E379 | Sandeep Bakshi, Prosus Ventures: The evolution of the European marketplace landscape

0:00Welcome back everyone to another episode of the European VC podcast. Today I'm joined by Sandeep of Process Ventures. I will just tell you, this is the biggest deep dive we have yet done on marketplaces and how the world of marketplaces is being disrupted by AI, where we can expect the industry to go from here, as well as a ton of deep dives on individual companies and how they are managing the transition into an AI-driven world. So with no further ado, I will just invite you to enjoy this episode that is all about AI marketplaces.

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2:06This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Sandeep, welcome to the European Easy Podcast. Thank you so much for having me. So as I just told you, I will read out your bio now, and then I'll let you comment on this and add a bit of context. You're head of European investments at Proz's Ventures. Your fund size is non-existent. So we'll talk a bit about that. But you have more than$100 billion in AUM. You're headquartered in Amsterdam, focusing on early stage globally. And you've done some incredible investments, counting Delivery Hero, iFood, OLX.

2:42I don't know how to pronounce that. built rewards, Cordy, Supersight, AvantArt, and Oxford Ionics, probably. Did I get that somewhat correct? Oh, 100%. You got it. You got it completely correct. So, I mean, let me first touch on the AUM point, which is somewhat unique, but there are other folks that exist out there. We're a publicly traded company and our AUM, so to speak, is our market cap. So if people want to, and anybody could buy and sell shares in Process. We're the largest listed tech company in Europe, and we're listed on the Euronext Amsterdam. And what that means, the way that our structure works is that we invest for the long term, so we don't have to return capital in a traditional GPLP type structure.

3:31And the way it works is that we believe that the value of our investments will be reflected in our share price. And one similar way to think about us is a Berkshire Hathaway is a decent example. Other people in Europe that also exist with similar structures that are publicly traded, Chinavik is another example of firms that exist like that. But that's our size and the way to think about us. Let's dive into the deep end. Let me ask you a question because you said it very Well, our belief is that the value of our investments will be reflected in the stock price. But typically, VC investments, at least the early stage investments, often don't come in with a multiple like we're seeing in when you're allowed to kind of set that valuation yourself and put it to your LPs in the reporting.

4:23Rather, it's often discounted when it's public. How have you seen that for process? How do you navigate it? Maybe some thoughts on that could be interesting. An organization of our size and scale, some of the earlier stage investments, they only become truly meaningful once they're at scale. So I think that's where it becomes. And as companies get later and later stage and they start to get closer to IPO, they will start getting closer to being comped on public market multiples. And that's kind of the way that we think about it. I think the way for us is that, of course, when we're pricing investments in venture, pricing is very important.

5:03It's important to ensure that you're being adequately compensated for the risk that you're taking. But we do believe that the companies that we're investing in, we're investing in because we believe that they can be truly generational companies. We think that they can become really, really massive. And that's kind of the way that we think about it. I'm ready to bet my hat on that you don't have 100 billion year mark to early stage in Europe. So could you tell us a bit about how big is that pie? Yeah. So the way that we think about it is that so we've got round about kind of$15 billion in cash that's sitting.

5:41So 100 billion is kind of our market cap. We've got$15 billion sitting in cash. And, you know, Process Ventures, we invest globally, right, a few hundred million dollars every year into, you know, early stage startups. We do a lot in India. We do invest in Southeast Asia. Europe, of course, we're active and we're writing checks. But we try and maintain a cadence of, you know, leading or co-leading or following in a few rounds, at least in Europe, throughout the course of the year. Okay, very cool. at the early stage? How much do you do at the later stage? Do you follow on all the way to IPO? Yeah.

6:20So I think the way that we think about it is that we evaluate every investment round independently. And we'll like, I mean, it all depends, right? Is that there's no set as to whether or not we will. But if we feel like every round is attractive, we have the ability and the flexibility to maintain our stake, follow on to IPO. And also in some situations, not often, and it doesn't have much to do with my day to day, but also in some situations we can buy in IPOs as well. And your team specifically only does early stage as the first entry ticket. Yeah. Okay. Exactly. Very cool. So now let's, now you said you wanted to start on the AU in part, We just dived into that.

