actually sort of make these businesses work. So after those five years, I left Apani.

I wanted to go back to investing, which is what I was doing in India before Apani. I knew I wanted to focus on network effects, which is something that I'd accidentally worked on over the last, five to ten years. So I started by writing a a few essays about type of effects that I had learned. Pandemic hit had a year to myself. Basically wrote a book's worth of essays.

Yeah. From that, accidentally got pulled into the Tomoko Angel program, started investing in network effect companies, ran into Speedinvest. While doing that, joined them as a venture partner. In the meantime, a couple of folks reached out and said, hey. Are you gonna teach a course?

And I said, about what? About the stuff you've been writing. I was like, oh, I didn't know that was a thing. And so 1 day, I put out a LinkedIn post saying, hey. I'm gonna teach a course about network effects next week.

Does anyone wanna wanna join? Yeah. 70 will show up. And that's how I started teaching the course, which is now on ReForce.

Sjoerd Handgraaf: Yeah. That's kind of the

Sameer Singh: long story or short version of the long story about

Sjoerd Handgraaf: Yeah. No. I think it was excellent summary because I I wasn't sure, like, before the interview, like, what we can talk about because you or which I I knew what we could talk about, but more like what to pick because you've done loads of things. And and for the people listening at home, I can definitely check out, I can definitely recommend checking out Samir's work. Is it still under breadcrumb.vc?

Is that where you can find everything? Yeah.

Sameer Singh: Everything is Yeah. Should be there.

Sjoerd Handgraaf: Yeah. So that's like because it is an incredible set of primers on the different network effects and and how they work. So so please, if you're at home and and you're a marketplace founder, then I would recommend, checking that out. Yeah. So, actually, maybe a little bit about that.

We can maybe take that take that line for now. So so your specialty is really like network effects. When you evaluate offers or requests to invest, like, do you have a process that you go through or what? How do you evaluate those, especially within the light of network effect?

Sameer Singh: I've actually open sourced this part of my high level evaluation on my about page as you can find it back from me as well. But I follow a 4 step process. If I were to be sort of very, very simplistic about it, there are lots of nuances in each. Yeah. The first one, and I wouldn't say I'm a stickler for this, but it helps, is what is the personal relationship that the founder has with the problem that he's solving?

Like, is this just about starting a company about money? Is that you're a mercenary or is there something else that is driving you? Something that what's your core belief about this problem and why it's worth solve? So I I prefer missionaries or mercenaries. That's the saying electives.

That's the thing. But that's all just sort of 1, on the person and their motivations. Right? The when we actually get into the proposition itself, The first question I have is, is this product creating a unique structured multiplayer interaction between 2 or more users? If you don't have that, you don't have a network effect.

So that's just a very, very simple yes or no question. So the way I try and evaluate that is just ask the founder to break down how the product works like I'm a 5 year old

Sjoerd Handgraaf: Mhmm.

Sameer Singh: Step by step, and so I can figure out whether it actually fits into that construct or not.

Sjoerd Handgraaf: Yeah. Could you give an example? Because I think I understand what it means, but I'm not sure, like, if all of our listeners

Sameer Singh: are I'll give you an example Yeah. Like, a a marketplace example and a non marketplace example Sure. Portfolio. Right? A non marketplace example being how about, which is a social calendar.

The way the product works is you go in, you invite your friends, you add stuff to your calendar, your friends can can see your calendar, you can see their calendar.

Sjoerd Handgraaf: Mhmm. So you

Sameer Singh: kind of initially could figure out, hey, when are we gonna available? It's a whole lot easier than trying to figure that out on WhatsApp. Yeah. So kind of the original idea was to bring the Google Calendar workplace experience to your friends. Yeah.

And of course, over time, there have been sort of other enhancements and the product has gotten more and more social, but essentially that at the at its core, that was sort of the multiplayer interaction.

Sjoerd Handgraaf: Got it.

Sameer Singh: The second on the marketplace for another company called Home Cooks, a marketplace for independent home chefs. And the way it worked is chefs cooked in in batches. Home cooks would pick up the food, store it in a a freezer, and then deliver it to consumers across the country.

