One criticism of electronic marketplaces is that they can charge only a small transaction fee, so their revenue potential is limited. Tuckman notes that's true only in industries that are efficient and have thin gross margins.
"With ForRetail.com, we're having no problem getting everyone to agree to a 5 percent transaction fee," says Tuckman. "In fact, we're getting reps willing to give us a third of the amount of the commission they make today for expanding their market. They're going to make twice as much by paying ForRetail 5 percent."
Most of the VC funding going into Web marketplaces is in the early stage. For Jonathan Guerster, a general partner of Charles River Ventures, which has invested in about a dozen Web marketplaces, the downturn hasn't affected his company's strategy.
"We're focused on first-stage companies, so the collapse of b-to-b stocks hasn't affected us much," Guerster explains. "It has affected later stages. Investors are more valuation-conscious than they have been."
Guerster said his company has become more conservative because competition among marketplaces has intensified. Rather than looking for fragmented industries, he said he looks for opportunities that haven't yet been exploited and for companies with management teams that can adapt as competitors jump into the market.
Rosewood Venture Group, another early stage VC company, only recently began backing b-to-b firms. Anne Martin, a partner at Rosewood, which recently closed a new $100 million fund and is raising $200 million more, says she's not shying away from marketplaces.