7:06Were there other parts around this introduction of you that you'd like to just touch on? No, I think it's important probably for the audience to listen. One of the big things that I get often when I'm explaining kind of process, people have heard of us, but they're like, for a$100 billion organization, what should I send your way? What are interesting deals? What are the kind of deals that you're looking at? So let me reframe, given the fact that we've spoken about so many things, let me reframe where I'm spending most of my time and my team are spending most of their time is so we're sector agnostic, we're stage agnostic.

7:42We do have a strong focus on kind of AI for commerce, AI for marketplaces, which again is we'll talk a little bit more about briefly, which we're very excited about. But we have invested in, we can invest in FinTech. We've obviously mentioned Oxford Ionics. We can do some hardware, but it's not that often. but we're fairly broad in kind of what we can look at. Typically speaking, we're writing checks of anywhere between$5 to$20 million in the early stage. So that's kind of our typical early check size. Again, we don't typically do seed. We can, but typically we don't do seed. I would say we would do series A.

8:23A's and B's are the most common. We can do C's as a first check. We can do seed. But yeah, that's typically Series A, Series B, 5 to 20 million check sizes is kind of how best to think about us. So this is where the American accent shines through. Because early stage, most people in early stage say, okay, that's seed in Series A when they call themselves early stage investors. But okay, you're a Series A, B, and sometimes C, which is not uncommon to have considered to be like growth stage-ish. Yeah, no, it's interesting because, you know, for an organization of our size, we also have a team that focuses on growth investments, which is kind of Series C and beyond as well.

9:08It is in US context, right? And the real nomenclature about venture, but it's just so typical. That's why I point this out. It's so typical to hear we do early stage and what you mean is you do seed. Yeah, that's why I'm just redefining, you know, making it very clear. Yeah, perhaps the names and the nomenclature have gotten muddied over the years. I think the way that I think about it is that we're looking for businesses kind of post-product market fit that are scaling where they have real customers or consumers that we can talk to. And that's where I typically get really excited. One other thing that is important to cover.

9:49So we are just from an investment perspective, we are not looking for, we're not a CVC, right? So that's, I think, also important to understand for the audience where we don't look to underwrite synergies with existing businesses or not looking for any special rights. So we're just long-term patient capital, which I think is an important distinction to make for the audience. CBCs have beautiful power, but they also definitely have some drawbacks. And there are things you want to think about seriously before engaging. Okay, so let's go directly into the deep dive that I just announced just before.

10:25And that deep dive, of course, is a vertical one focusing on the role of AI in the marketplace's landscape and how it has evolved over the past decade. I don't know almost where to start on this because, you know, I kind of feel like every single episode these days is kind of like, how does AI, how will AI disrupt your sector? How will AI disrupt your sector? But I think it's super important. So let's get into it. Maybe start at the bottom where we, you know, what has happened over the past decade? Let's start there. It's interesting. you know before hopping on to our call today i just went back are you familiar with the website craigslist yes i love craigslist back in the days exactly well i actually so to be fair i only know craigslist from all the movies where it's constantly referenced but i know so you know i um a long time ago i used to live in new york and you know i remember buying and selling things on craigslist And if we think about just as a simple anecdote, the evolution of marketplaces fundamentally and process itself has been investing in marketplaces for a really, really long time.

11:39They started off with, you know, very basic websites, kind of like Craigslist still is today and where people will list things and people will buy things. And that's the beauty of network effects and more buyers, more sellers, and that it just becomes a virtuous cycle where things become really, really large. And if we just think about the evolution of marketplaces from what Craigslist was back then, and kind of to some extent still is today and how powerful that is to food delivery marketplaces such as, you know, Delivery Hero, which you mentioned, iFood, which is a business that we have in Brazil, which is the largest food delivery platform in Brazil.

