Where are the startups developing skills for the freelance and gig economies?
In this article Ellasaid Woodhouse, Investment Associate at Ufi Ventures, asks:
- Where are the skills coming from to power the growing gig/freelance/shift economy?
- Will the cost of living crisis cause people to take up more side work in the gig/freelance/shift economy and give employers greater power to reduce full-time staff?
- Does the gig/freelance/shift economy provide an alternative career path for workers facing the increased levels of burn out in the global economy?
Where are the skills coming from to power the growing gig/freelance/shift economy?
Like the entry-level worker being asked for four years’ of work experience, it might seem like a parody, but freelancers and gig worker are expected to have the skills they need before they take on a job: they are not there to be upskilled. Yet the new entrants to the workforce, and those used to digital-first workplaces, are prioritising remote and project work over full-time jobs, and linear progression(1). Emblematic of this trend is that we’re beginning to see significant numbers choosing to enter the job market freelance-first – i.e. never onboarding into a company, but instead upon leaving school/college/university choosing to work on projects or gigs for a range of employers.
If this is where the market is going, where do people learn the skills they need to access the jobs they want? The answer is not currently found in the booming freelance or gig economy, but rather in the various mega-raises of the learning tech space. An example of this can be seen in freelancers wanting to learn one of the fastest growing coding languages (in terms of demand) such as Scala or Typescript(2) ; currently they have to do this outside of their project-work; skills development is “on your own time”. The $100m Seed round of Masterschool(3), is one of several significant coding school raises which highlights the market need for skills development accessed outside corporate training, further and higher education.
Only one of the freelance/gig economy company raises in Europe and North America in the past year, analysed by Ufi Ventures, had a significant skills development element to their platform.
Only one of the freelance/gig economy company raises in Europe and North America in the past year, analysed by Ufi Ventures, had a significant skills development element to their platform (though if you’d like to contest this – do get in touch!). The majority of the raises in this space were focussed on increasing the effectiveness and efficiency of matching workers to freelance jobs/shifts/gigs and the infrastructure to support these interactions.
In the past year funding in HRTech has moved on from the swathe of coaching and mentorship platform raises in early 2022, to the freelance and gig space which has dominated more recent rounds. May and August 2022 have been peak months for raising capital for this space. Over £62m was raised in August and over £665m in May, in North America and Europe. Neither figure includes undisclosed liquidity events - such as the acquisition of HireHand, by Reverence (4) in the UK, or Focus Cloud’s acquisition of Cognitive Group(5). Significant recent rounds have been into companies focussing on filling shifts in the warehousing, logistics, skilled trades and industrial sectors – such as France’s Iziwork’s €30m Series C(6) or the US’s Bacon Work’s $8m Series A(7).
Most notable though have been growth in raise amounts of the “gig infrastructure” – those companies providing secondary services to gig job boards or freelance workers. Most recently US-based AllWork raised $3m in November to continue to build tools to allow companies to effectively manage their freelance workforce – including budgeting, timesheets, contract management and benefits. USA and Israel-based A.Team’s $55m Series A highlights a development in the traditional gig model – it recruits project teams, rather than individuals. Estonia’s gig insurance broker and provider Cachet raised a €5m Series A to scale the range of insurance models and cover it can provide to on-demand taxi drivers, food delivery agents and other vehicle-based freelance workers(8). Fintech’s catering for the self-employed, through innovative services such as credit for smoothing uneven months of pay, or reduced or removed credit checks, or even facilitating purchase of stock in their employer (eg Uber) have also seen significant traction – such as Found’s $60m(9) Series B or the c. £4m Series A raises of Moves(10) and SteadyPay(11). Though companies like the A.Team or JobGet, who raised $42m in June 2022 for their social network and job board for gig/shift/freelance workers, could allow freelancers to rate or lobby employers (perhaps for more training) almost none of these ancillary companies are supporting the gig economy to maintain and grow the skills base it draws from.
At Ufi VocTech Trust we look to support, through grant and equity funding, the companies who are training the workforce of tomorrow and helping individuals access good quality work. It is encouraging that the gig/freelance market is maturing, with companies being created that cater to the needs of the existing gig economy. We hope that as this market develops we will see companies emerge (or pivot or diversify) to cater to the evident upskilling, re-skilling and training needs in this space. Given the scale of gig economy companies currently, such as JobandTalent ’s recent raise of €230m debt(12) or well-known listed gig companies, the commercial need for services in this sub-sector and exit opportunities are increasingly clear.
Yet the skills factor and / or needs of the gig worker have to be there for Ufi to get involved, and we’d like to see more opportunities in this area. The only notable recent activity has been GoJob’s €23m raise in September(13), which combines a “temporary staffing” job board for logistics and manufacturing with free online courses for improving career skills and thinking about career progression.
Recent raises don’t show the work that’s being done “in stealth mode”, through angel networks or many of the pivots that happen in early-stage companies. So we’d very much like to hear from you if you’re bridging the skills gap in the freelance/gig/shift economy.
