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How To Value Marketplaces: Multiples & Example

The number of new marketplaces, from B2B to B2C, have been exploding recently. Globally, marketplaces are expected to generate $8.7 trillion of transactions by 2025. So whether you’re raising money for your own startup, or simply trying to understand how investors approach valuation for marketplaces, you’re at the right place.

In this article we’ll explain you how to assess the valuation of marketplaces, using a methodology investors use every day: the multiple valuation.

We’ll also look at the valuation multiples of publicly-listed marketplace companies like Etsy, Uber and others are valued and how you can use them to value yours. Let’s dive in!

Use Gross Profit As Multiple

When investors look at marketplaces, they use a multiple valuation methodology. For those who aren’t knowledgeable about multiples and valuation methodologies for startups in general, we strongly recommend you read our article below:

How Investors (Really) Value Startups: 4 Methodologies Explained

Let’s be clear: the multiple we use for marketplaces is Gross Profit. We might raise eyebrows here, especially for those using Revenue or even GMV, so let’s now see why.

Why you shouldn’t use GMV nor Revenues

Don’t get us wrong, it’s not necessarily bad to use GMV when talking about marketplace valuation. For example, Opendoor is valued 1.4x GMV or 8x its revenues. That’s ok to use any financial metric to represent valuation, in this case GMV and revenues.

The problem when GMV and Revenues multiples is that we often can’t use them to calculate the valuation of another marketplace.

Indeed, GMV and Revenues vary significantly across business models. Especially:

  • Take rate (Revenue / GMV)
  • Gross margin (Gross Profit / Revenue)

These 2 metrics vary depending on (a) the type of products or services transacted on the marketplace and (b) the pricing model (commission fee).

To give you an example, we’ve calculated below the valuation multiples for 11 publicly-listed marketplaces: EV/GMV, EV/Revenues and EV/Gross Profit.

CompanyIndustryEVGMVRevenueGross ProfitEV/GMVEV/RevenueEV/Gross Profit
ACV Auctions Inc.Auto1,7527,9003581540.2x4.9x11.4x
Airbnb, Inc.Travel106,77146,8775,9924,8362.3x17.8x22.1x
MercadoLibre, Inc.Ecommerce60,78528,3367,0693,0052.1x8.6x20.2x
Opendoor Technologies Inc.Real Estate10,7428,0218,0217301.3x1.3x14.7x
Etsy, Inc.Crafts18,64413,4912,3291,6751.4x8.0x11.1x
DoorDash, Inc.Delivery38,72541,9444,8882,5500.9x7.9x15.2x
Uber Technologies, Inc.Mobility76,56390,41517,4558,1040.8x4.4x9.4x
Fiverr International Ltd.Job Listing3,1161,0572982462.9x10.5x12.7x
Booking Holdings Inc.Travel96,17376,58610,95810,9581.3x8.8x8.8x
Eventbrite, Inc.Events1,1732,4391871170.5x6.3x10.0x
Upwork Inc.Job Listing3,4003,5475033671.0x6.8x9.3x
Variance13.3x13.3x2.5x
Min0.2x1.3x8.8x
Max2.9x17.8x22.1x
11.4x

Note: EV stands for Enterprise Value (valuation)

As you can see, the variance (defined as maximum multiple divided by minimum multiple) ranges from 13x for GMV and Revenue multiples, but only 2x for Gross Profit.

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The Revenue Recognition Problem

There are 2 reasons why GMV and Revenues aren’t easily comparable from one marketplace to another:

1. Different business models

Logically, when using a multiple valuation methodology, you should select the right set of comparable companies.

Therefore you could assume business models are the same, but this is unfortunately near impossible in practice to find a good number of similar companies, especially with publicly available financial metrics you can use for valuation.

2. Different accounting definitions

The main problem with marketplaces is that the income statement isn’t fully comparable to one another. Especially how GMV and Revenue are defined.

For example, let’s assume 3 second-hand car marketplaces with the exact same amount of transactions (1,000) and AOV ($5,000). They are:

  • Alpha connects sellers and buyers, acts as intermediary for the actual sale of cars, and charge a small fee (5% of transaction value)
  • Beta only takes a small fee for connecting sellers and buyers (5% of transaction value)
  • Delta buys cars from private individuals and sell them to customers on their marketplace at a 5% margin

This is how a simplified P&L could look like for all 3 companies:

AlphaBetaDelta
GMV$5,000,000$250,000$5,000,000
Take rate5%100%100%
Revenue$250,000$250,000$5,000,000
Gross Profit$250,000$250,000$250,000
Gross Profit margin100%100%5%

As you can see, the 3 companies have very different GMV and Revenue metrics, yet the Gross Profit is the same. This is due both to their different business model and accounting definitions as explained earlier.