12:13Deliveroo here, you know, we have in the UK. Wolt, where we were invested, which sold to DoorDash. The evolution of marketplaces is something that we found to be just so interesting. And while we think about how AI is going to impact it, one of the things that I am really encouraged when I talk to founders, especially incumbent founders, is there is so much value in the data that exists in the marketplaces. because you think about these are these large platforms where if you're tracking correctly, you can understand this. One of the big things that we all talk about, right, is the value of data and marketplace data, especially when it comes to like individuals, you have the ability to see what people are ordering, how they're paying, what they're searching for, how they're looking for it.

12:59And just the evolution of that is something that I find really interesting. Now, if we think about where we have found, we've deployed capital and so we have OLX, which is the leading online classified platform in many, many countries in the world. We've got a number of food delivery investments. We've got Avant Art, which is an art marketplace that's global, that's based here in London. We've got Superside, which is a creative services marketplace. So we've seen a lot of these businesses that exist and how using and leveraging online platforms to bring buyers and sellers of a variety of services has really evolved over time.

13:40And we're seeing more and more vertical specific marketplaces that have existed as people have become more accustomed to shopping and buying online. We've just seen that evolution and there's just a ton of like there's I mean, there's tons to go on. So I think what would be interesting is, you know, talking about maybe some specifics. I think that that's typically what people, yeah, what people find interesting. And just thinking about, you know, how in specific areas we found some of these AI type solutions that have augmented some of these businesses, if that makes sense. Yeah, absolutely. Maybe we should start, you know, the most obvious place is probably operational efficiencies that you can imagine coming from AI.

14:31I'm seeing it as a content developer. I think we were probably some of the first ones to be truly hit by it because we're creating new stuff all the time. So we don't have legacy data that we need to tie into as much. And we're producing things every single day. And it's obviously very well positioned for LLMs to be valuable. So we basically, you know, we could do a lot of operational efficiency development when we first saw ChatDepth come out. And it's only taken off since then. But in the marketplace context, tell me, where are the operational efficiencies? Where are you seeing it being difficult?

15:07Where are you seeing the large opportunities being there? Yeah. So if we think about, so it's a great question. Something that we think about a lot, right? What in the existing workflow can we make better, make easier for the customers? And so let's take iFood, which is our food delivery business in Brazil, for an example, and let's just segment it into the various stakeholders and the various constituents that are involved in the process. So if we think about customers, so we've had operational efficiency. So we have AI now providing personalized food recommendations that, you know, enhance that will, you know, you go on there and they're like, hey, Andreas, you used to buy, you like to get salads for lunch.

15:50Have you tried, you know, this restaurant? That's one area where we've seen a ton of efficiency because it allows the customer a more joyous experience because it gets them to what they're looking for quicker. There are chatbots that we've rolled out, which one of the biggest questions that comes across most of our food delivery platforms is, where is my food? And allowing the customer to have better insight into where their food is through a seamless chatbot type experience really improves their satisfaction. The second constituent we think about is drivers. And one of the things also that I want to talk about is when we talk about AI and we talk about operational efficiency, we're not just talking about generative AI, right?

16:35Which is, of course, there is. And I will also talk about how we are using generative AI in some of our portfolio companies or how portfolio companies are leveraging generative AI to make customer experiences better. But just as we talk about operational efficiencies, going back to what you mentioned, when we think about drivers and riders as constituents, using AI to ensure that delivery routes are optimized and schedules are optimized so people are going and making drops at the right places so that they're able to be efficient with their time, it allows them to respond dynamically and, again, improves their satisfaction.

17:08detection for the overall platform. We have demand forecasting, fraud detection. So these are all ways that we're increasing operational efficiencies. And then the big question comes about is like, okay, so what metrics do you use to kind of determine success? How do you use, how do you determine success? And, you know, talking about iFood specifically, they've hit a milestone of delivering more than a hundred million orders in August. Their cost to deliver has been reduced by by close to 20 % while increasing customer satisfaction. Those are real tangible efficiencies that we've seen and something that we're incredibly proud of.

