How This Cofounder Started An Online Marketplace and Raised Over $25M in Funding
Building a successful startup from the ground up will always involve some level of creative problem-solving and business savvy. But knowing how to build a startup that’s also an online marketplace comes with its own set of unique challenges.
When I asked how he engineered an online marketplace that fulfilled both supply and demand needs in the construction industry, Cofounder Jiyan Wei shared how he and his partner raised $25M for BuildZoom.
These are his most valuable tips for developing new technology platforms, what investors are asking and thinking when you pitch, and how to get into the world of tech startups in general and online marketplaces specifically.
The challenges of building an online marketplace
BuilZoom was born out of need.
Jiyan and his cofounder had both had terrible experiences with past construction projects and came together to lament — then solve — their problems:
Quality identification and supply/demand matching.
However, before raising capital for their startup, they had to find a viable solution for this problem. And they initially built much of their online marketplace ecosystem themselves.
They didn’t originally set out asking, “How do I build an online marketplace?”
They started by creating a solution to the problems they encountered when doing their own construction projects.
They intimately knew and understood where the gap was in the marketplace, and simply started by creating an index of licensed contractors in the United States.
Later, they expanded that to be a matching service.
Unlike other startups, an online marketplace needs to have a solution for both the supply and demand of a service or product in order to be successful. If that is executed well and works — the concept will work.
You can build more sophisticated features and improve the user experience as your startup raises more capital and your team grows.
If your startup has already been through some funding rounds, one challenge might simply be remembering to go slow with development.
“There’s a temptation — especially when you have engineers and capital — to build everything out right away. But you can start with something very simple and see where your users are spending their time.”
And then there’s answering the question:
How does an online marketplace make money?
This is important to know not just when raising capital for a startup but also when knowing how and where to put your resources. All founders must make the decision of which features they want to spend time developing and which ones can wait for subsequent funding rounds or future product iterations.
For their online marketplace’s revenue model, BuildZoom focused on an important part of the construction process: pre-construction.
Being in their customers’ shoes themselves, they knew the value of having a project plan in place and a couple of very qualified contractors to choose from.
They now have a paid service that delivers and manages this process. Their own in-house construction professionals work directly with building owners to manage the bidding process and vet contractors submitting bids.
How to build an online marketplace: Jiyan’s top tip
The best way to build an online marketplace — or any tech startup — is to start with a minimum viable product.
“We built a strawman of what we thought people might use first and we still use that approach when developing new features. We don’t build off speculation. We validate first.”
Knowing how to build an online marketplace is less about knowing every minute detail and aspect of the supply and demand in your industry and more about having a team of engineers who are listening to the customer and watching their behaviors online.
How to Raise Capital for a Startup
Jiyan and his cofounder successfully raised $25M for their online marketplace. And he gave us an inside look at what that process was like for them.
Any startup looking to raise capital first needs access to investors.
They found that access via Y Combinator, a startup accelerator that connects investors to startups looking for funding. Successful online marketplaces and SAAS companies such as Airbnb, Stripe, Dropbox, Reddit and more have all been a part of Y Combinator.
Before getting into multiple funding rounds, they also tried to maintain minimal operating costs.
Then, they split up and started pitching.
“We met the VC’s in person, but it took us about 30 pitches and two weeks of constant meetings before we really understood how to tell our story. That’s when we hit our stride.”
Raising capital for a startup and online marketplace isn’t about your resume, it’s about mastering the art of brand storytelling — for both your startup and you personally as a founder.
Here are some questions investors are thinking and asking:
- What stage is your startup or marketplace at?
- Who else has invested in you?
- Do I personally like you?
- Are you credible and/or really capable of pulling this off?
- Do I like the market you’re in?
- What does your startup actually do?
- Can I see a 10x liquidity event happening?
You’ll notice all the personal questions that come before even asking about the nuts and bolts of your business.
“Most of the time, they don’t even get that far in the questions. But, if everything is a yes, and there’s a 20% change of that liquidity event, you probably have them.”
Before signing off, I asked Jiyan how someone can get into this world. How can someone work for a startup and online marketplace like BuildZoom?
Not surprisingly, the answer varies based on the company it’s founders — but not for the reasons you may think.
“When you look at a company and leader, learn what the top 2-3 things are for THEM and relate your role back to that. For me, that’s understanding how your salary translates to dollars for the company.”
You don’t build a successful online marketplace and raise $25M without learning some invaluable things along the way. For even more takeaways from our conversation, listen to this whole episode.
And don’t forget to tune into the B2B Lead Gen Podcast for even more startup advice from the industry’s brightest marketers.