Sjoerd Handgraaf: And the

Sameer Singh: chefs are only paid once the the dish was sold. So it was a consignment based market.

Sjoerd Handgraaf: Got it.

Sameer Singh: The first one, how about is a multiplayer interaction between users to share time? Yeah. The second one is a multiplayer interaction between independent chefs and consumers to sell food. Got it. The third point is delves into a lot of my frameworks that I've written on Breadcrumb VC.

Does this interaction create a network effect that is scalable and defensible? Or or at least it's not sort of the the worst category of network effect. Whereas Mhmm. Network effects have a spectrum. Right?

So for a marketplace, for example, is it cross border? Are you connecting users? Both buyer and seller need to be in the same location Yeah. Or can they be in different locations when they're transacting? Uh-huh.

That they're in different locations. The marketplace is a bit more scalable. And, of course, this is not binary, the spectrum. For example, home cooks can can help a chef in London and a consumer in Scotland to transact. But right now, it doesn't help a chef in London transact with a consumer in China, for example.

Right?

Sjoerd Handgraaf: Got it. Yeah.

Sameer Singh: Whereas for example, Airbnb would do that. So here as well, you would see a spectrum. And then on the defensibility side for a marketplace, the more unique and differentiated each unit of supply is, the longer t or supply is, and therefore, the more, defensible you are. The the higher the bar to reaching critical masses.

Sjoerd Handgraaf: Yeah. Yeah.

Sameer Singh: And of course, for different types of network effects, the specific, levers that make them scalable or defensible would be different. So depending on what the interaction is, what makes, what I look for in that third step tends to vary a little bit. Mhmm. Got it. And then the final step is, is this interaction showing early indications of working?

Mhmm. And generally, that does not growth at the stage that I'm investing in. No. I I try and look for companies that have some early meaningful sample size of users. So if, like, it's a consumer social product, you have a few thousand active users.

If you have a marketplace, you have 50 to a hundred monthly transactions. So there's enough in that the behavioral metrics are not noisy. So the kind of things I'd be looking at, let's say, for a marketplace would be search to fill. The percentage of users who, say, come on to the marketplace and end up making a transaction. Is that going up over time?

And so as you add demand and supply to the market place, is search to fill going up? If it's not going up, the interactions aren't working. And similarly, if it's a marketplace that has specific units of supply that are being sold, so you have sort of limited capacity. Yeah. Is the utilization rate going up?

The percentage of supply that's being sold as you add supply and demand to the market. Yeah. Now if it's a higher frequency marketplace, you might look at things like transaction frequency is that going up. If it's something like a social network, you might try to define this is the core action that is

Sjoerd Handgraaf: that is

Sameer Singh: done in the product. Is the frequency of that going up over time as you add users? So it's more behavioral metrics. You're trying to gauge user behavior to figure out if you're seeing early signs of network effects kicking in or not as opposed to things like growth.

Sjoerd Handgraaf: Yeah. Okay. That makes sense. Like, could you, maybe is it is it possible that you give this by a recent example where you have sort of made an investment or or you suggested making investment where you're like, okay, this 1 like you said, you know, like, it's it's not a it's not a binary situation, so maybe they score strong on point 1 and maybe less on 3. But maybe could you talk us through, like, a recent, investment?

Sameer Singh: Let me go back to how about. Right?

Sjoerd Handgraaf: Because it's

Sameer Singh: a it's an example I've used in my re forge course as well, and people can sort of clearly see the link between early metrics and sort of what's happened over time. Yeah. So I saw how about when they had about 5000 monthly active users back in At this time, I mean, the product was still sort of very rough around the edges. The UX wasn't wasn't great. Mhmm.

And back then, it was simply just a calendar. You couldn't even chat with you. You could add friends. You could share your calendar with them. They could see your calendar.

You could see their calendar, and you could go ahead and create plans and invite them to plans. That's pretty

Sjoerd Handgraaf: much it.

Sameer Singh: It worked exactly like calendar. There wasn't anything else in the product pack.

Sjoerd Handgraaf: Got it.

Sameer Singh: And so the only things you could evaluate were, 1, how many events were users creating

Sjoerd Handgraaf: Mhmm.