17:45Yeah, so another stat in the show notes, and everyone can go there to read this in detail, but you also have, or iFoods have seen a third reduction in customer reacquisition costs, which is quite mind-blowing. It's absolutely powerful. Could you tell me a bit about the generative AI in this side? Yeah, of course. So I think generally, actually, one good example is a European portfolio company of mine that I'd love to highlight, which is called Superside. And Superside is a vertical marketplace for design services. And historically, so they work with some of the largest companies in the world, Amazon, Google, Coca-Cola, Facebook, et cetera.

18:27They work with some of these incredibly large businesses. And typically what they were doing there, I mean, the company is fully remote, but the founders are based in Oslo. And they were finding world-class design talent that were in geographies like South Africa, Costa Rica, and giving them access to work on brands such as the ones that I mentioned. And helping these brands turn around their design content in record amount of time, all at a fraction of the cost. Now, if we think about some of the innovation that's happened in generative AI, Supersight now has, I think, over 250 of their design professionals.

19:10Again, and it's a managed marketplace. So Supersight sits as an overlay with some of these designers. They've got over 250 of their designers trained in using all of the AI tools that we've come about for copywriting, for image generation, which has allowed their customers to iterate on their content. So, for example, Vimeo is a customer of theirs. And if Vimeo wants to put out a new advertisement in 50 different countries, for them to roll out that collateral across all the languages, across all the platforms, they have the ability now to do that significantly quicker. So that's another area where we're seeing a lot of use of generative AI and incredible efficiency.

19:51Can I ask you about a kind of abstraction on that business? Because it's clearly, it's a service model, right? Where you help develop an AI. What I've seen is that just as with any tech, larger players are incredibly slow to adopt, which leaves a big opportunity in the hands of those that move quick, especially if you then have a monetized sales. opportunity on the fact that you move quicker than everyone else because your margin has just exploded. I'm seeing that, like I hope my sponsors are not listening to this episode, right? But I've seen that I can deliver in much less time the same product that I delivered before in terms of content that promotes them, right?

20:40And I can eat the margin there, right? Because they still got what they wanted, but I just spent much less time on it. And I imagine that that's exactly what this team is seeing as well, right? How durable do you see that? How sustainable? What's the route for a company like this that exploits, so to say, that arbitrage opportunity that there is between being the quick and slow responders or adopters of AI? Look, I think that there's a couple of components here. I think for SuperSide specifically, one of the biggest questions that a lot of the companies that they work with get that ask them, it's like, hey, could you actually help me understand of all of these tools?

21:24Because if you think about it, you know, we're in the venture world and we see startup after startup that are coming out that are, you know, rolling out tools that are incredibly exciting. But if you're a corporate and your job is not to kind of assess startups every day and you're a large corporate, you don't actually even know what tool to use. And especially to your point, because sometimes they can be somewhat just by virtue of their size, it will take them, they're not as nimble as a small organization. They're asking companies like Superside, hey, actually, which tools should I use? That's one question.

21:57The way that I think about any time that there is an arbitrage, when people talk about kind of arbitrage opportunities, I like to come back to first principles. Who is your customer? And in Superside's case, their customer are the creative teams at some of these large organizations. And are you able to deliver them a product and service better, faster, cheaper than anybody else in the market? And as long as that becomes true, as long as that continues to be true, they'll continue to be successful. I think that there will continue to be new forms. There will continue to be new tools that come out.

22:39And the onus is upon the startups to really ensure that they're adopting these tools. Because the core thing that a lot of like that companies, that company like Supersight has is the relationship and the trust of the end enterprise that actually, because that takes a while to build, right? And that, to use your language, that's not something that's easily exploitable by others because building up trust and the ability to really rely on a startup or a scale-up is not something that is very easily done and comes with time. We also spoke about OLX, and I know that they're doing some interesting stuff in terms of AI and search and discovery.

