The Ultimate Guide to Scaling Marketplaces

Great to be back, Harry, after so long. Thanks for having me.

Yeah. So I I got involved with with FJLabs, and we built a company there that we sold to Wallapop, then we ran that for a while. And there you had investors, Insight, and Axel on the board. And then when we sold off to Letgo, I was kind of, like, without a job, had nothing to do, but I was really enjoying it. Living in New York, I was skating a little bit and thinking about what to do next. And, actually, the plan was to build something again with Fabrice because, I don’t know, me and Fabrice clicked and I was good.

So then I had Alec from Insight Ventures who came to me and said, Thomas, come for breakfast. I have this amazing company. You gotta come. And I asked about the company and to say, kinda, like, really didn’t look good. I’m like, come on, I’m not gonna go to Lithuania while I live here in New York, and like, it’s like, no, I’m not gonna do this. Another breakfast, another pitch of of LOD, I’m like, okay, I’ll take a call. So I took a call with Mantas, Justas, and Vinted, and I remember these guys coming in, and they first told their stories about, you know, how they grew up in Lithuania, meaning growing up in the Soviet Union, Soviet Union falls apart, like, big chaos.

These guys, brilliant, start building tech companies in Lithuania at the age of 13, 14, 15. Mantas built, like, a server company by himself that he sold. He was a data expert. Justas built an accounting software in Lithuania that is still this day one of the most used accounting softwares in Lithuania. And Vinted was able to escape the Soviet because he was winning all these mathematics and programming medals, you know, those Olympiadas. So I hear these stories of these guys, and I’m like, holy shit, these are, like, brilliant guys.

I’m like, okay. I’m in New York or surrounded by a lot of like interesting people, but like, it’d be really nice to meet them. Then they showed me like how the business was doing. They walked me through and you saw like fast growth of the business and then they changed the business model into what was, let’s say, what the business model that Poshmark is using as we speak. And then the business started to collapse. So they showed me this graph, and they showed how at a certain point in time it really went upside down.

And I thought, you know what? I can learn a lot from this visit if I’m gonna do this. So we closed the deal. I said, like, I need a consulting fee because I I don’t have any other job. I’ll come help you five weeks. Write me a good check for five weeks, and I’ll come over for five weeks. And I came over for five weeks, and it just directly connected. Like, I don’t know. You sometimes have that with people who really understood each other. We started working.

Within three weeks, we had a plan ready, and I sat down with Mantas and, Justas and Vaedas. Well, actually, was Mantas and Justas at that point in time. I walked them through this deck, like, 80 slides of analysis of how we should change the business model, what we should do. Bottom line, it comes down to you completely switch your business model. You you practically kill all your current revenue streams, build new ones, and then the last money that you have available, you blow it on television.

Meanwhile, you also have to fire half of all the people, close all the offices except of Lithuania. So I ran through the plan, and I thought, like, okay. After this, they’re gonna send me back to New York and say, I’m gonna find an easier way out. So they started asking questions, very detailed analytical questions. I was answering them. I was like, oh my god. They’re actually very interested in this. And then they looked at each other, and just looked at each other and were like, I think we should try it.

Mantas was nodding. Just was nodding. Said, okay. Let’s do it. I’m like, woah. You’re actually gonna do this? And he goes, like, risking the whole company. Right? These guys were building this for, like, five, six, seven years maybe already. And I was like, okay. You’re really gonna run this plan. And I was like, okay. If I’m talking this stock, I gotta walk the walk. So then I told him, like, okay. I will help you pitch it to the board, and then if they’re really gonna do it, I will just stay.

You pay my Airbnbs and you pay my food, and let me help you execute on it. So then we executed on it in the months after, and then it worked. And then we just we just kept on working, kept on going. And then I think it’s nine months in before I actually had a real contract with Vinted, and they said, like, you cannot go now. And I was like, okay. I’m really enjoying this stuff. So let’s close the deal.

Alex, were you invested at this period? Or was this pre This was pre Lightspeed investing, but we were aware of Vinted because a number of us had been involved in various resell companies before and various marketplaces before. I think the prevailing opinion at the time was it was too hard to build a pan European Yeah. Marketplace. Like, if you look if you looked at Europe at the time, there were sort of like sub regionally dominant companies. There was companies that were dominant in The UK or dominant in Germany or dominant in France.

But the idea that you could build something that was truly pan European was a very controversial opinion and was not grounded in in in real data. And then on top of it, to Thomas’ point, like, they hadn’t figured out the business model. They’d figure out how to get a lot of people using the product and in a sort of listings marketplace kind of way, but they hadn’t really figured out the solid business model. So it was not well formed at the time.

Yeah. It’s practically the value that the user gets out of it and the cost that you were asking. So they were asking something in the tune of 15 to 20% seller fee, which is like the standard thing that eBay and Pushmark were doing for years. But then in Europe, you had all these free classifieds where you could meet on the streets like Craigslist, practically, and that’s big in Europe. So they were launching this fee model while all the other also well working platforms were practically giving higher liquidity at lower cost.

So in fact, the value proposition was inferior. That were the fundamentals where our research started. Okay. How can we create a value proposition that is superior to what it is in terms of liquidity and pricing and then gives a lot more comfort in terms of safety, transactional services, everything that’s there. And therefore, we build it like these three revenue streams instead of only one revenue stream that enabled us to bring the cost of the transaction completely down and then generate extra cash out of other revenue streams.

So, practically, economies of scope created the ability to create a proposition.

Yeah. So we practically did AB tests all around. So we had a lot of countries, and we just throw it around different propositions for a couple of days in different countries, and he immediately saw it. So practically, price elasticity on the fee was determined in multiple countries, and then we kind of like, you can corner it out where you need to be with your fee. And then that was very low, So it was quite scary. And, actually, a good thing is, like, yes, we did all the maths, but then we had Modestas, our person who was leading product, and he was like, we calculated it, and he was like, okay.

This is probably the point, but let’s be a little bit more safer, and we make it 5% plus 70¢. And it was a bit of like a let’s just do it a bit higher, and a bit higher now. It’s 85% of our revenue, practically all the gross margin. So so, you know, there are a lot of lot of statistics, definitely, but also a bit of luck with that with price there, obviously.

