EBay Rival Letgo Raises $175 Million to Grow Secondhand Market

Letgo, an online marketplace for buying and selling used goods, said it raised $175 million to invest in growth plans and grab market share from EBay Inc. and Craigslist.

Existing investor Naspers Ltd., Africa’s biggest company by market value, led the company’s Series C round, which also included previous venture capital backers Accel Partners, Insight Venture Partners, New Enterprise Associates and 14W. The startup has raised $375 million in total so far.

Letgo, which has offices in New York and Barcelona, said annual transaction volume will hit $23 billion by the middle of 2017. Since rolling out its mobile app in 2015, the startup said it has racked up more than 45 million downloads and 20 million monthly active users. EBay has 165 million active buyers and handles about $20 billion in gross merchandise value each quarter.

Many startups have tried and failed to break dominance of EBay and Craigslist in the U.S. market for online used goods. It’s a tough challenge because the incumbents benefit from the network effect of an established online marketplaces with millions of listings to lure bargain-hunters.

Letgo is betting its technology will overcome this. The company touts artificial intelligence and image recognition capabilities that let users post items for sale by taking a photo. The Letgo app then automatically titles and categorizes the items based on the pictures, making the listing process easier. Users can browse through their phones to find listings in their local area that range from electronics and clothing to cars and furniture. Buyers chat with sellers through the app and find a place to pickup on Google Maps.

Letgo isn’t the only secondhand mobile-marketplace to emerge in recent years. OfferUp Inc. raised $130 million in November, valuing the company at more than $1 billion. That startup said it expected to top $14 billion in transactions in 2016.

"There is a lot of innovation among these startups -- whether it’s pricing or the ease to buy and sell a product. Some of them are on the radar screens of the larger marketplaces," said Colin Sebastian, analyst at Robert W Baird & Co. "EBay has been challenged in the past in terms of technology and innovation and that probably leaves room for competing marketplaces."

EBay has responded by investing more in mobile and artificial intelligence technology. It acquired image-processing company Corrigon in October to improve the way EBay classifies and organizes product listings.

The Letgo app is available in the U.S., Canada and parts of Europe and the startup is testing in Asia and Latin America, according to Alec Oxenford, Letgo’s co-founder. 

Unlike EBay, which takes a cut of the sale price from sellers, Letgo is free. In coming years, Letgo will start trying to make money from its service, Oxenford said. The startup may do this through advertising, such as charging sellers to improve the visibility of their listings. That approach would be similar to Alibaba Group Holding Ltd., which beat EBay in China by forgoing listing and transaction fees for sellers in favor of advertising. The strategy encouraged more listings, which attracted more buyers and turned its Taobao site into the go-to place to buy online in the world’s most-populous nation.

"We’ve grown much faster than we expected," said Letgo’s Oxenford. "All of our metrics look better than we thought they would at this point, so our investors decided it was a good idea to continue in this trajectory and increase commitments."

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