23:25Maybe you can touch on that. Yeah. So OLX is one of the largest classifieds businesses out there. And we were talking about classifieds earlier on. And one of the big things that we have felt about classifieds businesses that we want to ensure is you allow users to find what they're looking for quickly by understanding their needs and providing relevant search results. And one of the things that they're doing is that, you know, they're offering personalized suggestions. One really cool thing that the really cool feature that they rolled out is picture search, you know, like, for example, you've got a really nice microphone over there.

24:05And if I, you know, showed up in your office and want to be like, hey, like, I really like Andre's microphone, I'd love to buy one. or one day you're like, I've used this microphone a lot. I love to sell it. For you to basically take a picture, put it online, either find it, find whether or not somebody else is selling it or understand what the price for that should be, whether or not it's selling for. Those are all tools that we're rolling out. So really aiding in the search discovery process to improve user engagement are some of the things that OLX is focused on, which we're really excited about.

24:37There's so much we could talk about. Maybe one thing I just want to ask you before we go to how marketplaces in Europe are involving versus the rest of the world, because you have a global perspective. I'd love to just ask you, and it's actually quite connected. This is talent that's super deep tech, so to say, even though it's still pure digital. it's definitely more complex than the old SaaS model, which you might say that some of the tech that was behind the marketplace wasn't necessarily as heavy as it is today. Are you seeing this being a big limiting factor on the growth of these companies and their ability to execute their visions, the axis of talent?

25:24One of the things that we found for the more talented individuals is they want to work on really interesting projects, right? That's one thing. And, you know, we have a phenomenal AI team here that we actually built out many, many years ago, maybe over five years ago. And one of the things touching back on what I mentioned earlier is the thing that's really cool about the incumbent marketplaces that they're actually sitting on data. So it actually allows the folks to really have the foundational building blocks to iterate and try some of these newer technologies, which is really unique. That's something that's really unique.

26:11Because the data that you're getting from a lot of these marketplaces is truly proprietary, right? And that provides for really exciting and interesting opportunities for folks to work. Now, that being said, is it really hard to attract and retain the best talent? Of course. Right. But but we think that we're doing a pretty good job of that. Yeah. OK, interesting. Very cool. OK, so now let's let's let's widen the lens a bit and say Europe versus the other regions. Are there any things about how we are developing in the AI marketplaces space versus the others or we're all basically moving, moving alongside each other?

26:53Yeah, I would probably split it into two lenses. One is kind of marketplaces in Europe versus other parts of the world. And then the other is AI tools that are coming from Europe that are serving marketplaces all over the world. And we'll touch on both. Now, I think when we look at businesses, when we look at marketplace businesses in Europe, I think the two things that come across really strongly is, one, Europe has a very strong lens on sustainability, which actually makes for C2C, so consumer-to-consumer commerce, really exciting and attractive. It's not a process portfolio company, but a very large company in that space is Vinted, which is very much focused on sustainability.

27:41And then the other aspect that is also the case in Europe, given cross-border, multiple different geographies, the different tax regimes, is trust. And I think that Europe leads in trust and sustainability as it pertains to marketplaces. You know, India is a really interesting market for us. We've been investing there for over a decade. And given the number of people, the sheer number of people that are going online in India, the e-commerce marketplace, the e-commerce landscape has just expanded. And people there are shopping mobile first. So we're seeing a lot of really interesting innovations where there are traditional commerce type businesses that are being blended with access to mobile first, which has been really interesting.

28:31And one of the areas that we found interesting to deploy capital, this is in Southeast Asia, is the area of B2B commerce, where we've spent a lot of time. B2B marketplaces are areas we've spent a lot of time. Because one thing that's interesting is if you're a small and medium business owner that's presumably been passed down generation to generation, you're expecting a Amazon type experience or like a B2C type experience when you make B2B transactions. And as you inherit, you know, either inherit a business or you start a business and you recognize that a lot of these have been done based on kind of prior handshake type deals.