Entrepreneurial

ecosystem
3A
Introduction case

Professors :
G. KONDRATEVA
L. BENARD
Contents
Instructions .................................................................................................................................................... 2
What is Back Market? ............................................................................................................................... 3
Business model ......................................................................................................................................... 4
More than just a marketplace… ............................................................................................................... 5
How they become the unicorn ................................................................................................................. 5
Right on time in the market: .................................................................................................................... 6
Challenges ................................................................................................................................................. 6
Exhibits .......................................................................................................................................................... 7
Exhibit 1: Unicorn FAQs ............................................................................................................................ 7
Exhibit 2: Article ........................................................................................................................................ 8
Stopping the Lemon Effect: How To Save The Refurbished Industry and The Circular Economy ................ 8
References : ................................................................................................................................................. 10

Instructions
Please, answer following questions by creating the presentation.

QUESTIONS
1) How the founders found their idea? What is the problem identified by BACKMARKET? Describe,
in detail, the solution proposed by the start-up’s founders (please, provide the mission,
objectives).

2) What are the Key Success Factors (KSF) of BACKMARKET? Explain the role of sanitarian crisis
COVID-19.

3) How did the company raise their funds?

4) Explain what is “unicorn” in terms of startup and how did BACKMARKET become a unicorn?

5) What do you think is the entrepreneurial ecosystem of BACKMARKET?

How COVID-19 boosted FRENCH UNICORN1
What is Back Market?

Thibaud Hug de Larauze, Vianney Vaute and Quentin Le Brouster, three French entrepreneurs,
founded Back Market in 2014. Their objective is to democratize the consumption of refurbished
products and fight against planned obsolescence of the high-tech in a more ecological approach
than recycling. In the long term, it is also a question of the reduction in the devices manufacturing.

“Our mission is to build trust and desire for renewed devices”, in other words the mission of
Back Market is to return to life the smartphones. The startup created their own tribe of rebels,
customers, who are obsessed with the new tech, on the one side, but do not want to take apart in
the production of the megatons of e-waste. Back Market is challenging people to rethink their
tech consumption.

Back Market is nowadays French e-commerce company, so called unicorn. It has offices in Paris,
Bordeaux, New York, Berlin and in 2021 employed 480 people. Back Market is present today in
13 countries and on three continents.

0
Thibaud Hug de Larauze, Vianney Vaute et Quentin Le Brouster, fondateurs de Back Market. Back Market

Back Market's trio of co-founders receive the 2019 Entrepreneur Award in the Born Global category.

1
See annex 1 for the definition of a financial unicorn
 Back Market team

Business model

Back Market acts as an intermediary between individuals and professionals in the reconditioning
of electrical and electronic devices.
The platform works like a marketplace, offering end-customers second-hand equipment recycled
by professional reconditioners, second-hand shops, cash converters or from returns from
hypermarkets. The best rated recyclers' products are featured on the site. The company indicates
the rate of defective products sold fell from 10% to 5% in 2019.

To make it work, Back Market created a transparent grading system that considers both the
appearance and technical condition of the renewed device. Technical condition refers to the
durability, including the refurbishing operations and quality. Each device is guaranteed to be 100%
functional according to the grade: Fair, Good, or Excellent.
Every seller goes through a screening process before joining Back Market. To obtain Back Label
and sell on the platform each new reconditioner answers a rigorous questionnaire on the operations
and quality procedures including providing the physical proofs.

The algorithm offers the best value for money. The products cost between 30 and 70% less than
new. Then, they are guaranteed for a minimum of 6 months. The company has just launched
warranty extensions against breakage, breakdown, and theft with AXA (insurance company).
More than just a marketplace…

The marketplace works with some 600 French reconditioners and is currently worried about them.
Indeed, the Ministry of Culture has the project to tax refurbished telephones by applying to them
"a private copying levy", which would "increase the selling price of refurbished telephones by more
than 10%", was denounced in February. This is the reason why Thibaud Hug de Larauze, co-
founder and CEO of Back Market, refuses to “open the champagne” on the announcement of their
fundraising and becoming the unicorn company. He asks the government for commitments "to
secure the economic model" of the sector. “The success of Back Market was built in France, with
these French reconditioners today threatened,” he says in the interview.

