Upwork filed to go public. For B2B marketplaces nerds, this is a big one.  Why? Because even though the Upwork name is new, it’s predecessor companies, Elance and Odesk, were pioneers in true B2B marketplaces.  Elance started in 1998 and Odesk in 2003.  These are true marketplaces in the sense that they make matches between two parties together that have never previously never done business together.  That is an especially hard task in B2B (see here).

Upwork’s Business

Upwork Metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upwork is pretty easy to understand.  475,000 mainly small businesses search for, manage, and pay approximately 375,000 freelancers for 2 million projects.  Upwork is free for buyers posting projects.  Upwork’s revenue comes primarily from a fee charged to freelancers.   A small portion of Upwork’s revenue comes from enterprise buyers who pay for additional functionality, from payment facilitation, and from the 15% of the business where Upwork acts as the supplier of record and provides a managed service to the client.

Upwork Business

Upwork’s Operational Metrics

The excellent S-1 is chock-full of operational metrics from which others can be derived.  Besides the metrics above, I noted the following:

  • The “take rate” over the latest 12 months is $228.9 million in revenue on $1.56 billion in Gross Services Volume (GSV) or 14.7%.
  •  Based on 2 million projects and Gross Service Volume (GSV) of $1.56 Billion, the average project is $780.00. With 375,000 freelancers doing projects that is about 6 projects per freelancer which, in turn, is about $5k annually.
  • 80% of GSV in the last six months came from buyers with fewer than 100 employees.
  • 19% of GSV in the last six months came from freelancers in the US.  This is the largest geography for freelancers, followed by India and the Philippines. (Though no percentages are given for these other two countries.)
  • Approximately 67% of Upwork’s GSV in 2017 was generated from US clients.
  • Of the 475,000 clients, 1400 spend $100k or more and 95,700 have spent more than $5000 cumulatively on the platform and have been active in the past year (“core clients”).
  • The NPS score from both sides of the marketplace is over 60.  That is impressive.

The bottom line is that Upwork connects small businesses with freelancers for small projects, many of which are offshored.  A cynic would say Upwork makes it easy for small US businesses to enjoy the labor arbitrage of offshoring, just as big companies have for years.  A libertarian would say Upwork is global free market at its best. Both would be right.

Upwork’s Financial Metrics

I’m going to spend less time on Upwork’s financial metrics because the S-1 is really well done and worth reading.  The key ones for SaaS watchers are:

  • 30% growth for the first six months of 2018 versus 2017
  • Basically, no EBITDA for the latest six months, reflecting “significant investments to grow our business”.(Upwork did have positive EBITDA the year before when they grew 20%.)
  • Latest quarter dollar client retention of 106%

Five Lessons to be Learned

Upwork’s history provides many lessons for those investing in, building, and running B2B marketplaces.  I’ll probably do a detailed blog post on them, but here are the ones that rang true for me:

  1.  B2B marketplaces take a long time to build.  Longer than the average holding period for most VCs!
  2. True marketplaces must figure out a way to keep connections they create on the platform.  That task will involve pricing and functionality.
  3. SaaS metrics are already tricky and marketplace SaaS metrics are even trickier.
  4. Consolidating the platforms you buy will mean short-term pain for long-term gain.  Many investors are not interested in short-term pain.
  5. Marketplaces can become managed services.   The reverse is also true, but more difficult.

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