Sameer Singh: And how would that change over time, and how many events were people responding to? Yeah. How was that changing over time? Yeah. I mean, both of those, like, the events created per user and the responses per user had gone up by anywhere between 3 to 6 x over, like, six months.

Sjoerd Handgraaf: Okay.

Sameer Singh: I think the user base had doubled little less than doubled over that time frame. Yeah. So clearly, something was kicking in with user behavior. Yeah. So, like, you you were seeing a clear inflection point user behavior.

Yeah. So we told you that the the network effects were kicking in for that early base of users for that 1 narrow use case. Yeah. That's exactly what I'm looking for.

Sjoerd Handgraaf: Got it. Yeah. By the way, there's probably a risky time also for that particular because it was COVID, like, alright?

Sameer Singh: It wasn't it, like, what did you say? Did you say 2020? It was it was COVID and in fact, this was even during lockdowns, this was happening, which was which was incredibly interesting.

Sjoerd Handgraaf: Yeah. Yeah. For a marketplace that is about people meeting up in real life, that's a very or another marketplace, but

Sameer Singh: a a platform. A network. Yeah. So internally, people were just sort of scheduling thing like video game hangouts and and chat and stuff like that. And that just turned and once the lockdown opened up, it sort of accelerated even more.

Sjoerd Handgraaf: Yeah. Do you have any preference, when you evaluate marketplaces specifically about should they be focusing on the supply side or the demand side? Like, where do you usually see where the problems are? Or is it too dependent to say?

Sameer Singh: It's very, very specific to each to each market. I'd be very hesitant to give a broad, broad answer that, generally speaking, it tends to be which side has the bigger problem. Mhmm. No. You want both sides to have the problem.

Because if both sides don't have the problem, you don't have a marketplace. No. You just start to you just have 1 side of your market. The other side is

Sjoerd Handgraaf: not interested.

Sameer Singh: Yeah. But, typically, 1 side has a massive head on fire fire problem, and 1 side has a slightly less head on fire problem. And the slightly less head on fire problem is the side you need to you need to get first Okay. Because that's what'll make or break. That's the harder side of the marketplace that'll make or break.

In a consumer marketplace, typically, consumers are the hardest side. The demand side tend tends to be the harder side. In many cases, suppliers always wanna sell. Yeah. But you always want to get some critical amount of supply before you wanna get, a market.

So I've seen people go at at this in sort of various ways. You can collect a wait list, then go to supply and onboard them, or you can get an initial sort of base of supply. See if you're finding any sort of hot spots Mhmm. On the demand side with that initial supply, and sort of expand that out first before you attack more supply. Yeah.

There's sort of various ways to do it. Once there are multiple ways to skin a cat, but, it's very unique to each, to each marketplace. The the interaction, it depends on what the interaction is.

Sjoerd Handgraaf: Yeah. No. That makes sense. That makes sense. Yeah.

When you think about, like, if I'm you know, the audience will be mostly, like, early stage or or or aspiring marketplace founders, like, are there any trends that you're seeing in terms of, like, types of marketplace or categories or particular industries where you feel like, okay, there is still a massive because I've I've talked to several investors before, and, some of them just simply still believe in the marketplace model. Right? Like, I think we met actually last time at the marketplace conference, and Jose Marin from LGA Labs was saying there that, people still come to them and saying, well, aren't all the marketplace done? And no. Actually, their opinion is no.

Actually, there's super many opportunities still on on on multiple, areas, whether that is industries or models or particular network effects that you're like, okay. You get excited when you see your pitch, like, that that seems to point to 1.

Sameer Singh: So, I'm gonna give you, a slightly boring and part controversial answer. 1 is 1 part of my answers are similar to, I think, what what they mentioned in the sense that I'm evaluating network effects, not, specific spaces. So I I I'm fairly agnostic on vertical. I am scared of trends. Generally, when a trend shows up, it's either bullshit Mhmm.

Or it's too late.

Sjoerd Handgraaf: Okay.

Sameer Singh: And usually a combination of both. I'll give you an example. Right? We've all heard of the sharing economy. It came that's what happened over sort of a decade ago.