We had a number of partners at Lightspeed who had interacted with Vinted at prior firms before they had joined Lightspeed. One of them was actually Lithuanian. Think about, like, how many Lithuanian VCs there are. There’s not that many. And he had a really strong relationship with the founding team and and then with with Thomas, and we started to reengage. We we had heard that this had been figured out, and it was extremely counterintuitive for US investors. Because in The US, there’s four or five relatively dominant resell marketplaces, you know, Thomas mentioned Poshmark, but there are others.

They all have supply side oriented business models. And so for us to hear that there was this company that essentially made it free to sell and kind of had this listings origin, but was layering on these sort of demand side fees was very counterintuitive. And at the time that it got resurfaced, 90% of the GMV was in France. And France was going really well, but it was still 90% France in terms of GMV.

Why was that? Well, because you we first really optimized for practically two years the business model to really make it work, and then only we started expanding. And think about this. Right? Many of our investors were already very, very happy that it was working in one country, and they were like, we really need to expand. Like, this is finally going well because they went through, like, seven years of roller coaster. You know, it was also we needed a bit more track record to get there.

The story we told ourselves was like, well, look. If you had to gamble on, like, one market working, like, you need it to be big enough that it matters. Right? And you needed to have sort of fashion is, like, a really important part of the culture and economy, and it needs to be connected to a bunch of other re like, countries that are that are nearby, so that if you win that country, you can tip other countries that are near via cross border. So France felt like the right country there.

And then, you know, the other obvious one would be The UK, but as Thomas can talk about, The UK took many, many, many years to get right, and it kinda wasn’t working when we invested. So when we saw the business, we were kind of betting on a lot on Thomas, actually. We were incredibly impressed with what he was able to do in partnering with the founders. And at that point, he had become the CEO. The way we often talk about it is that it was almost like a refounding moment for the company.

Go back a long time now.

I believe that companies can have these refounding moments where a really outstanding individual comes in with the right set of skills for a given moment in time and takes a company on a different trajectory. So in my in my view, there’s, like, some people that have this discreet version of, like, oh, so and so. You had to be there on day one. You had to own, like, 10% of the company on day one to be qualified as a founder, and then there’s a spectrum. And there’s people who maybe they weren’t there in day one, but they joined within the first year, and they’ve been critical to the business.

They’ve they’ve invented some product that transformed the company. And so I think of Thomas joining Vinted in roughly twenty sixteen ish as being a pivotal moment for the company. And the fact that the founders eventually said to him, you should be the CEO, I think is as big of a vote of confidence as you can get.

There are a number of different points of view on this. I think it’s very easy to look at a business and say what they do today is how big can that thing be? And that’s gonna be the base case return for a later stage investment. We had that discussion, and we said, well, how how big is resale? Resale is really big. It’s actually a lot of people think resale could be 20% of all apparel by 2030. You know, at a macro level, if we just did resale, if we just focused on peer to peer selling other people’s clothing to each other, we could we could probably be a $10,000,000,000 company.

Company. I think the math pencils out. But you need to believe that that that’s a pan European company. So you need to believe that this company does something that almost no one’s been able to do and actually use the sort of lead they have in France to catalyze an ecosystem that that goes across Europe. And the thing that we saw in the business when we really dug in was that that Thomas and his team have been able to drive shipping costs down to the point where they were often the the very cheapest option, and that this was a key strategic lever to not only winning countries, but to, like, extending between countries.

And our theory of the case was that that was gonna be the strategic weapon that we used to sort of roll up the entire region. That by being the sort of cheapest shipping rails in ecommerce for starting with apparel, but eventually other things, that we actually be the one of the first to build a pan regionally dominant company. So then if you believe that, then you start to talk about companies that, you know, if you look at regions around the world that have a dominant marketplace, including The US with eBay back in the day, there are other things you can do.

Payments businesses. There’s other things that you can build on top of a highly engaged community of tens of millions of people transacting with each other. And so we said that’s the lottery ticket. That’s the thing that if we get it right, could have what we call unbounded upside. But first, what we have to do is we have to solidify France. We have to use the sort of shipping cost advantage to deepen into these other countries, and at some point win The UK. And whatever, five years later, a lot of that’s been done and that foundation has been set up.

I would say the one reason Vinted wouldn’t work at the time when we talked about it, we said, well, if we look back you know, five years from now and this didn’t work out, why did it not work out? The pre mortem. It’s probably because France was a unique thing. That there was something unique about France because it was very clear they had won France at that point in time. And it was and France was, like, it was a profitable region. Right? So it was it was clear that that was working.

But the con was, like, that’s a unique thing. France is unique for all these reasons. People in France like fashion a lot. That’s not gonna work in other places.

Just to highlight this, this was a general thought. Like, people said, like, France is just special. The Book one is a special company. People were saying, just share your data with Wallapop. Help them out because, like, you’re never gonna go to Spain. Just build something beautiful in France. And internally, we were like, hell no. We’re gonna sharpen this tool. We’re gonna sharpen this tool. When we go out, we’ll show it works. But it was absolutely 2018, two years after turnaround, still that was the prevailing thought.

Like, well, you have a nice business in France.

It all comes down to focusing on what’s causal driver of success. When you look at Vinted, it’s purely that you create successful buyers and sellers. So so the seller needs to become successful, then he comes back, becomes a buyer. So you really need to ensure that you build success for the people that come to your platform. That means that the conversion rates are high and that there are multiple drivers behind that. So the first one, obviously, is that your recommendation engines are working well so that the right buyers see the right content.

So that’s basic fix number one. Number two, very, very important, is that all the negative effects are mitigated, really ensuring that all the security, trust, and safety stuff is in place. And then the third element is practically that all the things that facilitate the transaction are completely seamless. So shipping, payments, the wallet, the transaction, everything. So those are practically your hygiene factors, and then you need to have an ability to kind of, like, see around the corner in terms of how you’re gonna deploy your marketing investments.

And there you have to be in the beginning, you have to be a bit brave. Practically map out for yourself, if I can get to this point, then that means I can we’ll have that efficiency. And from there, I can grow to here where I’ll have this profitability, which gets into kind of forecasting magic that is not exactly a science anymore. Right? And thus, you need to believe that there’s a certain market and then go in with a certain amount of investment to get to your first milestones at a certain efficiency.

But that first big investment is always a risk. But because we walked France through all these milestones and we really, like, fine tuned that process, we then had a lot of confidence in making those investments because predictions of these new markets could be tracked by the historical trends of France. So by staying long in France, we walked France through all these investment scenarios, and thereby we had a playbook that we then ruthlessly could roll out in all the other countries and make upfront investments that looked like nuts to people.