How they become the unicorn

In 2015, the start-up raised funds of 300,000 euros from private investors.

In 2017, a second fundraising of 7 million euros was carried out. At that time, 30% of the activity
was carried out in Spain, Germany, Belgium, Italy, and the company said it achieved 96 million
euros in business volume.

In 2018, a third fundraising of 41 million euros from Daphni, the Arnault group, Thierry Petit, and
Eurazeo took place.

The French refurbished giant has seen the number of its customers explode over the past two years:
they are now 5 million against 1.5 million in July 2019, specifies the company.

The first lockdown was a godsend: sales had initially fallen by 25% all products combined, before
rebounding thanks to a diversification that has benefited television sets, video game consoles and
even household appliances.
Somehow pandemic allows the company to double its sales compared to the previous period. This
sudden and unpredictable boost comes when the young Parisian startup brings together a new round
of funding of 110 million euros with Goldman Sachs Growth, Aglaé Ventures and Eurazeo Growth,
reveal Les Echos. Only five years after its creation, this new financial transaction allows this nugget
whose valuation would remain below one billion to position itself as one of the spurs of French
Tech, thanks to its activity in the United States. "The phenomenon is surprising there," admits
Thibaud Hug de Larauze, co-founder and CEO of Back Market. “The day the bonus of $ 1,200 was
paid to Americans to boost their purchasing power during the crisis, our turnover there doubled for
example. "

In May 2021, the startup announced a fundraising of 276 million euros which placed it in the
category of French "unicorns”.

The company intends to take advantage of its fundraising to pursue international expansion.
Vianney Vaute, co-founder and creative director of the company, explains that Back Market wishes
to strengthen its presence in the United States and "continue to consolidate its leadership in
Europe", in particular in the United Kingdom and in Germany, but also invest in services for its
merchants, in particular in warehouses dedicated to exports.

There are start-ups for which the coronavirus crisis will have strengthened their positioning. This
is the case of Back Market, whose platform for the sale of refurbished electronic articles met with
very strong enthusiasm quickly after entering lockdown. The introduction of teleworking, the
sudden development of teleconsultation, short time working, or the explosion of online
entertainment have all contributed to attracting consumers to this type of online store which allows
the purchase of second-hand equipment (smartphones, tablets, consoles, etc.) while benefiting from
a guarantee.

Right on time in the market:

(For more information, please, read in the article: Stopping the Lemon Effect: How To Save The
Refurbished Industry and The Circular Economy, Exhibit 3):

The change in consumption patterns is as much due to the decline in purchasing power as to the
development of the circular economy. To access a good product at a reasonable price the customers
must do their choice in second-hand or so-called refurbished devices markets. These are either
exhibition models or equipment have been in use already which is recovered, checked and, if
necessary, repaired before being resold with a discount and often a guarantee.
According to estimates by Counterpoint Research, 140 million smartphones of this type were sold
in 2017 worldwide, an increase of 13% in one year. The French market follows the same trend.
“Previously, we used to buy a device with a subsidy by subscribing to a package with an operator,”
underlines Jean-Lionel Laccourreye, president of the Interprofessional Union for the
reconditioning and refurbishing of computer, electronic and telecom equipment (Sirrmiet), which
brings together around twenty companies representing 1,500 jobs and 500 million euros in
turnover.

The refurbished electronics market, booming for two years, is estimated at 20 billion euros in
2017, only on smartphones, up 13%. It is already growing faster than the new market. The trend
should follow the car market: tomorrow more products will be consumed reconditioned than new.