You go back and really unpack it, like, what was in that train? Yeah. You had Uber. Yeah. I guess there was a bit of sharing involved in the beginning.

Yeah. You had Airbnb.

Sjoerd Handgraaf: Mhmm.

Sameer Singh: You had a bit of sharing involved in the beginning. Yeah. That's pretty much it. And if you actually compare Uber and Airbnb's company, they have nothing in contact. No.

It was a term made up by a couple of investors who kinda wanted to talk about it on the breast, and that just became its whole thing. And a whole bunch of companies in that space got funded and wind bust. Even now, like, to be honest, you asked me about a lot of the quote unquote trends that are happening right now, and I fundamentally question whether any of those companies are actually investable. Mhmm. Like I said, the trends are are are something I stay away from.

I also think that as a as investors, sometimes we get too opinionated on what problems are worth solving. Yeah. I don't think we as investors are close enough to the problem, to be able to assess that. I think the founders are the ones who are close to the problem. Yeah.

And to work out, a, that problem is worth solving and b, if that, what does the solution to that problem is. Now when they come to us with this, as investors who are focused on 1 particular niche of investing, my job is to go through that 4 step process and go, hey. Is this actually a network effect, or is this something like Kazoo where they saw buying and selling cars? So that's another trend that we can we can talk about. Right?

Second, it'll actually have strong network effects. And irrespective of what marketplace comes to me, I'm able to evaluate what it is because Yeah. Network affect our math at the end of the day. Yeah. And you can see the behavior of how it's going how it's going so far.

So I'm gonna be using that process no matter what. So I don't have any point of views on trends. Like, the only thing I can add is perhaps AI can enable the creation of new marketplaces

Sjoerd Handgraaf: Mhmm.

Sameer Singh: Just as a new technology that couldn't have existed previously. Yeah. And so perhaps there's room for AI enabled interactions. Yeah. Like, frank frankly, I'm quite underwhelmed by a lot of the AI businesses I'm seeing right now.

Yeah. But I'm hoping at at some point people figure out that AI as products is not really going to cut it. And, we go back to building actual businesses with sort of technology under the hood as opposed to selling technology.

Sjoerd Handgraaf: Yeah. Yeah. I think it's a really good take. I really like that. Is there I understand that you were like you take the position of sort of being agnostic and you just you just take your model and project that on what is in front of you.

But maybe then more a question of, like, are there particular areas where you see opportunities still that where where there's a clear lagging behind or maybe, like, some kind of technology adoption or the adoption of platform model where you're like, okay. I think, like, that you believe that there's a model there. There's just hasn't come the right player to to do it, for example.

Sameer Singh: Specific models, no. But if I were to give you broad strokes, like Yes. Most interesting companies are formed on sort of 2 shifts. 1 of 2 shifts. Right?

Sjoerd Handgraaf: Mhmm.

Sameer Singh: 1 is a behavioral shift. Like, people are more comfortable doing something than today as opposed to, business generation. So Gen z, for example, their behavior tend to be slightly different. So I do think there's room for new consumer products that tap into that behavior. And how about being a really good example?

I think twenty years ago, if you ask people to share their calendars with each other and essentially create a social network after that, I think they would look at you funny. Yeah. But I think today that's, especially within younger generations, that's a whole lot more normalized. Mhmm. The second is and if you were to go back to the past, people staying in each other's other's homes Yeah.

Twenty, thirty years ago, ridiculous concept. Right? Yeah. Behavioral change makes it acceptable because the Internet is just normalized some of that behavior. Mhmm.

Second is technology change. Something that was not possible before is possible now, which enables our new proposition and product. Yeah. So if you go back to Uber, it's not that you could not have order a taxi on the Internet before. It was just painful.

Yeah. And now with a smartphone in the driver's hand and in the user's hand, you can press a button and track the car where it was. And so that enabled smartphone GPS enabled to run and ubiquity of smartphones enabled.

Sjoerd Handgraaf: Yeah. Yeah. Right?

Sameer Singh: So so that where does AI under the hood actually do something? Maybe? Like, I'm I I would hesitate to say we've seen a ton of those

Sjoerd Handgraaf: Yeah.