How To Find Your Multiple?

It might be confusing to find your valuation multiple.

Indeed, most marketplace businesses’ EV/Gross Profit multiples range between 10x to 20x (see the full list here). Therefore, choosing an appropriate multiple when assessing the valuation of a marketplace business boils down to choosing the right sample of comparable companies.

To do so, we recommend using a comparable industry vertical as well as companies with similar financial ratios (Gross margin, CAC Payback, Revenue / FTE, etc.).

Once you have chosen the right sample, simply use the average (or median) multiple to assess your company’s valuation.

What About Startups?

Our case study above is actually part of the answer. When trying to marketplace startups, we can’t just apply a multiple that, by the way, is a multiple from behemoth publicly-listed companies.

Indeed, we come back to the same problem: startups and publicly-listed companies aren’t comparable.

Instead, you should use the venture capital methodology where the valuation we calculated earlier is discounted by investors’ rate of return to assess the price at which they would buy the stock of the company today.

In other words, you should:

  • Forecast your Gross Profit over the next 5 years
  • Calculate the exit value by multiplying the multiple by your 5-year Gross Profit (the $46M we saw earlier)
  • Discount the exit value over 5 years at the rate of return sought by VCs and early-stage investors (say 40%) to obtain your valuation

Marketplace Valuation: Case Study

Let’s now see how to use the venture capital methodology to value a marketplace startup:

1. Expected Gross Profit

The first thing to do is to forecast your startup (or the startup you’re trying to value) over 5 years. No need to go into much depth when it comes to expenses and cash flow as we will only look at projected Gross Profit here.

Need a Marketplace financial model?

So now let's assume that, for the purpose of the VC valuation method, we're projecting the financials of our marketplace startup and we forecast 5-year Gross Profit at $20 million.

2. Valuation multiples

Looking at marketplaces out there, we find 30 publicly-listed company comparables.

Although sometimes very different, their respective valuation multiple is the result of their business model, revenue growth and profitability.

Important: To keep things simple, and for the purpose of this article, we are using these 30 companies to derive the Gross Profit valuation multiple we will use as part of the VC valuation method. Naturally, when calculating your startup valuation, you must select the comparables that make more sense to the company's specifics and not the entire group.
For the purpose of the VC valuation method, we will use the median EV/Gross Profit multiple of 11x, that we will further adjust for the Discount of Lack of Marketability (DLOM) of 25%. So we finally obtain an adjusted EV/Gross Profit multiple of ~8x.

3. Investors’ IRR

Investors’ required IRR vary by investors, the stage they’re investing in (early-stage deals tend to require higher IRR vs. later stage deals) and the industry naturally.

According to a recent study, the average IRR for venture capital firms was 19.8%. Yet, this percentage is an average: it also takes into account failed deals (the ones that go wrong). Indeed, VCs typically hope to realise anywhere between 40-60% IRR on the deals they invest in. Again, this is a high-level average, and depends on a number of factors as explained earlier.

For the purpose of our analysis, we'll use 40-60% IRR as a low-end, high-end valuation range.

4. Wrapping Up

As per the VC valuation method, first we need to calculate the exit value: the valuation of the company when VCs are expected to sell their stake (by default here 5 years).

Exit Value = EV/Gross Profit x Gross Profit at exit (5 years)

Exit Value = 8x x $20M

Exit Value = $160M

Now, assuming we are looking at a Series A startup, we therefore assume investors will require a 40-50% IRR over the next 5 years. Indeed, understanding the stage of the startup we are trying to value (whether Seed, Series A or B) allow us to accurately estimate the required IRR. For example, a Seed startup could be valued using 50-60% IRR, whilst a Series A startup would instead use 40-50%.

Now we must discount the exit value to obtain the post-money valuation as shown below:

Post-money valuation = Exit value / (1 + IRR)^5

$160M / (1 + 50%)^5 < Post-money valuation < $160M / (1 + 40%)^5

$21M < Post-money valuation < $30M

This means this marketplace could reasonably be valued today at a pre-money valuation of $21 to $30 million (for more information on what is pre and post money valuation, see our article here).

Finally, although the exit value is calculated with a 8x multiple (from publicly-listed marketplaces), the current startup valuation logically result in a different (higher) multiple.

Indeed, assuming the NTM Gross Profit is $1M (NTM for “next-twelve-months”), our $21-30M valuation results in a EV/NTM Revenue multiple of ~20-30x today.

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  • Investor-friendly
  • Easy-to-use Excel & PPT templates
  • CPA-developed financials
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