Investment

Anxious to woo founders, VCs join the gig economy front lines

Credit - Bloomberg

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Venture capitalist Jamison Hill was momentarily flummoxed by a strappy red garment.

Tuesday 04, December 2018

(Bloomberg)--Hill, who is accustomed to working behind a desk in a San Francisco high rise, had pulled it out of a bag of strangers' laundry that he was tasked with sorting, but with strips of fabric in unexpected places, it was resisting categorisation. “So, what is it?” asked his trainer, James Joun, the co-founder of laundry start-up Rinse Inc. “This is…” Hill’s voice trailed off as he examined it from different angles. “This is a blouse,” Joun said, as Hill finally turned it in a way that showed it was indeed a women’s wrap-around shirt.

Hill is a senior principal at Bain Capital Ventures, and by working a temporary laundry job he joins the ranks of a significant number of investors embedding themselves in the gig economy. As start-ups that rely on contract staffers reach ever higher valuations, VCs and bankers alike are trying their hand at the workers' side of companies’ apps—running errands, shuttling cargo, and the like. The benefits of afternoons spent sorting other peoples’ laundry, say acolytes of the strategy, can mean the difference between cinching the deal and losing it, or understanding the way the business works and getting it wrong.

The idea isn't new. Sequoia Capital’s Michael Moritz packed up groceries after the venture firm backed online-shopping service Instacart back in 2013, a Sequoia spokeswoman said. The chief executive officer of Ikea’s TaskRabbit, Stacy Brown-Philpot, cleaned a customer’s apartment. And Michael Grimes, who heads up global technology investment banking at Morgan Stanley, has driven an Uber occasionally for years in hope of one day underwriting the ride-hailing giant's initial public offering.

But the concept is rising in popularity among venture capitalists in particular, as funding flooding the valley has made it imperative for VCs to prove to founders that they really get the business. Money, advice and introductions are no longer enough of a differentiator for founders. In the first three quarters of this year, venture investors poured $86 billion into start-ups, more than at any other point since the dot-com era, according to PitchBook.

What start-ups want now, VCs say, is a dedicated and down-to-earth partner. Hill signed up for his work sorting laundry through staffing service Wonolo Inc. Wonolo Chief Operating Officer AJ Brustein, who himself works a shift once a quarter, said he appreciated the VC's additional legwork. "It seems like he really hustles," Brustein said.

Earlier this month, Hill and Bain Capital led a $32 million round in Wonolo, which stands for "Work Now, Locally.” Hill worked his shift at Wonolo client Rinse after inking the funding deal but completing a stint as a Wonolo staffer was important enough to him that he wrote it into the investment agreement.

Hill wasn’t even the only would-be investor who signed up to work on the service. In a previous funding round, Brustein and his co-founder rejected an offer from another VC who undertook a similar stunt. Wonolo's decision to go with a different investor was not, they said, the result of any shortcomings on the job.

“I think that less than 50 per cent of VCs actually understand the business they’re in,” says Nabeel Hyatt, a venture capitalist at Spark Capital who signed up to do a stint for Postmates Inc., the service that delivers food and other items to customers. His work as a Postmate included the eye-opening task of delivering a single cup of Blue Bottle coffee to a client, with the delivery fee—then $5—costing more than the coffee.

Customers' reliance on the deliveries made Hyatt realize that "there are people who are just going to start using it as a utility,” he said, rather than just ordering on a one-off basis. “It made the market feel much larger to me.” Hyatt decided he was in, leading a $16 million funding round for Postmates in 2014.

SoftBank’s $100 billion Vision Fund has also sent out emissaries to gig economy companies. Vision Fund managing partner Jeff Housenbold assigned a team member to sign up as a DoorDash Inc. delivery person and another as a Wag Labs Inc. dog walker. Housenbold, who worked his way through college with his own part-time jobs, cautioned VCs not to make too much of their short time in the trenches. “I’d never say, ‘Don’t do it,’” he said. “But I’d say, 'Don’t do it pounding your chest, saying ‘Look at me.’”

Most VCs understand their brief brushes with hourly-wage work could prompt eye rolls or worse. Economic inequality in the San Francisco Bay area is the third highest in the country, according to the Brookings Institution, a Washington think tank. And the average compensation for a VC is $634,000, according to J. Thelander Consulting.

Typically, when investors work at warehouses and the like, they keep their heads down rather than advertise that they're there for reconnaissance. “Unless you come out and say, I’m a VC, I’m driving up in my Mercedes,” Brustein said, “unless you have that kind of attitude, there’s no reason why anyone would know why you’re there.”

None of the investors interviewed for this article said they talked with the other workers about workers' rights or access to healthcare. Gig economy work is infamous for its instability and lack of health insurance. But several VCs did tout the flexibility of temporary jobs. Wonolo, for its part, said it links up its workers with Stride Health Inc., a service that identifies affordable health plans for individuals, and drops client companies that get too many bad reviews from workers.

Beyond the window it offers into start-ups, some of the interlopers say they value getting out of the office. Brett Rochkind was sizing up an investment in Uber for venture firm General Atlantic in 2015 when one of his airport-bound fares, a startup’s chief financial officer, recognized him. The passenger, impressed by Rochkind’s diligence, gave him an early word on a potential deal.

Today, Rochkind, now at Charles River Ventures, will send a screenshot of his driver profile to anyone who asks: 22 trips and a five-star rating. The tips might not have been great, but if Uber goes public at a proposed $120 billion valuation—four times what it was worth when he invested—he'll be happy.

TAGS : Jamison Hill, James Joun, Rinse Inc., Bain Capital Ventures, gig economy, Sequoia Capital, Michael Moritz, Ikea, TaskRabbit, Stacy Brown-Philpot, Michael Grimes, Morgan Stanley, Uber, venture capital, PitchBook

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