Sameer Singh: So far, but that's 1 possibility on the technology side. On the behavior side, I think Gen z growing up smartphone native has some interesting behaviors that leads to new products as well.

Sjoerd Handgraaf: Yeah. Yeah. That makes sense that we were in earlier conversations with someone else, I was we were talking about, like, 1 possibility would be, like, because a lot of the marketplaces basically enable some sort of, like, information, symmetrization. Right? Like, I need to know what's the price or how many vendors are out there or or etcetera.

And that, like, AI has a good opportunity to sort of synthesize all that information and somehow how equalize that. You know, like, if you think about, for example, thumb tag, if you need to specify as a consumer a particular job to the side of the marketplace, AI can can assist. I I I I believe that in the same way. The other way around that, like, a way to for the consumer to get a summary of what is out there and get some kind of you know, because even a good search or, like, on if just purely from the marketplace perspective, you like, a good categorization and search, etcetera, you still need to do a lot of work as a consumer to figure out on some of these sort of if you think about home services, for example, specifically, to figure out, like, what is out there. And if if there is something, I feel that that's where AI could potentially do the work, like, some sort of assistance.

But I

Sameer Singh: mean, per perhaps with stuff like that, so the second question in my framework pops up, right, is there actually a unique interaction? So let's say you were you were to take a thumbtack like marketplace and Yeah. Leverage AI to sort of facilitate better matchmaking. Like, fundamentally, the same interaction. And so the question is, like, what areas can you actually create novel interaction and new behavior?

Like, I'll give you an example of portfolio company at a very, very early in their journey. But essentially, what they were doing was, the moment you signed up, you would integrate your email. They would pull all of your historical purchases Yeah. And create a feed of all the products that you owned. And, of course, the a the reason AI is important there is if you actually do that, you'll end up with a lot of, like, batteries and hammers and nail stuff that is not interesting.

Anyone.

Sjoerd Handgraaf: Yeah. Yeah. Yeah. Yeah.

Sameer Singh: And so AI has to decide what is interesting. Yeah. And then you're trying to create social interaction based around sort of that metadata. Right? Is it Creating that metadata would not really be possible without AI.

Is there something that can be done with that? And this is where sort of founder creative really really comes into its own. And I'm not, I think, the most creative person. My job is not to come up with with the startup, thankfully. Yeah.

Yeah. I don't think I would do a very good job with that. Yeah. But when I see it

Sjoerd Handgraaf: You can you can I'm not gonna yeah.

Sameer Singh: If this is unique or not. And I I think a lot of AI enabled marketplaces we're seeing right now are basically struggling with that unique component. Yeah. Hey. This is AI that makes this easier.

Like, sure. Yes. But the existing marketplace is doing that too because it's obvious for them to do Yeah.

Sjoerd Handgraaf: It makes sense. So you mentioned, like, you wouldn't be a creative founder yourself. Talked to so many founders. If you're an aspiring marketplace founder today, what is some advice you would give to someone? Like, what are some mistakes that you see marketplace or or sort of the 2 sided platform founders make early on that you feel like, oh, you are you're like, this is not a good decision?

Sameer Singh: The most obvious 1 is picking a space that doesn't have enough fragmentation. You often see this in in b to b marketplace founders because a lot of these folks are from b to b world, and they're so accustomed to direct selling. You have would have a situation where either 1 side of the marketplace basically just has 3 participants, or you need, like, 3 to 10 participants to actually make it work.

Sjoerd Handgraaf: Mhmm.

Sameer Singh: And once you have them once you have a a code word marketplace like that, it's very, very easy to replicate Yeah. Because a competitor would need 3 to 10 suppliers or Yeah. Or buyers. Right? So in the event where there's only 3 companies on 1 side of the marketplace, those 3 companies have all the power and they can work with whoever they choose

Sjoerd Handgraaf: Yeah.

Sameer Singh: Including all of your competitors. Yeah. In the event that there's tons of those companies, but you only need 3 to 10, it's not a huge barrier for the other company to go and get those as well. So it's, like, it's they're not really workable, viable marketplaces in any way, and it's the most common mistake I end up seeing. The second common mistake is, founders that go way too broad.

