The Rise Of The B2B Marketplace: Our Investment In Material Bank
By: Merritt Hummer
Tags: Marketplaces, Portfolio, Venture Capital, Design, Construction

Imagine your most recent e-commerce experience, perhaps on a brand’s website or a marketplace like Amazon. Whether searching for a new kitchen appliance or simply browsing for a new wardrobe item, chances are you didn’t have to give much thought to the purchasing process itself. A wide selection of products in stock, rapid delivery, product display curated to your preferences, just a few clicks to checkout — these are things we’ve come to expect in our online shopping experience.

Ask any interior designer about his or her experience sourcing new materials for a project, and you’ll hear close to the opposite. Designers usually turn to outdated physical resource libraries, extensive online searching, phone calls to manufacturers, and negotiations with sales reps. It can take hours to procure samples for a single material, and the samples arrive in a disjointed stream of packages over the next few weeks.

So why is it so comparatively difficult for professionals in specialized industries to realize the same user experience we have become accustomed to in our day-to-day lives as consumers?

The e-commerce revolution began in the B2C world. Only recently has B2B commerce begun its digital transition. The gross merchandise volume of Amazon Business reached $10 billion in 2019, up from $1 billion in 2015, its first year. Still, that pales in comparison to Amazon’s B2C business, which generated over $300 billion of gross merchandise volume in 2019.[1]

Why has B2B commerce been so slow to move online? Most simply, B2B transactions are more complicated than B2C transactions, and they tend to have specific requirements by vertical. B2C transactions are straightforward — you decide to buy a book, accept the price, buy it with credit or debit, and wait for it to arrive. In contrast, B2B transactions may involve price negotiations, special payment terms, a variety of payment methods, detailed product specifications, complicated SKU proliferation, consultation with a sales rep, unique shipping requirements, and the list goes on…A retailer buying 10,000 TVs from a wholesaler is a fundamentally different transaction than a consumer buying 1 TV from a retailer.

In light of these complexities, B2B marketplaces operate best by vertical. Take, for example, the highly specialized procurement processes in medical supplies, pharmaceuticals, and construction equipment. Whereas consumers in their everyday lives purchase across numerous verticals, business buyers operate in silos according to the idiosyncrasies of their individual verticals. This makes it more difficult for a B2B marketplace to achieve category expansion. Every time a B2B marketplace enters a new vertical, it faces the challenge of onboarding a new set of vertical-specific buyers and sellers.

These dynamics have led to a marketplace revolution in the B2C world while the B2B world has lagged behind. There are online marketplaces for cars, food, doctors, antiques, accountants… even celebrity shout-outs, (hi Cameo). Entrepreneurs have covered seemingly every square inch of B2C marketplace “whitespace” over the last ten years.

We believe the next ten years will be characterized by the rise of B2B commerce and platforms that support it. It will look different this time: verticalized online marketplaces will emerge, and the landscape is unlikely to be dominated by one behemoth like Amazon.

This is already happening in the construction materials market.

Today we are thrilled to announce that we are leading a Series B investment in Material Bank, a B2B marketplace for construction and design materials samples.

Material Bank enables interior designers and architects to perform complex searches and order samples from multiple suppliers from a single platform. They offer materials such as carpet, flooring, wall coverings, glass, paint, metals, woods, and other textiles. Since launching in January 2019, the company has attracted over 35,000 designers and architects and over 200 materials suppliers to the platform. Material Bank is free for designers and currently has a waitlist of more than 7,000.

Without Material Bank, designers and architects typically coordinate with individual sales reps at materials companies. This inefficient and antiquated process, while not unique to the materials industry, is rife with pain points. In contrast, Material Bank consolidates hundreds of manufacturers’ libraries in a centralized, searchable digital catalogue and guarantees overnight delivery by 10:30 AM the next morning anywhere in the U.S. The product discovery experience is streamlined and tailored to each designer’s profile, creating a highly customized user experience and superior product selection.

There are also benefits to the suppliers. Material Bank provides a stream of highly qualified leads, creating a new customer acquisition channel. The company also handles order fulfillment and returns, alleviating suppliers’ logistical burden, and produces Nielsen-like insights for the materials community, creating data intelligence that is entirely new to the industry. The platform also supports a more sustainable ecosystem by recycling samples as they are returned from designers.

This is just the beginning of a long and exciting journey for the company. We believe Material Bank can build upon its current foundation to broaden and deepen its offering over time. There is incredible opportunity to expand into new material categories, to offer new products, and to grow in new geographies. We also expect Material Bank to become more deeply embedded in the order flow over time while continuing to enhance the material discovery and fulfillment experiences for designers and suppliers.

We are proud to partner with Material Bank and the fantastic team led by founder and CEO Adam Sandow to realize this vision.

[1] https://www.marketplacepulse.com/articles/amazon-gmv-in-2019