So I think up to 2019, most of the industry was just waiting until we would go bankrupt because they thought, like, this doesn’t make any sense. And but they didn’t believe our economics would make sense. They didn’t believe that you could spend that amount of money, and it would come back to you.

Yeah. So people come with a certain intention usually, and then they start clicking. So in that moment, the software needs to ensure that next to, let’s say, the most relevant results, you also get other recommendations. So when you look at Vinted, you’ll see a feed that has when you search for something, you get specifically what you want. But then when you go, for example, to the item, also see what other items this user has. So you have, let’s say, a mix of the both, and that really works because then people are inspired to also look at other things that that person has.

Very likely, when you are liking a certain sweater that a person has, this person probably has a certain style that you like, and probably the other items that they have are relevant but random in terms of what you were searching for. So it is a mix of both that you need to address.

I just wanna add one subtle point on this because because, Harry, like, recommendations are even more critical in resale than they are in new. And the reason is every item that you have on a resale site is unique. In a lot of cases, is. Sometimes you’ll find power listeners who will list a lot of things. But, like, if you had this thing where you have only one of everything, well, definitionally, you have to actually serve more recommendations to that user in the same session to get them to to transact because they’re not gonna go really deep in a catalog of a 100 SKUs.

They wanna go kind of shallow in a catalog of 10,000 SKUs. So that’s like a really, really hard user interface problem. And what it requires is building an app that’s really fun. Because if the app’s really fun to browse and window shopping, people will spend a lot of time in the session and a lot of the opportunity to to see things as they browse. And so the fundamental user experience is different. When we looked at Vinted in 2019, it had social media like time spent in the app.

And that was a really unusual thing for shopping, because in shopping, usually you wanna show up, buy something, and leave. That’s not what people do in Vinted.

Well, obviously, spectrum of probability goes up as transactions increase, but practically, the first two transactions are the most important.

The reality is is that many things didn’t go to plan. Right? So the story from outside looks like, okay. They had France, and they went Belgium, they went easily to Spain, then The Netherlands. That looks like a very smooth, well thought true story. But the reality was we actually first tried the proposition in Germany, and that went like, okay. Okay. Okay. And then we kind of had board approval that we could test also in other things, and we saw France go. We did the case, and then we thought, let’s just go.

We’re not gonna wait for the next board meeting. They kind of gave the direction approval, and we tried France and took off. So it started already with one failure, and then France came.

We believe that in Germany, the shipping infrastructure is different than it is in France, so that really didn’t help. So France, we had this beautiful company Mondior Rule of Real that really wanted to work with us, really gave us good prices, really helped us, And both of us, Monet Rule and us, we magically grew together. If you look at France, why it took off, that relation with Monet Rule, the relation with Mango Pay, both of these French companies believed in us, gave us good contracts, and worked very closely with us.

And then the marketing pricing in France was favorable. So those three things together helped us to do that. Then we got really excited, and it was okay. Let’s just test some some stuff in The UK and The US, which horribly failed. Why did they fail? I mean, if I knew, then we would have a working model now in The US. But I think, mostly, if you look at the product Vinted in France, 2017, January 2017, we launched the new proposition. That product is, like, a 100 times worse than what we have right now.

And we were lucky that this worked in France and that we then took I think it’s very good that The US and The UK gave, like, horrible numbers after some marketing tests there, that we really started to focus to make Vinted France really, really work well. We said, okay. Let’s just really go into the details. Everything must be better. Customer support, recommendations, shipping costs, payment costs. We two years, we were, like, grinding, grinding, grinding. And then we said, okay. Let’s go Belgium. And then that was because Mondi Aurelie said, you know, we actually have a network in Belgium as well.

Do you wanna go there? It will be very easy with shipping. And then we said, We have confidence now. Let’s do it. And then Belgium went quite easy. Along the way, many failures and many failed launches. Like, The UK took, I don’t know if it’s six or five times before it worked, and the last time, I mean, Alec, you were were by then in the board, it was like, Thomas, really? Against you, Paul? Like, you know that deepoof is there. You’re not gonna win this market.

I mean, come on.

Yeah. So I think we always want explanations that are kind of like binary. We fix this, and then it worked. Yet, if if you look at an ecosystem of Vinted, it is a multi multivariate system. So even within Vinted itself, you have all these factors, like the different type of buyers, the different regions. Then you have this different shipping companies, the different payment companies. Then you have outside factors, which is like your competitors, the fashion macro trends, all these kind of things. So there are many, many things that have impact.

You never know exactly which of these things had the most impact. So the things that I know that we really, really improved on in the last time when we went into it is that we really improved our shipping proposition. We fixed a couple fundamental things within payment. And then what we were very lucky with is that COVID opened the window of opportunity, that the marketing prices went down, people went more online, and then we actually saw that our improvements that we did before gave some organic growth, and then we felt bullish enough to put money behind that, and then it really took off.

When we saw those numbers, we saw, like, hey. Now it fits our market phase model, then we went all in. Like, the whole company just focused and just go in.

I think there’s one other factor as well, which is more of a macro thing, but the end of zero interest rates benefited us a lot. I remember when early when I when I joined the board, we’re still in this era of, like, insane discounting by some of our competitors in various regions, and we had to make these hard choices like, do we match the discounts? How hard do we really compete for this territory knowing this is less profitable? That all went away pretty quickly post sort of the COVID fears of recession and inflation and then with the with the interest rates going up again.

And, you know, I I think it’s, like, one of these things where when the tide goes out, you see who’s swimming naked. And the fact that we have had a great business model that we could port over there allowed us to take that ground with that time.

And I think we were very scared. So d pop got sold to Etsy, and we were shitting our pants. Like, I thought Josh Silverman is gonna, like, take a big baseball bat and smash us into the ground because Etsy is a company I very much look up to. They’re a great company. Josh is a great CEO, and I thought, like, okay. We’re fried. If we don’t win now in in The UK, we’re done. We’re over. Like, Thomas, you can go back to to The Netherlands, and this was a nice ride, but, see you later.

Yeah. Yeah. Of course. But, like, at that point in time, can you imagine, like, one of your big competitors gets bought by Etsy, which looks to us at that point in time a company with infinite amount of resources, an incredible technology team from the Silicon Valley. Like, I mean and then you’re sitting there in, like, Lithuania with 200 developers and, like, little bit of money on your bank account. It’s like, yeah. You’re scared. So, yes, two way door, but, like, maybe after this year, it might no door at all anymore.