Challenges
In 2019, a survey of 60 million consumers noted that Back Market “aggregates most of the
complaints” received concerning customer satisfaction. While its leadership position may explain
the number of complaints, its functioning is nevertheless problematic. In addition, the warranty
period offered compared to its competitors, namely six months (legal minimum), is also pointed
out by the organization. In response, the founders claim that reconditioners are subject to different
verification procedures via a questionnaire and a forty-day trial period. The quality control teams
are reinforced, and the warranty is extended to twelve months.
 Exhibits
Exhibit 1: Unicorn FAQs
What Is a Unicorn in Business?

A unicorn is used to describe a startup company that has a valuation of over $1 billion.

Aileen Lee first wrote about unicorns in the venture capital world in her article, "Welcome to the
Unicorn Club: Learning from Billion-Dollar Startups." Here, she looked at software startups
founded in the 2000s and estimated that only 0.07% of them ever reach a $1 billion valuations.
Startups that managed to reach the $1 billion mark, she noted, are so rare that finding one is as
difficult as finding a mythical unicorn.

How Many Unicorn Companies Are There?

According to CB Insights, there are more than 803 unicorns as of August 2021. The largest
unicorns included ByteDance, SpaceX and Stripe. Also, according to CB Insights, there are now
30 unicorns with over $10 billion valuation in the world, including SpaceX, Stripe, and Klarna.
Is Amazon a Unicorn Company?

Unicorns are typically used to describe privately held startup companies, so Amazon is not
considered a unicorn company. However, before it went public, Amazon was.

Why Are Startups Called Unicorns?

Startups worth over $1 billion are called unicorns because they are so rare--often, these companies
have seen skyrocketing success or market traction, which has launched them into almost a
mythical category, since they are so rare.

How Can I Invest in a Unicorn?

Unless you are a private investor or venture capitalist, unicorns being startup companies don't
really accept a lot of moderately sized investments. However, investors who are interested should
track the growth of these unicorns if they ever decide to become public companies and IPO.

KEY TAKEAWAYS

• Unicorn is the term used in the venture capital industry to describe a startup company
with a value of over $1 billion.
• The term was first coined by venture capitalist Aileen Lee in 2013.
• Some popular unicorns include SpaceX, Robinhood, and Instacart.
• There are more 803 unicorn companies around the world, as of August 2021.
 Exhibit 2: Article

Stopping the Lemon Effect: How To Save The

Refurbished Industry and The Circular
Economy
By: Vianney Vaute / CCO Back Market

The refurbished electronics market seems to be doing great, at least if we go by the numbers of the
refurbished smartphone market that have been bandied around so much, with the global refurbished
smartphone market (13% y/y growth) outpacing the new smartphone market (3% y/y growth) in
2017. More recent studies show that 2018 was the first time that the global smartphone market has
witnessed a decline for an entire year. Some would like to attribute that decline in part to the
refurbished/pre-owned smartphone market’s growth.

There is also, of course, the fact that a recent category of higher quality devices that are more dust
and water-resistant than ever before means that people can hold on to their devices for longer and
then resell their phones for considerable value. A person that sells their smartphone within a year of
purchase, for example, can expect to recoup 60–70% of the original cost when selling second-hand.
These are all cause for celebration for the Fair Tech movement. With recycling efforts outpaced by
the tremendous rate of electronics consumption, extending the lives of devices by holding on to our
electronics for longer and supporting a circular economy model around them is a crucial element of
fighting the e-waste crisis that we currently face as a nation and worldwide.

That said, it is far from time to bust out the champagne glasses. While sales are going well so far,
Nobel-prize winning economist George Akerlof describes issues in his paper, “The Market for
Lemons: Quality Uncertainty and the Market Mechanism,” that already plague the refurbish/reuse
aspect of the circular economy model in the electronics industry.

