Editor’s note: B2B marketplaces remain the fastest-growing sales channel in business digital commerce and transformation and Digital Commerce 360 will list 750 in its upcoming 2024 B2B marketplace report. There’s tremendous growth ahead for the B2B marketplace development curve. However, investors remain meticulous about where they are parking their investment dollars these days. The expectations for a B2B marketplace to get new or recurring bouts of investor dollars hinge on several factors. Among them is the path to sustained profitability. In part one of this two-part Q&A, Patrick McGovern of Bowery Capital shares his thoughts. In doing so, he breaks down what is top of mind with today’s B2B marketplace investors.

Digital Commerce 360: How much investor capital will flow into new and existing B2B ecommerce companies in 2023 vs. 2024?

Patrick McGovern: 2023 was a tough year for marketplaces and funding was well off the highs we saw in 2019-2022. I think funding in 2023 for vertical B2B marketplaces will remain muted. But we expect to see an uptick in 2024 driven by potential efficiency gains from artificial intelligence (AI). Many B2B marketplaces have struggled with profitability as B2B buyers/sellers often demand extensive account management support. If AI agents can assume some of that cost and service burden, then that could make the model much more attractive.

I also think for any sector that is growing in the economy, you will see investors trying to back a relevant marketplace bet. An example of this is Plug, which is managing B2B transactions for aftermarket electric vehicles (EVs). EV sales are through the roof, so there is interest in a marketplace model for that category.

DC360: Are there any B2B marketplace verticals that are attracting more investment than others and why?

PM: The verticals where we see investment interest on the marketplace side tend to fall into two buckets. First, you have marketplaces transacting in large commodity markets (e.g., surplus retail goods like Ghost or scrap recyclables like Safi). These are huge markets where even if you do not tip most of the industry to transact via a marketplace, you can still build a big business with only a small percentage of the overall category-level transaction volume.

The other vertical where we have seen interest sustained from investors has been in specialized labor marketplaces for health care roles (e.g., nursing). They have attracted interest, considering staffing shortages; however, many have pivoted to more of a technology-enabled staffing agency model to ensure consistent supply.

DC360: Who are some of the hugely successful B2B marketplaces you are watching in 2024? What makes them breakout B2B platforms?

PM: We recently invested in a fertilizer and commodity chemical marketplace called Waypoint, which is matching global supply and demand in a previously offline category. Given how marketplace adoption has been tricky, you want to be tackling as big a market as you can, and they deal with container-sized transactions — high average over value (AOV) is another metric marketplace investors are putting increasing stock in.

Looking beyond our investments, Faire (which connects retailers with brands looking to be sold in their stores) is probably the B2B marketplace of the current crop which has raised the most money, achieved multibillion-dollar GMV while still private, and is the breakout of the current generation.

Patrick McGovern is a senior associate at Bowery Capital, a venture capital firm that specializes in business software. Before Bowery, McGovern worked as an independent consultant advising early-stage B2B SaaS and marketplace businesses. He can be reached at [email protected].

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