You know? So that that that was a feeling as well on the team.

There’s two way door decisions, but, like, even two way door decisions that are important require a lot of management bandwidth and capital and time commitment. And I think, like, the conversation I remember having was, if we wanna build a pan European dominant peer to peer marketplace business, we have to get The UK. And there’s no reason we shouldn’t get The UK. So we just gotta figure it out. I think it was just that persistence versus other some other ideas that that I think came up. We were like, do we really need to do that?

Like, is that existential for us that we have to do that? Whereas The UK is like, no. We have to do this.

Well, I think for Vinted specifically, TEMU and Shine are spending money to attract buyers. Every TEMU, Shine buyer can become a Vinted seller, and we’re spending money to attract sellers of secondhand clothing. So for us, we’re kind of like just out of that storm. Like, so that storm just passes us and actually gives a whole new bunch of inventory that can be sold on on Vinted. So, yes, we see it a little bit, but that is not something that really dramatically impacts our growth at this point in time.

Because they really search for the buyers. So so they have the content, and they need to get the buyers. We need to get the content. So it’s not that if somebody bought Shine, it’s not gonna be buying us anymore. In in that sense, we we’re not suffering from it, but it’s obvious that that companies are directly competing with them. It’s it’s incredibly difficult. So, yeah, we’re just protected by that our positioning is different.

I I also think of, like, the value proposition for resale is very different than what they’re offering. I mean, they’re really competing against h and m and a lot of fast fashion, Zara, like, the fast fashion companies.

I think fast fashion is getting reinvented right now by these guys. But the thing about resale and and one of reasons it’s attractive is that you’re getting a very cheap price relative to the quality of the goods that you’re getting. It’s actually a great way to buy high quality brands that that you love, that you already wear for 90% off. That’s not a value proposition that SHIN and TAM are selling. Right? So in in some ways, it it’s actually a orthogonal thing as Thomas said, but it’s definitely a problem for, you know, the online fast fashion retailers.

If you look at, let’s say, the rise of these companies, everybody talks about, like, the amount of money they spend on marketing. But, actually, when you look at the fundamentals that completely changed the fashion industry over, let’s say, the last hundred years, then it’s actually the people who consistently found new levels of efficiency in production and shipping. So the non obvious is that shipping is actually what is really, really important here. So these companies have completely renovated how fast they produce and how fast they’re able to deliver from China and Turkey into Europe and The US.

And that’s actually if if you look at what, let’s say, the Zaraz and the Zalando’s did, they did that to the previous companies. And the previous companies did that to the previous companies before. There’s a lot of focus on the marketing approach because that is in your face, but this marketing approach is possible because the underlying dynamics of the infrastructure that they’ve built is actually allowing them to spend that money on marketing.

I bought on TeamView for the first

Well, there is one thing with Europe that I know is that there is a loophole that if you send in a package under a €150, it’s not taxed. And therefore, for example, companies like Zalando are actually having higher prices to send a package from Germany to Belgium than they have from China to Belgium.

When you’re looking at the type of marketplace that we are, we are two sided network effect marketplace. Buyers and sellers, two sides. And the bigger we become, the more valuable the marketplace becomes. So you clearly see more listings. The more listings you have, the faster you sell those listings. So for us to get a bit a model working in a country, it is crucial to get the depth because that’s driving the the network effect. And thereby, we go practically in Europe region by region creating these working two sided marketplace and then moving on to the next.

And that not only goes for, let’s say, a country. It also goes for a category. So also within our categories, depth is the most important thing. So I would say in our business, sided network effect, depth is what drives the fundamentals to then go wider.

Yeah. So it gets faster over time for us. It it also depends how aggressively you wanna go. So there are certain times that you say, well, at this size, I feel good and safe about my economics to take it a bit slower, and then, you know, you hit profitability earlier. But if there are more competitive situations, it takes longer. But it can be as fast as twelve months, and it can be as long as three years.

few different levels of the analysis that we take into account. One is sort of the marginal transaction. Right? So what are the unit economics on a marginal transaction? Is that a profitable thing we’re doing? The second is at a country level, which is the question you just asked. How long is it gonna take us to sort of get in the money at the country level? And it should be getting easier and easier over time because we have cross border network effects. We have lower shipping rates across Europe.

We have more brand awareness, more inventory in different countries. So it should get faster. So that’s the second level. And the third level is at the company level, you know, including all your operating expenditures. How what’s the efficient frontier you’re spending at? And the tricky thing about marketplaces is that you cannot grow arbitrarily fast. There is an efficient frontier that you wanna hit where you can balance supply and demand and fulfill a high quality experience for both sides of the marketplace. And so I think what one thing Thomas’ team is really, really good at is figuring out quantitatively where are we on the efficient frontier for a given country, and that’s the rate at which we’re scaling.

We have plenty of capital on our balance sheet. So we have to burn more, we’ll burn more, but we wanna prioritize being that efficient frontier. And it turns out that if you do that, you create a very healthy company because what happens is the older geos start to produce cash flow that cover the newer geos. And then there’s a trade off of, like, we’re not raising venture capital anymore. We’re looking at our cash flow and saying, how do we wanna invest that cash flow next year?

And what’s the portfolio of investment opportunities? And what’s the time period over which those investments pay off? And we’re trying to balance some short term and some very long term investments. So that’s the discussion we have with the board.

One of the biggest errors in judgment on the efficient frontier is when you’re attributing a lifetime value to a set of users that turns out to be wrong. The thing you know in the short term is your payback period, but if you’re making judgments as to, like, well, this is gonna be a a user that pays off three to one or four to one, and the retention doesn’t play out the way you thought it did, you can be in a bad spot.

And the reason this is a really relevant question you just asked is we just came out of COVID, and I guarantee you, if you look at any consumer company in 2020 and 2021, their cohorts look fundamentally different than they did in 2022 and 2023. They just performed different. People were adopting new behaviors. A lot of those behaviors did not stick, and a lot of projections at the end of twenty twenty one going into 2022 before the collapse were based on cohorts that just were not the real thing, and that caused a lot of this sort of misses to plan in 2022 and excess cash burn.