The Lemon Effect

A lemon, for those of you who are too young to remember, refers to a car that is found to be defective
only after it has already been paid for. Before the age of CarMax and the Kelley Blue Book, buying
a used car was a huge bet. There was a reason for that according to Akerlof: where there is an
asymmetry of information — in plain English, a lack of transparency about quality from the sellers
to the buyers — there is an incentive for sellers to offer lower quality goods while presenting them
to be of higher quality. This dynamic is already at play even in the “certified refurbished” market,
where unscrupulous sellers that are looking to make quick and easy sales are more than happy to
get paid higher prices than what their products are actually worth. Some folks even label products
refurbished that have not been properly inspected or repaired.

It’s no surprise that in an in-house poll done by refurbished electronics marketplace, Back Market,
of first-time refurbished product buyers, 49.6% (a total of 453 respondents out of 917) said that they
had not previously purchased refurbished devices because they didn’t feel sure about the quality of
refurbished goods. “The Market for Lemons” paper states that in the long run, as buyers are
disappointed with their lemons, new buyers begin to factor in the risk of purchasing a lemon in their
decision-making. This drives prices down and also drives higher quality goods out of the market,
essentially creating a market of junk and potentially causing it to collapse. In that case, we can kiss
the circular economy for electronics goodbye.

Making Peaches Out Of Lemons

If the refurbished industry is to be saved, it’s going to need a big makeover — and not just a
superficial one. While Akerlof suggested government intervention (which actually gave birth to the
Magnusson-Moss Warranty Act) to help prevent the negative effects of quality uncertainty, some
might say that it was actually CarMax that disrupted and turned around the image of the used car
industry to make it what it is today. CarMax’s model, with detailed test inspections, a warranty and
painless buying process, was selling five times more cars than the average new car dealer and 30
times more than the average used car dealer in 1995 — a mere two years after its first store opened.
Soon after, competitors of various models began to emerge as the used car market became a more
lucrative one. By 2012, used car dealers were selling at a rate comparable to new car sales (in that
year, they sold $377 billion in used cars vs. the $316 billion in new car sales).

The refurbished industry is in exactly the same position as the used car market once was and is ripe
for someone to take a leadership role. It is only once someone takes ownership of the refurbished
device category — putting better standards in place and creating a better buying experience — that
we can say that the refurbished market — and the circular economy model for electronic devices —
can truly be sustained.

This is precisely the role that Back Market wants to occupy. Our goal is to make buying refurbished
devices and appliances a painless and transparent process where a buyer can say with confidence
that they are getting exactly what they pay for. While we haven’t quite succeeded yet, working
closely with (and even helping to develop) top-notch refurbishers, we believe that we are currently
in position to make a real impact — not just on the refurbished market but on the planet too. Having
already saved 622 tons of e-waste to date, we’ve already gotten started.
References :
Welcome To The Unicorn Club: Learning From Billion-Dollar Startups | TechCrunch

The Real Reason Everyone Calls Billion-Dollar Startups 'Unicorns' (ibtimes.com)

Back Market — Wikipédia (wikipedia.org)

Back Market lève 276 millions d’euros et se valorise à plus de 1 milliard de dollars (lemonde.fr)
Back Market : ce qu'il faut savoir sur la start-up française qui devient une licorne | Les Echos Start
« On a vraiment l’impression d’acheter du neuf » : le boom des smartphones d’occasion (lemonde.fr)
La start-up Back Market lève 41 millions d'euros auprès de Groupe Arnault, Daphni, Thierry Petit,
Eurazeot - Challenges
Back Market lève 110 millions d'euros | Les Echos

«La mission de Back Market est de ressusciter les smartphones» (lefigaro.fr)

Back Market lève 276 millions d’euros et se valorise à plus de 1 milliard de dollars (lemonde.fr)

Back Market fonde sa réputation sur un contrôle drastique de la qualité, Success Story (lesechos.fr)
Unicorn Definition (investopedia.com)