# The 0% Take Rate Marketplace Valuation Conundrum

By [Continuations](https://continuations.com) · 2015-04-09

marketplaces, take rate, valuation, startups

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I wrote a post not that long ago about how [take rate](http://continuations.com/post/109215849455/undoing-incumbent-marketplaces-lowering-the-take) (or [rake](http://abovethecrowd.com/2013/04/18/a-rake-too-far-optimal-platformpricing-strategy/)) is one vector for disrupting incumbent marketplaces. Recently I have seen a number of startups that have taken this to its logical extreme: charge nothing at all. Several of these companies are growing very rapidly. But there is an important catch here: how should they be valued?

Several of the startups in question are raising rounds based on a [GMV](https://en.wikipedia.org/wiki/Gross_merchandise_volume) metric, i.e. the size of their marketplace. Now we have a lot of experience with marketplaces and therefor have a fair number of historical valuations for comparison. Those give us some sense of what a reasonable multiple on GMV would look like \*based\* on the take rate for rates as low as 20 bps (basis points), i.e. 0.2% take rate.

But 0% take rate? That gets a lot harder. The argument that these startups make is something like “we are optimizing for growth now and will charge later and are targeting a take rate of x%” – as you would expect though valuations are quite sensitive to what x actually winds up being. There is a big difference between 20bps and 5% (25x to be precise).

So if this is your strategy then I have two recommendations. First, don’t wait too long to start charging – it will take you time to figure out how to get it right. Second, base your valuation on a lower x than you think you can reasonably achieve. Otherwise you run a high risk of finding yourself in the [post-money trap](http://continuations.com/post/111956362215/beware-the-post-money-trap).

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*Originally published on [Continuations](https://continuations.com/the-0percent-take-rate-marketplace-valuation-conundrum)*