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On The Life-Cycles Of "Unicorns" & The Cycles Of VC Investing & Regulatory Evolution.

|Includes: GSV Capital (GSVC)
Summary

As the gig economy nears its ~10th year of existence/fame, destiny may call on some "unicorns".

Much ado has been made in the past ~decade regarding "gig economy" companies etc.  What started off often as small geographically limited "start ups" often leveraging technological platforms, in harmony with proverbial fleets of Independent contractors have now grown in to ballooning operations, in at times several different market spaces, and operating within several different national regulatory frameworks.  What began with much fanfare and excitement, and "celebration" of " economic disruption" has morphed into questions of "workers' status definitions", operating space, and profitability etc. 

(source)

With "Uber" arguably the sort of "flag-ship" of the "gig" economy now "ripening" into its tenth/eleventh year of operating, perhaps through the "life cycles" of these famed gig-economy companies, one may make several observations regarding the way that in this case various factors came together in a sort of "confluence of reflexivity" in response to, and alongside the operations of these "gig" economy companies.  Just as these "disruptors" once "disrupted" the status quo per se, perhaps they too are being molded and shaped by the same forces that once shaped their proverbial commercial "ancestors" if one will etc., and perhaps they too are finding that though they felt that they were born under a new set of stars, that these stars were really the same as the old stars, and that the same commercial factors/market place dynamics that shaped the usurped are too, now, shaping them.

There are perhaps several "reflexive" factors shaping the present state of these "sharing economy" companies in general, and perhaps several factors that existed before these companies were founded.  "Reflexive" factors may include the demands of early etc. investors into these companies and the effects of these "partners'" "motivations", and regulatory evolution partially in response to the operations of these companies.  "Non-reflexive" factors, may be related to the nature of the "market niche" that these companies are operating in, in general.

One can see the literal examples of the "reflexive" factors feeding into obvious/apparent events, and in some regards, based on somewhat expected patterns perhaps.  For example, recently the Supreme Court of California, the state which seems to serve often times, as the "birthing grounds" of these fabled beasts/organizations, passed new regulations in a sense, via/in association with court rulings, which effectively much more strictly re-defined, what an "Independent Contractor"-"Business Partner" relationship entails.  This effectively takes what was once a much vaguer set of regulations(legally speaking), it seems, and sort of refines them down into a three part questionnaire if one will, whereby "Independent Contractor" vs. "Employee" status is presumably easier and less subjective in deducing per se.  Discussions of this can be seen at the following; "Dynamex" ruling.  This makes things more difficult perhaps for companies like "Uber" etc., as it essentially requires an "Independent contractor" to be in the regular business per se, of providing whatever services one is contracting them to perform.  Hence being contracted to be an "independent contractor"-pseudo-taxi driver, in one's "spare time", may no longer be as sort of a legally-legitimate/innocuous "independent contractor" relationship, unless for example one is in the business of chauffeuring, in general, outside of said business-relationship/arrangement, etc.("San Francisco subpoenas Uber and Lyft for proof that drivers aren't employees").

zebra-horse                                              (source)

