30 Sep City by City Expansion Strategies

We at TAC invest in the wide spectrum of the startup universe, on both sides of the Atlantic: from big data to luxury watches e-commerce businesses. Our core competences are in the fields of deep technology and in e-commerce. Specifically, within e-commerce there is one area where we built over the last five or six years developed a unique, deep pool of knowledge as well as strong network with entrepreneurs and fellow investors: we call it City by City expansion Strategies.

City by City expansion strategy is an approach for start-up companies to grow into new markets one city at a time, rather than whole countries or national market verticals. In city by city expansions, a startup conquers one or more cities at a time by hiring local talent for logistics and sales and marketing. One good example of that is recently acquired TAC portfolio company Quandoo of Berlin. Quandoo offers restaurant reservations to consumer world-wide. Quandoo opens up new markets every week by adding more cities to their offering. In detail, what this means is that for each new city Quandoo has to hire a sales force to go and sign up restaurants in the city, as well as to ramp up marketing locally in the city to have consumers start to use the Quandoo app.

City by City expansion strategies are very capital intensive. It’s not unusual to have to buy local players who are already present in any given city, because typically the technology barrier is low for B2C e-commerce startups. Also, typically new cities will be loss-making for 2-3 years before turning profitable. Given that speed of new markets (ie new cities) penetration is of paramount importance in B2C, this all adds up to certainly dozens of millions, but often hundreds of millions in capital required to succeed in the global market. The failure rate is therefore very high, and most city by city e-commerce startups don’t survive the first 24 months.

City by City expansion startups therefore require teams with two main qualities: marketing savvy and execution speed. We like to partner with teams who are hardworking, are refreshingly blunt, and waste not time with petty politics. Winning teams are passionate about pioneering a new commerce model while impressing and leaving a positive mark with every consumer and merchant they touch. An innate ability to hire superb international talent (fast), a strict numbers-driven culture and a knack for quick deal-making is what we have seen as other core elements of successful teams.

Since startups in this space will very quickly have to raise capital in succeeding investment rounds, it is important to plan out the cap table accordingly so as not to run out of option pools too quickly.

Thru our portfolio companies in this space (Quandoo, Spark, Dropoff, Delivery Hero, Rocket Internet, Talixo, Montredo, and others) we have refined our knowhow and ability to help startups drive growth and compete in City by City expansion strategies. We are able to pull together financing rounds very, very quickly.

If you are starting a new City by City expansion startup, we would love to hear from you.