Like, they wanna build, like, 10 things. They think that those 10 things combined is a compelling product even if 1 of those individual each of those individually is not a compelling product. That's not really not how it works. Mhmm. When you're building a marketplace or a network effect, and this is probably good advice for for the most startups even outside of network effects.

Sjoerd Handgraaf: Yeah. Yeah. I represent.

Sameer Singh: You really need a wedge, to ensure that all engagement and liquidities are concentrated around that interaction. Right? It's a very, very specific problem, very specific interaction. The moment you've created, like, 10 of those, you're fragmenting the attention of your buyers and customers across all 10 of those. Meaning, everyone's not doing all 10.

Different users are doing different things, and you probably don't have enough concentrated engagement on any sort of 1 of those services. Yeah. And and basically that that tends to never work. Yeah. And those are the most 2 common issues that I see.

Sjoerd Handgraaf: Yeah. Yeah. And, of course, like, the first one is sort of a, you know, coming back to network effects. You just simply don't, you know, you just simply don't have network effects if there is if there's three three on 1 side. Yeah.

That makes a lot of sense. Is there any company that you missed? You know, I think, like, I don't I don't remember who maybe it's Andreessen Horowitz or someone, like, 1 of those who are like, okay. The biggest ones misses are the ones that you don't invest in. Do you have 1 or 2 you're like, oh, I was completely wrong on this 1?

Maybe you don't even need to name names, but you're like, oh, I I totally misjudged that 1.

Sameer Singh: So it's it's already hard to say unless you're sort of ten years in, but there's probably examples of companies that I have seen that I've end up ended up doing well. Yeah. So if I were to look at network effects in particular Yeah. There was a company called the first one, like, this is the company I wanted to do. I just missed out on.

I I couldn't get into the round. A company called No Unity in in Germany, which is sort of a social network for students to sell to share notes. So a good student will share notes with others and become influencer on the app, and it was a it's doing phenomenally well. Like, I'm Okay. That that is a company I I knew would do well.

I I I just didn't manage to get into the round. Yeah. In terms of the ones that I missed, 2 ones I can think of, 1 of them, the the name escapes me. It was an EF company that was a b to b marketplace, and it ended up raising a series a from index. Mhmm.

I think it started with a p. I I forget the name. The second was a company called Tilt. I saw it at Precede. It was sort of a whatnot like marketplace for.

Yeah. Like, I I I have some questions about the model, but so far, the execution has been phenomenal. They raised us, I think, ten, twelve million series a from Ballerton recently. Okay. And, like, the 5 I do think highly of the founder.

So that 1 is, is so far, looks like a looks like a miss. Yeah. Another is a company called Passionfruit. There's 2 different companies called Passionfruit, so it's very confusing. Yeah.

But 1 of them was a marketplace for freelance marketers. And here again, I have some questions about the model, but they did raise a 9,000,000 series a recently. So so far, it looks like, it's a it's a bit of a miss for me. Yeah. But, we will see how, what happens.

Can can we dive into that 1

Sjoerd Handgraaf: for a moment? Because so a marketplace for freelance marketers. So so how is that, like, this is, I think, 1 of the fields that often gets still identified as a area of opportunity. I'm I'm taking it very broadly by, like, this labor or future of work kind of thing. So so what what specifically because, you know, I don't know the names, but I've come across several platforms for even specifically marketers.

So so what made you excited about that particular execution or idea or revenue model? What what was there that we're like, okay. This is special.

Sameer Singh: It was probably more the founders, to be honest, than the idea.

Sjoerd Handgraaf: Got

Sameer Singh: it. Like, Rafi and and Issa both were sort of extremely impressive, really deep in their space. Yeah. So of all the founders I've seen in that space, they were probably the most and most impressive that 1 thing that I wasn't sure about it was was exactly what you mentioned in that how does the space look comparatively as you grow. Yeah.

And, there there were a few things behaviorally that I that I wasn't entirely sure on which the the founders credit they managed to to correct over time. Mhmm. But the the the competition, question is sort of is is an open 1. And it's sort of and there's a stop probably true for, a couple of the ones that, that I passed on that end up doing well. And then I don't I'm not entirely sure how competition looks, over time.