So you gotta be really confident that what your projections on a cohort basis are gonna be are accurate. And the more conservative way to to do it, to think about the efficient frontier, is just to look at it on a payback basis and to look at it on a cash flow basis. But the trade off to that is you’re less aggressive, and you might miss some long term opportunity. So it’s all about that discussion. Like, is this real? How confident do we feel? Why do we feel so confident?

How repeatable is this? It’s a it’s a judgment call at the end of the day.

Yeah. Yeah. And it I think it’s very important to build a growth framework that has all these things together in the stages of growth of each of the countries so that you constantly kind of check yourself, well, on the lifetime value, on the payback, this on the cash flow, that does it all still make sense so that you take context of all these elements. And then you really stay very clear to yourself about what are predictive values and what are actually real truths. Because, like, certain predictive values like, if you look in LTV over five years’ time, it’s like, okay.

We hope that this is gonna be there. But, like, obviously, this is predictive value. It’s not a real value. What’s the actual payback now? How much did we earn? What is our cash flow? What is our burn? Yeah. You need to see all these numbers in context. That’s like if you look at these businesses, these marketplaces, multivariate models. So if you’re gonna steer your whole marketing investment on one metric, like a cost per or a certain payback, then you’re by definition, you’re wrong because all these variants are moving around.

They need to, like, control them all.

Just to give you one just one more really tangible example. Early on in the company’s life, in a marketplace business, one of the fundamental things, like, never changes across all marketplaces is that more liquidity generates higher and more inventory generates higher conversion rates. But there’s diminishing returns on that because the user can only see so much inventory in a given session. So early on, you’re nowhere near that efficient frontier. And as you’re growing the inventory in your marketplace, it looks like your conversion rate could be going up linearly.

You’re like, this is great. I’m just gonna add more and more and more. We’re gonna invest linearly in more inventory, but then you hit that diminishing return. And so if your plan was that it was gonna be linear forever, well, hey. You’re it’s gonna be wrong, and you’re gonna disappoint. And a lot of the times, you have to even refactor the entire search experience, refactor the discovery experience so that you can expose more of that inventory to your users and reclaim a new efficient frontier for conversion.

So these are the kind of things that happen from a product standpoint that matter with respect to what you’re asking.

So I think it’s very important to define exactly what customers are. So if you would say from a blended CAC and the payback, then absolutely should become cheaper over time. Like, these blended paybacks are just going down over time because your your organic goes up, your motor vehicle, that that absolutely needs to come. But I think the story of direct impacted by marketing new listers, sellers, buyers, whatever you wanna call it, as the marketplace matures, you’ve got to have at a certain point of a large share of the population, and thus it becomes harder.

So therefore, it’s very, very important to consistently really look at the marginal cost and not the average cost of all your CAC. That’s also a very, very big mistake. Right? You can say, I have a CAC of this. Okay. Nice. But what is, let’s say, your first €100,000 spent, your second €100,000 spent, your third €100,000 spent? The CAC in each of these is wildly different, That’s usually a curve that goes like this. So I think averages are very dangerous to steer on, and thus you need to always look at distributed values of, like, the marginal additional cost of what you bring in.

We were actually very conservative. We did not because, like, we got quite a boost to it, and we know that we have this summer effect and these autumn effects. And we see just in summer, people go to the beach, and then they’re buying a lot less. It’s it’s very obvious. Then autumn comes, weather changes, people are starting trading again, and whoop, all the metric goes up. So we saw kind of like people were locked up in the rooms, and we saw a bit of a boost due to that.

And it was very clear, like, it’s because of that. And what we also knew was, like, at a certain point in time, these people are gonna go out again into the parks and enjoy their lives. So we were actually very scared of, like, the after COVID dip, and thereby we predicted quite conservatively, and therefore we were in a good place. But I think Lithuania, we have a very paranoid mindset. It’s a country that’s been run over by the Soviets, the Germans, and, like, if you live between Kaliningrad, Belarus, and Latvia, you you kind of, like, are always aware that maybe something goes wrong.

And thus, like, when things go really well, you’re kinda like, okay. This feels too good to be true. Let’s be very careful.

I think without giving away too much, we see all countries moving at the same trend. The older the country, the the more it contributes in terms of free cash flow. And then it’s obviously, it’s correlated to the population. So the older a country, the bigger a country, the more cash flow comes out of it. That’s and old, I mean, old as in us entering.

Yeah. So so so we try to reason from probability of generating success as in euro values. And if all probabilities in every countries would be the same, then you would just start with the biggest country. Yet, that’s not the case. So the equations of product of probability of success and the size of a country, and then probability of success is defined by practically the level of competition, the level of development of infrastructure in shipping, in payments, and maturity of ecommerce market. And based on such variables, you then come to a probability that you are gonna be successful, Then you rank those probabilities of success times the value of the market in a little excel, and then you have your prioritization.

When we are talking about France second margin market, Belgium, it was just the first time we were, after a long time focusing on France, we’re going out, and we said, let’s just take a market that is the easiest, and thus we took Belgium, kind of to warm up and have the lowest probability of failure. So we first went for a couple safe bets, and then we started to rank it as it is.

Well, I think the thing to grok is that, you know, fashion industry is $1,500,000,000,000 globally. You know, it’s many hundreds of billions of dollars in Europe. You know, resale has grown from, you know, 1% of the market when Vinted started to probably 15% of the market today, and it’s on its way to 20%. So you don’t need to have that many people to have a sizable business, but obviously, it matters the scale you’re at. So the scale Vinted was at in 2019, Benelux was actually a reasonably sized marginal opportunity to go.

It could actually make a difference. As we got bigger, it became things like The UK and Italy and Spain that you had to go in and eventually Germany. And then over time, as you start to become dominant there, you start to not just think about growth in terms of adding people and the single, you know, transactors, but adding entire share of closet, how you get more of the stuff that is in that person’s closet and how you expand it to new categories. And so there’s different ways to think about layering in TAM.

At Lightspeed, when we think about addressable market, we don’t really think about it in dollars first. We think of it as surface area. We think of it as, like, how what is the surface area we’re gaining access to here uniquely in our strategic wedge? Because if you look at some of the best businesses, they’ve been able to take their surface area and continue to build and build and build on top of it, and that’s actually where the TAM comes from.