Another factor perhaps "transforming" the "zen" of disruption is perhaps venture capital investment-life-cycles.  For, now that Uber and co. are getting a little longer in the tooth if one will(older than the "8 year" average, for a VC investment), perhaps the promises made to early investors in the company, or the dreams of said same investors, are perhaps coming more into the fore-ground of the shaping motivations regarding ongoing operations of the company in general.  E.g. people per se, invested into these companies wanting a return on their investment presumably, hence items like "independent contractor"/"service provider" pay, other types of costs etc., are seemingly coming under the "chopping block" if one will, to sort of meet desired profitability figures/watermarks etc. presumably.  Hence, it seems that the people bearing the weight of these "cuts" are in many cases the drivers for Uber, and similar platforms for example(discussion/example).  The sort of "double impact" of relatively recent "fare cuts" to increase profitability perhaps, coming on the heels of years of "fare cuts" to perhaps increase market share(discussion/example) perhaps coalesce into being a sort of "aggravating" factor regarding the state of the service-providers on the platform, and in turn perhaps the platform in general etc. Hence, the refrains of "I quit my office job to driver for Uber" have seemingly lessened over the years, at first perhaps in response to fare cuts/pay cuts so that, Uber etc., could increase market-share by offering lower prices, and later, increasingly perhaps to please investors wanting to see some decent returns on their investment(based on profitability of company, etc.).  With studies coming out regularly deducing the drivers on said "gig economy" platforms probably "earn" something like minimum-wage etc., the Utopian dreams of unicorn riders perhaps meet the stark reality that all is not what it seems, in magic-land(pay study discussion).  Utopian visions rarely begin with utterances like "I quit my office job to earn minimum wage", or "I really wish I could leave this office job behind and drive a taxi for 12+ hours a day for a living" and perhaps it is thus for a reason.  In turn, at this point this may lead to further increasing the magnitude of pre-existing issues like "driver-retention" or service provider retention in general, etc.(a discussion of said "driver retention" issue).  The potentially negative "gist" of this is perhaps that pressures to produce profits perhaps put too much pressure on already potentially weakened/diminished "service provider" "pools" and in turn this perhaps may lessen the "convenience"/"availability" of said services in a sense, in that there may be less "service providers" in the short-term, etc.(as a further aside, this trend of "decreasing pay" for service providers seems to continue on to other similar "gig economy" companies aswell, in general, with many arguing that 2014 was the peak of the "pay rates" for said gig economy jobs, which coincides with an acute growth period regarding the various platforms of/in the gig-economy in general as per for example; discussion)

Timeless Classic                                                    (source)

A third issue is perhaps one that was overlooked due to the seemingly low interest rate driven VC investing bonanza that did for start-ups perhaps, what said same interest rates perhaps did for US etc., housing prices in general.  E.g. a lot of investor money was poured into companies that sounded interesting and avant-garde in some way, while perhaps leading some to overlook sort of presumably quite fundamental questions about the "space" that the companies that they were investing into were operating in, if one will.  Many of these "Unicorns" were operating in industries that were not exactly perhaps "famed" for being "high-margin" industries.  E.g. the profit margins on "personal assistant"(staffing industry has ~sub 10% pr. margins) type work, "house-cleaning"(discussion of ~5% to ~7% pr. margins in cleaning industry), "taxi-driving"(a discussion of taxi-profitability perhaps being only possible if fares propped up by industry related regulations) etc., were perhaps not exactly "the stuff that dreams are made of" if one will(listing of "most profitable industries" in general supposedly), hence one is left with a sort of further "aggravating" factor in this evolution of the "disruptors" namely, how much profit can one possibly make as a participant in these industries in question, even under "ideal" circumstances/market conditions.  With startups from said same "batch" arguably one perhaps does have some higher margin companies like for example, some IT-services related, perhaps somewhat surprisingly "food delivery" providers(discussion) and perhaps some "cloud computing" companies in general(a perhaps unusual, but perhaps none the less interesting, indirect discussion of "cloud computing" provider profit margins)(other discussions of "cloud computing" provider profitability potential), as well as others, however the sort of much heralded/most well-known element of the "gig-economy" may not particularly be concentrated in these relatively higher profit industries in general etc.(as an aside, list of cloud computing companies etc.)

                                                   (source)

Hence, for all the press, and trumpets, and the bluster, perhaps the "gig economy" to some extent is facing a sort of patch of "disruption" its self going forward.  Questions regarding regulatory issues, profitability issues in general, and investor demands may be putting pressure on companies in these industries, particularly over the next few years.  Perhaps, ultimately a few years from now, we will be left with only a few members of gig-economy "Unicorn nobility" that have survived this potentially turbulent period for these start-ups etc. Perhaps every Unicorn will have its day, however, until then, perhaps these once heralded mono-horned equines are in for some stormy seas and some hard questions.  

Unicorn inflatable-raft                                                       (source)

As a further aside, in some cases, one may be able to invest in pre-IPO equity per se, of said companies and similar companies directly or indirectly via platforms/organizations like;

"Sharespost", "Equidate", perhaps "EquityZen" and "GSV Capital", etc.

  -thank you for reading, D.S.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.