Sjoerd Handgraaf: Yeah. That makes sense. Well, let's then, I gotta conclude, like, on a on a on a last question, which we kind of touched on, danced around a little bit, like, coming to competition and as you grow and and same as, like, the area of interest in AI. Like, what do you see if you think about, you know, like, imagine you would be raising, your own funds, Brett Krumfries. He gets, let's say, Steed Fund.

What would be in your pitch? Or what what do you think that, like what what does the marketplace landscape look like in the next five years? Like, where do you see opportunities, developments, things coming together? You've mentioned already some things, but but is there a way to to summarize sort of this in a in a message for for people looking for an idea to get excited about?

Sameer Singh: Again, probably not gonna give you an idea, but what I'll I'll I'll say whether network effects tend to be from the strongest sources of defensibility you can have in software. Right? Yeah. If if you look at the possible sources of defensibility available to to start ups Yeah. There's 3 only 3 meaningful ones, maybe 3 and a half.

There's embedding, switching costs, like, Salesforce. Once you start using it, you're married to it. You cannot rip it out of your business. Yeah. There's economy of scale.

So as you start, building, investing in your business, it becomes more and more expensive for competitors to, to compete with you. The examples would include things like airline businesses where you need to buy a massive fleet of planes. Netflix, we need houses and mass massive infrastructure and content investments to make it work. Google, which are needed to have these massive data center investments to get get search to work Yeah. Just in what they want to and to be able to index the web.

And third really is network effect.

Sjoerd Handgraaf: That's pretty

Sameer Singh: much it. You don't really have to be things like brand aren't relevant to start off because that's customer happiness accumulated over time. That's the best definition you can have from Yeah. And so if and I I would I would argue the network effects are probably the most powerful of those 3 within within the start up world. And mathematically, network effects don't really change by math.

Math and math. Right? Irrespective of what behavioral change happens, what societal change happens, what technology change happens. Like, people kept asking me, oh, what does crypto do to change network effects? What does AI do to change network effects?

The answer is nothing. Network effects are math. It's math. And the my pitch would start with math doesn't change. Yeah.

Okay. Network effect that existed as long as humans have existed. Yeah. Language has network effects. The earliest markets have have network effects.

That's why they work. Civilizations had network effects. Yeah. And now we're just implementing network effects in the business world. Yeah.

And so this is a perennial I I would hesitate to use the word trend, but a perennial factor Yeah. That makes outsized businesses. And the NFX have done some great work on figuring out exactly what percentage of high value businesses, had some component of network effects. Yeah. Yeah.

And so that's not gonna change going forward. That's sort of a ground truth. Yeah. I will mention there are those 2 facets of behavioral change and technology change creates new businesses. Yeah.

Changing behaviors and perhaps AI enables new value propositions that network effect essentially just supercharge.

Sjoerd Handgraaf: Yeah. Thanks. Yeah. No. That's fantastic.

I think it's also still, like, good advice to take if you're, like, a marketplace founder or early stage founder. Like like, see which like, how can you get to those network effects the fastest? Is there really, I think, like, coming back to the point you made about not having enough suppliers, that is, like, a good evaluation also. And, of course, like, it doesn't mean it's not a good marketplace business, just not a venture sized marketplace business potentially. So so that makes a lot of sense.

Thanks, Sameer. If people want to follow-up on this conversation, they can find you at breadcrumb.vc. Correct?

Sameer Singh: Yeah. And if you wanna have any questions, you have a pitch. I'm at Sameer at Breadcrumb dot v c. So I don't need a warning tool. Just email me.

Sjoerd Handgraaf: Alright. Alright. Thanks, Sameer. Thanks a lot for your time.

Sameer Singh: Alright. Thanks, Yort. Thanks for having me.

Sjoerd Handgraaf: Thank you for listening to 2 Sided, the marketplace podcast. If If you enjoyed this episode, don't forget to subscribe. And if you really liked it, please give us a rating or review on Spotify, Apple Podcasts, or wherever find podcasts are downloaded. If you got inspired to build your own marketplace, go visit www.sharetribe.com. It's the fastest way to build a successful online Marketplace business.