Surface area is the sense of, like, you might have 10,000,000 customers, but only 1% of their clothing is being transacted. But, you know, in the industry broadly, it’s 15% of all apparel is sold in in resale. So therefore, if I have 1% when I start, five years from now, am I gonna have fifteen, twenty, 30% of that person’s closet? Because if so, that’s like a order of magnitude expansion at the customer level. So what really matters is not getting 30% of their closet at the beginning.

It it matters that you can land with that customer and then expand through them through their share of closet in this case. And so the surface area, meaning the the number of people you can touch, the number of people who experience the problem you’re solving, is actually a lot more important as a leading indicator of TAM versus the actual final TAM when all is said and done.

Yeah. I mean, to be clear, like, would be great if you could land with 30% of their stuff. It’s just you’re probably not gonna be ahead of what the market average is. You’re probably gonna be less, and it’s nice that almost every company actually grows into that. So I know you you do a lot of enterprise investing as well, Harry, and, like, you know, you’re often thought about, okay. Well, I’m gonna land at 50 k ACVs, but I really wanna get to, you know, 200,000, 300,000 million dollar ACVs.

The same thing exists in consumer. You know, I wanna get that customer. I wanna get them to transact. I wanna have a good payback period the acquisition. But what I’m really going for with that customer is much, much larger than that initial set of transactions.

Yeah. I mean, it’s very hard. Right? I ask myself this question a lot. It actually makes me anxious because as a continent, you need great companies that generate a lot of jobs and pay taxes to build highways and and hospitals and institutes to train society. And it scares me a lot when I see that the statistics about value we create versus what The US is doing is difficult to see. I don’t know what it is exactly, but there are a couple things that are quite different.

Like, for example, in The Netherlands, if I’m back at home, I love my friends. They’re they’re amazing people. But when I’m around them, it always feels like I’m an enormous workaholic. And people are telling me, like, come on, dude. Like, take it a step slower and, like, take, Fridays off and, I don’t know, start due, whatever. And when I’m in New York or when I’m in Silicon Valley and I’m surrounded by people like Alex and the people there, I feel like I’m the lazy guy. You know, the the work ethics is very different, and I think Lithuania has a bit of an exception because they’re a young country.

They really wanna build themselves up, wanna prove themselves, so there’s a very strong work ethic there. Therefore, I feel very much at home in Lithuania. But, like, in Europe, this work ethic is different. I think we have it very well. Things are arranged very well, and thereby people are enjoying life more, which is not a bad thing. But, like, longer term, it might have very bad impact on our on our continent. So I think that’s one. And then two, I think in terms of regulations, I think we’re failing to stimulate the companies that we need to build for the future and are not able to tax Chinese and American companies in the right way.

And thereby our ability to practically extract value out of the economy to pay our society, which is what tax should do, is is failing to a certain extent. So our flywheel starts to slow down. The motivation is less. The extraction to stimulate is less, and then the flywheel goes slower. So it’s something I think is very sad, and I worry about it.

Yes. It’s like it’s like day and night. Like, if you look what kind of, like, seed stage term sheets get to the table of, like, people I know building companies, and they get, like, in these small markets that in Europe, what it’s like financial rape, and it does a lot of damage. It does a lot of damage because your first term sheet in your seeds or in your series a is like absolute rape, then who’s gonna step in after that? You just handicap the company. So and I think, you know, I really learned what are qualities VC is by working with Lightspeed, Axcel, Insight, all these companies, all these investors that we have are like of a breed that is high high quality.

And then later I learned about what’s happening underground in The Netherlands, Lithuania, and you look at those terms, you’re like, you should have never agreed to this. And but the founders are also not aware of what’s possible.

Yeah. I think that’s absolutely true, but imagine, like, young 19, 20 year old person spending a 110% of his time building that company, and then somebody comes to him, he’s very, very nice, very polite, puts a term sheet on the table, talks about how it’s done, puts a big check-in front of your eyes that looks big at that point in time, a €100,000, and then you’re like, let’s go. And, yeah, obviously, that’s not the best thing to do, but, like, people are people. Like, it’s an emotional thing as well.

The bird in the hand is a powerful thing. When you come from a place where there’s not a lot of innovation, like, you’re the first Estonian or Lithuanian startup entrepreneur, and you don’t know anyone else who’s ever built a company before. And, yeah, maybe I’d listen to the 20 VC podcast, and I hear from all these great investors and operators. But that doesn’t feel real to me. Here’s someone sitting across the table from Illinois to give me a $100,000 to build my dream. It’s a theoretical benefit, but here’s a real thing that’s that’s sitting in front of me.

And and it’s not just in Europe. I mean, we hear this in Latin America. We’ve heard this in Southeast Asia. Silicon Valley is weird. Silicon Valley has this, like, weird risk loving kind of culture, and we also know that it’s a repeat game. We know that we’re gonna be playing the game with these people for decades, and so we gotta treat everyone right. It’s a very unique thing, but the good news is the arrow the directionality is going towards the vision, Harry, that I think you’ve espoused.

This is the thing. So, like, when you’re evaluating a business, and I’m I’m not a VC, but when when you’re doing that, it’s it’s really about the fundamentals. And, practically, those fundamentals come down in how fast can you recycle cash to get that machine growing. Obviously, if you at a certain point in time make a scatter plot and you put, like, a high growth ratio and a high profitability ratio, then you get the best companies. If you make that tighter, you you you get them better.

So at least you get a good selection with a high density of good companies. Right? But that then saying that that is a causal rule that drives to create big companies, that’s absolute bullshit. Because I can have a company that is actually declining while I’m milking out a lot of cash, and I will get to a rule of 40. But, obviously, that is not a good company. And what I’ve seen over the last period of time, so a year ago or something like that, this rule 40 started to pop up in our board meeting.

I was like, okay, rule 40, how? Ah, okay. That kinda makes sense. Like, yeah, I get it. But then all of a sudden, this whole investor community thinks that it’s kind of like a physics law and start to apply it in a way that it’s nonsensical anymore. I’m so surprised by that, how I then meet young venture capitalists completely going gung ho on this and not understanding the fundamentals that are behind it anymore. And that’s something that really surprises me, like, how can these communities of, like, mega talented, mega smart people, all of a sudden as a herd just go one thing and only talk about Rule of 40 anymore?

Like

It’s because they, like, listen to an All In podcast, and David Sacks says something.

