It’s typically a binary outcome for marketplace start-ups at the beginning: either you figure out the chicken-and-egg problem or you don’t. But, marketplaces can face a binary outcome at the other end too: either you scale your marketplace into a large, stand-alone company that can go public, or you find yourself with few other exit options.

This reality is quite different than the exit opportunities for SaaS companies. It’s common for SaaS start-ups to be bought by large enterprises for the technology/product. The acquiring company can just plug that product into their existing distribution channel to help round out their current product suite and grab more market share (and some might argue that even this is happening less frequently).

However, in the case of marketplaces, it’s much harder to leverage existing distribution or find synergies between the acquirer and acquired company:

• A marketplace’s technology/product is often custom and proprietary, making it tough to replace with existing technology and save costs.
• It’s hard to transition buyers and sellers over to the acquirer’s marketplace, as I’ve seen first hand. When Amazon acquired Bibliofind (a competitor to my company AbeBooks) in 1999, they expected to switch all of the Bibliofind sellers over to Amazon. Instead, most of the sellers left the platform and signed up with AbeBooks, giving us a huge boost.

So, if an acquiring company cannot fundamentally change the economics of the marketplace they acquire and if it’s tough to switch over the new buyers and sellers, that leaves little incentive to acquire a marketplace.

In fact, the only reason you’d ever acquire a marketplace is if it were a large, standalone unit that could grow on its own. eBay was relatively successful when it acquired marketplaces like Rent.com (2005) and StubHub (2007). But, the universe of eBay-like buyers is limited, as is the number of marketplaces that build platforms with several billions of GMV.

This means that an IPO is the exit option for the most successful marketplaces. Over the past few years, we’ve seen this with Alibaba, Lending Club, and Etsy. And, we will most certainly see this with Airbnb, Uber, and Lyft.

In short, it’s a binary outcome for most marketplace start-ups at both the beginning and end. Be sure to set your expectations and business model accordingly.