Investment Memo · Bessemer Venture Partners
Why the firm invested
BVP recommends investing due to Fiverr's strong momentum, organic growth, capital efficiency, low burn rate, and customer satisfaction.
In summary, we are recommending an investment because Fiverr exhibits most of the attributes we seek in early stage consumer Internet deals including strong momentum, organic growth, capital efficiency and impressive customer satisfaction.
Product
A foundational principle of Fiverr's marketplace is that every service offered is fixed at a single price point of $5.
The second key principle of the marketplace is that every service is priced at $5.
Fiverr plans to leverage trust from $5 transactions to introduce higher-priced service tiers.
A key component in the company's plans going forward is to leverage the reputation and trust created in the system with the $5 gigs to support higher priced gigs within the system.
Traction
Fiverr reached 60,000 transactions per month in December 2010 without any marketing spend.
Since its launch in late February 2010 Fiverr has grown rapidly to 60K transactions / month (all for $5) in December without any marketing spend and an 8-person team.
82% of gigs ordered on Fiverr in November were successfully completed, with low refund rates.
Out of the gigs ordered in November, 82% were successfully completed, 15% were replaced with another (successful) gig, only 2% were abandoned (not fulfilled or rejected by the buyer without replacing it), and 0.16% were refunded.
Business model
All Fiverr transactions are processed through PayPal, which consumes 15% of the company's net revenue.
All payments must be done through PayPal, which costs Fiverr 15% of its net revenue.
Fiverr takes a 20% commission on transactions, producing $50K net monthly revenue from $250K gross transaction volume.
Fiverr charges 20% of the transaction value, so net revenue is directly proportionate to the transactions. At $250K gross revenue / month, Fiverr gets $50K.
Competition
Multiple Fiverr clone sites have emerged, but none have generated real traction.
This eco-system includes how-to-sell-on-fiverr guides and videos, fiverr clones (none of which with real traction so far), and even software platforms to create fiverr clones.
Investment context
BVP recommends investing $3.5M ($2.9M primary in a $4M round, $600k secondary) for 19.4% ownership at a $14M pre-money valuation.
We recommend BVP invest $3.5m in Fiverr, an Israel-based company that has created a new global marketplace for buying and selling five-dollar “micro-services.” BVP will invest $2.9m in a $4m round alongside the existing angel investors at a pre-money valuation of $14m.
Risks the investor named
Fiverr faces the risk that its offerings lack long-term value and that fixed $5 pricing restricts sellers from building legitimate businesses.
This risk stems from a concern that some of the services offered on Fiverr do not provide genuine value to the buyers and are unlikely to be sustainable over the long-term (e.g. some of the social marketing offerings).
Fiverr's growth depends heavily on PR and word-of-mouth, creating uncertainty around finding scalable paid traffic acquisition channels.
Growth has been driven by PR and word of mouth, which are hard to control and predict. It is unclear whether the company will find effective traffic acquisition channels, especially due to the company's low revenue per transaction.
What founders can learn
- What actually moved the decision: Bessemer Venture Partners wrote that BVP recommends investing due to Fiverr's strong momentum, organic growth, capital efficiency, low burn rate, and customer satisfaction.
- The traction evidence that carried weight: Bessemer Venture Partners wrote that Fiverr reached 60,000 transactions per month in December 2010 without any marketing spend.
- The risk the investor named out loud: Bessemer Venture Partners wrote that Fiverr faces the risk that its offerings lack long-term value and that fixed $5 pricing restricts sellers from building legitimate businesses.
- How the model was assessed: Bessemer Venture Partners wrote that All Fiverr transactions are processed through PayPal, which consumes 15% of the company's net revenue.
Source and provenance
Investment Memo published by Bessemer Venture Partners on greatmemos.com. Read the original