Yeah. It it makes you wonder. Right? There are these dangers with these frameworks that you confuse output metrics with input metrics. And rule of 40 is an output metric. It’s like, I did a bunch of things, and the business spits out this number. And it happen it’s that you add the revenue growth to the EBITDA margin, and they happen to add to 40%. And then what a very smart public analyst, equity analyst realized is that if you correlate that with the multiples prevailing multiples in the market, there is a much higher correlation with that than with raw growth, which was what it was during the zero interest rate era.

And so that’s why it started popping up more is because that correlation started to go up, and that still persists to today. If you look at companies that are trading at 10 times revenues, they they tend to have rule of 40 or more. But to Thomas’ point, for operators, it’s it’s kind of irrelevant because they’re doing they’re working on the input metrics. They’re working on the things that define that efficient frontier of investment, and they’re trying to think, like, I have this balance sheet. I have my management team.

I have my own bandwidth. What is sort of the value maximizing set of activities I can do with all those resources? And then, like, the growth will come if you do those things. The last thing I’ll say on the rule of 40 is, I I actually think it’s a it’s a useful output metric. So it is an output metric, but it is a useful output metric if you use it that way. It’s really hard to boil down the sort of vast majority of public companies into, like, one number.

And this notion that you can balance growth and profitability is actually, I think, a really useful concept, and it’s driven a lot of really, I think, good discussions about what that trade off is. But ruthlessly just focusing on one metric is never the right way to run a business, and you always have to be cognizant of, like, what’s input and what’s output.

Yeah. Exactly. So if you are in a board meeting and you decide that you’re gonna optimize the company towards rule of 40, then you’re doing really stupid shit. That’s just dumb. You should work from the input metrics where you say, like, I’m gonna make these investments because it’s gonna generate this type of cash flow in the future. And, yes, in the future, I will have healthy growth and profitability. Fine. But not optimize directly towards that. See it as an output in the future, but, like, it’s dangerous that it is.

That

See you go for it, my friend. Yeah. I mean, again, an output metric, and it’s not something that actually fundamentally matters. What do you want to have rather? A business that does a 100,000,000 of free cash flow at 5% or let’s say 10%? Or do you want to have a business that does 5,000,000 of free cash flow at 70%. 70% EBITDA margin says nothing. It’s about the absolute amount of EBITDA or free cash flow. Like, a business is valued on money. More money that comes freely out of it is better.

Doesn’t matter under which ratio that money comes out there. And we’ve been looking at Excel files so much that we’ve seen very great companies with high EBITDA margin, but it doesn’t mean that it by itself is a good thing. The only thing that matters is the absolute amount of cash flow that comes out

Usually, the highest EBITDA margin businesses have the lowest growth. Right? And so it’s this kind of funny thing where, you know, the business like, eBay has a great EBITDA margin. It’s not really growing, and it’s kind of losing market share every single year to other companies like Vinted that are doing more innovative things, and it’s become a real problem for them. But what we do think about is, okay. We have to underwrite this business to some outcome, and the enterprise value is gonna be determined more by the EBITDA profile of the business over the very, very long term.

So is there an inherent infrastructure that we think will yield a certain EBITDA margin over a certain percentage if the business, you know, chooses to do that and flow cash? And so we have certain businesses we invest in. We invest in a lot of software businesses at the application layer. We invest in a lot of infrastructure software businesses, security businesses, marketplaces, social media, etcetera, etcetera. And in each of those cases, there is a best in class company that has best in class EBITDA margins in marketplaces like, is this business potentially like an Airbnb?

Like like, well, if you when you look at the characteristics of that business, they don’t take inventory. They just kinda do payments and trust and safety. But, you know, the gross margin line, it’s a fairly light lift. And then they have a huge marketing advantage relative to other people in travel. They spend something like 18% of revenues on marketing, whereas Bookings and Expedia spend 30%, and that’s because they have unique inventory. And so you take an example like that and you go, well, we can replicate that in this other industry like apparel or home goods.

Well, maybe we could have that EBITDA profile because the fundamentals of the business are not that different. And so use these kind of, like, rules of thumb and look at best in class, and then you project forward what the business would trade at at a reasonable multiple of that EBITDA, and that’s how you understand your underwrite. It’s a little bit of a triangulation exercise, and you’re playing for best in class. But just because you have a high margin doesn’t mean it’s a great business. It could be a shrinking business at a high margin.

Let’s be honest about it. Right? If you have a very good big margin, it’s nice, brings a lot of safety. But, like, people feel, let’s say, that the high margin is the safety thing. But if the absolute number is not big, it doesn’t bring any safety, doesn’t bring any real value. Like, it really needs to be seen in context of the absolute value. Otherwise, it’s just a

And, yeah, and and it also could be an opportunity for someone else to come in and undercut you too. I mean, I think that’s the main thing. Like, what what I actually think is a better framework than margin is, like, what’s your return on equity? Like, when you make a $100,000,000 of investment in the coming year, what do we expect the return on that $100,000,000 to be over the ensuing five years? That’s a hard thing to calculate, but, you know, if you can be really good at a company at deploying capital and seeking an equity return on that capital, that’s how you compound for forty, fifty years.

And so if you say to me, well, look. We’re gonna make this investment, but it’s gonna actually lower our EBITDA margin. I’d say, how many EBITDA euros or dollars do you think it’s gonna add to the business relative to the investment we’re making? That’s the thing that really matters.

Yeah. Look at the most successful companies, Costco. Like, the one thing they did is they kept that margin low, and thereby they kept on winning and kept on going. So it’s really in context of everything else. You should never say an industry should have this margin or it’s dangerous and you can actually kill an industry with it by adopting that.

Well, when we go public, it’s the same as when now talking to venture capitalists. Your numbers need to be obviously clear that it’s working. Like, it needs to be obvious. And I think if it’s not, then you can be lucky that you raise a round at a good valuation, but it needs to be razor sharp on, like, how you’re converting cash into future cash flows, and how you are growing your business, and how you’re building defensibility. I’m not worried about it because every time I talk to somebody about Vinted that they didn’t know our financials, they were very skeptical about it secondhand, who’s buying secondhand, is this ever gonna be a big news, and then you show the financials and they’re like, holy crap.

How many people are doing this? You need to be very specific to be able to explain how you’re gonna create value. So I’m not worried about it. I think it will be the same game as in private.

honest. Be honest? He’s too hardworking. He’s too hardworking. Too looking. Thomas is an incredible systems thinker and measured integration of quantitative and qualitative insight. He can zoom in and then zoom out and zoom in and zoom out. I think it’s a quality a lot of great CEOs have in space. He sweats the details, but he also cares a lot a lot about the big picture. I think we we’ve talked about, like, some of the sort of European conservatism. Right? Like, I think and sort of the fear of failure.