Chart 1 – Funding rounds of gig economy companies that have raised in the past year (includes multiple raises from the same companies)(14)
Chart 2 – Recent deal sizes of the gig economy (same pool of companies in chart 1)(15)
Chart 3 – Recent deals, by number of deals per geography (same pool of companies as in charts 1 and 2)(16)
Will the cost of living crisis cause people to take up more side work in the gig/freelance/shift economy and give employers greater power to reduce full-time staff?
From people in the police force taking up hospitality shifts on their days off, to tech workers topping up their pay by taking up projects on the side, there are increasing indications from the companies we have spoken to that the costs of living are pushing people to supplement their income.
In areas of skills shortages, demand for workers will push employers to increase their reach outside current employment pools. As we said in our recent report with Tyton Partners, enormously well-funded digital scale-ups such as JobandTalent are threatening the established players such as Adecco and Manpower (and these players are responding)(17).
The recent resetting of valuations in the tech sector and contraction in available funding has led to waves of layoffs, particularly amongst those who have had recent IPOs and high value rounds(18). The same employers could hire freelancers to fill the gaps created by these lay-offs. Similarly, employees that were laid off often take up gig roles until finding a full-time role; or will simply pivot to a freelance-first career. However, as we mentioned above, freelancers access fewer training and other benefits than full-time employees.
Flexibility and negotiation are key for employees with job security in sectors facing skill shortages(19), yet for workers on shifts, as well as other parts of the gig/freelance/shift economy, the ability to negotiate is still largely focused around the wages and hours offered by companies. Recent studies have found that women face a wage gap within the gig economy, yet have less ability to change this due to the fact they are not full-time employees(20). The gig/freelance/shift economy is a good safety net for income, as it benefits from high hourly rates, but is it strong enough to support people who have been laid off full-time work?
Severe worker shortages in the hospitality and care sectors are forcing employers to look to gig workers to fill shifts and vacancies in the short-term. As a result, there were significant deals by digital players connecting gig workers to employers in a simple and efficient way.
Layoffs and increases in the cost of living may move more people into the workforce for gig/freelance/shift economy, but with greater supply, will this push down hourly wages or move this to an employer driven market? Many sectors are currently freelancer driven, due to skills shortages. In some sectors where the skills shortages are particularly acute and long-standing, the ability to increase pay is limited due to the unit economics of particular sectors. One very clear example of this is health and social care. “Severe worker shortages in the hospitality and care sectors are forcing employers to look to gig workers to fill shifts and vacancies in the short-term. As a result, there were significant deals by digital players connecting gig workers to employers in a simple and efficient way”(21).
There have been notable raises in companies that look to facilitate remote working for organizations with remote workers across the globe.(22) Though these promote opportunities for people globally and allow people to take up roles in locations which otherwise would not offer these roles (e.g. rural locations), it changes the nature of how and where certain skill sets are developed. Will companies look to hire freelancers in economies where the average hourly rate is £100 or in economies where it is £50?
Increasing use of gig/freelance/shift workers has many benefits, but may reduce the ability for workers to push for flexibility, pay and progression opportunities other than in areas of acute skill shortages.
Does the gig/freelance/shift economy provide an alternative career path for workers facing the increased levels of burn out in the global economy?
A study of 200 executives by the Society for Human Resource Management found that 43% of participants said burnout prompted their job search. More workers are taking their mental health and wellbeing into consideration since the pandemic, especially as staff shortages have prompted companies to do more around employee retention. Workers have also indicated that burnout has been a significant factor in switching jobs(23). Gig/shift/freelance work provides workers greater ability to dictate their hours, in comparison to full-time jobs. Though there is a cost-benefit analysis workers must make in this respect, if well managed, moving to gig/freelance/shift work could enable a better balance of hours, mental health and wellbeing.
Research of freelance roles has shown an increase in focus on soft skills, such as project management, alongside the longer-standing trend of technical skills, such as Python(24). Use of the term “management” on Freelancermap saw a 123% increase from Q4 2021/22, compared to the year previously(25). Other technical terms saw similar levels of growth, such as cybersecurity at 97%(26). This suggests a more broad-base growth of the gig/freelance/shift economy than may have been predicted a few years prior. Mercer recently polled executives globally on whether they agreed with the statement that freelance workers would substantially replace full-time employers(27). The number of industries in which more than 75% of executive agreed is striking, particularly in sectors such as automotive (97%).
This suggests it is becoming more economically possible for a wider range of professionals than ever before to take on flexible work(28). Yet it means a wider group of professionals are likely to the lack of training and skills needed for work, unless they paid for or received training prior to going freelance. As a consequence, though people may choose the health and wellbeing aspects of freelance work, they may be forced to balance this against professional development(29). So unless employers champion the professional development of both full-time workers and freelancers/gig/shift workers, the bond between scaling resiliently and championing different models of work may be broken. We hope to see more businesses working on fixing this and partnering with early-stage tech companies to improve how they do it.
If anything in this report speaks to you, do get in touch.