And I think a lot of that just comes from the conditions for which Thomas and other CEOs in Europe have grown up. And I think one of the things I’ve enjoyed working with Thomas is just helping him think about the big the big picture and how we see the global market and, like, what Vinted can become in the future. And I’ve seen his thinking even over the last few years and the confidence grow as we’ve talked about those things.

I I think you’re honest about it, and I think it it’s really a weakness of me. And, like, Alex has really helped with that and the other investors as well, but it really helped. But it’s hard, you know, to think as confidently as these Silicon Valley people, because you don’t have all these examples around you, and you see those people who build those companies in Silicon Valley as kind of like half gods that don’t exist in a regular world.

Harry, like, I mean, like, this is my quick fire for you. Mean, you’ve met a lot of these people. Like, how how is your expect is your expectation met with reality, like, for these people? Like, what have you learned on that front?

Such an interesting statement.

It’s gonna be an Amazon, but then for secondhand. So it’s gonna be all the ease and all the sophistication is gonna go into the secondary market as much as it’s gone into the first market. So I think we’ve seen over the last two decades, we’ve seen how ecommerce has been optimized by players like Amazon, and now, TMU and and Chime coming in again. It’s, like, incredibly smart people building systems that work very, very well to bring things to consumers, and I think we’re gonna see that now in the secondary market.

The US was a big one. We’ve seen a lot of success in Europe, and I think we’ve gone from having, like, oh, maybe it worked in France, maybe it’s gonna work in these other places, to feeling actually really confident that we figure out a playbook that works, and it’s a different model is we are the only ones who really do the model that we do. And so the natural next step is, like, well, why shouldn’t this work in The US? And we’ve debated this a lot.

And there’s some element of that that is just management time and attention. It’s like, what? Europe isn’t big enough? Like, why wouldn’t we just focus on Europe and make Europe really successful? On the other hand, The US is a massive massive market, and the model that we do hasn’t been tried there. But I think that tension exists for a reason. You can only do so many things well, and the CEO’s attention is the bandwidth constraint.

And I think actually, forget about one, and that’s, like, 2021. We’re building these board budgets. This was kind of, like, before all the shit hits the van, and we made a board budget actually, and it’s related to that. But me and my team made made a board budget that was, like, with a massive burn again. And then the board was, ho ho ho ho And we had people stepping in saying, look, Thomas, the market is super tense now. Probably shit is gonna hit the van.

And we have many of these discussions, high friction, and actually out of that came that we completely reworked the budget and, like, obviously, luck there, but, like, shit hit the van, macro collapsed, everything went wrong, and we just sailed into, like, a financial sustainable position instead of, like, going into one of our biggest burns that we would ever do. And we have many of these things time to time where there’s real friction in the board. I get real pushback, but then out of that comes better decisions.

So I don’t know. We had that with the board budget, we had it with US, we had it with going into shipping, we had it with going into luxury. Many times, man, that we we go head to head and that there needs to be really good explanations on why we do something or not.

I wish we could just, like, speed up time. Wanted to go faster. Yeah. I’m always looking at the road map, and then I’m thinking, like, why can we not do this two years and one year? Why why like, I constantly try to pull things forward, but, like

Yeah. I wish we could just have higher productivity. Like, less people, higher productivity, so that we can with the same people now, do more things. Like, I I don’t know. I’m really excited about all the stuff that’s happening with AI. I really hope that we can find more productivity. Like, it it’s just things become more complex with more people, more opinions, more people. Like, I, you know, I wish we could run it with less people, and then we could do more with the same people that we have.

I’m, like, less critical of the current state because I actually think our velocity is actually pretty good. It can always be better. I think that one of the challenges we have organizationally is that we have business units. Now we’ve shifted into a model where there we have a few different businesses that are operating, and it’s it’s just a different velocity that you can expect when that happens and different level of visibility. But the good news is that I think we’ve shown that through m and a and some other things, we’ve been able to accelerate those and get the bootstrapping off the ground.

And so I would probably say the same thing, but I’d probably be less critical about the current state. I think Thomas is the most the biggest critic of his of himself. I don’t need to criticize him.

I I just see all these vectors of growth, all these things. I would love to see faster how that works, and, like, I I don’t know.

You know the line from Hamilton where they they they describe him as he’s never satisfied? I just find that most of the the founders I work with that I admire the most, they’re heavily dissatisfied with the status quo no matter how good objectively good the status quo is. That’s authentic. It’s not put on. They’re, like, really, really bothersome.

Yeah. But let me be very clear. Like, I am incredibly grateful for the team and how fast they’re working. They’re they’re exceptional. Makes me sound like I’m not happy with what they’re doing. I they’re doing stuff I’m absolutely unable to do. Like, it’s just incredible people.

So the last one is what’s during COVID. It was 3,750,000,000.

Okay. Let’s

do this. Ten years, boys.

50,000,000,000 global platform, fully integrated shipping and payment functionalities across every category, Amazon like marketplace dynamics across all categories, plus new software solution businesses next to it.

Look. I I think if you if you achieve what Thomas described, there’s only a few companies in the world that can say that. You know, you have Alibaba in China or what it kinda used to be before the recent changes. You have MercadoLibre in Latin America. You have, you know, c in Southeast Asia. I mean, what we’re talking about is the regionally dominant peer to peer marketplace business and all the things that come with that in terms of the next set of businesses. And not just doing it in fashion, but doing it across essentially every category of commerce.

That feels like a very valuable business to me. I don’t know what the number is gonna be, but it’s probably at least as valuable as those companies. Yeah. You gotta

a number on it. I need a dinner bet. Alright. I’m gonna I’m gonna lowball you because I don’t wanna lose a bet, but I’m gonna say 40,000,000,000.

Yeah. Yeah. $40.50. I will be happy with that. Does

that feel does that feel right?

Yeah. Yeah. But we have to. Right? We have actually with Vinted an opportunity to build a valuable company in Europe. If we screw this up, like, it’s just depressing if we don’t, I think. It’s really depressing if we don’t.

That’s nice. I felt really at home here, so you made me feel very comfortable. So I guess that’s why it came so easy. Thanks a lot, man. It was very nice.