Some Rules for Marketplaces and Distributed Workforce Platforms

I’ve been getting involved with a couple of different models related to labor marketplaces and platforms lately.  My interest dates back to my 2010 investment in chloe + isabel back when I was with First Round.  I was still at FRC when we invested in TaskRabbit and Uber, even though I wasn’t on those deals.  I’ve also run about 30 Kitchensurfing dinners across NYC for tech and startup folks in the last two years.  My two most recent deals involve a distribution of labor or direct sales, and two of my upcoming deals are similarly structured.  

Yet, I’m quick to turn many of these types of deals down, too–and I’ve started noticing which ones I like and which ones I’m less interested in.  

Here are my two main rules:

1. The labor supply has to get enough out of the platform not to want to go around it.  

Your Handy cleaner is undoubtedly going to want to get paid directly if you seem satisfied with them for sure–and why not?  Once you like them, you’ll just want them to show up at the same time and day each week or every other week or whatever.  The platform is providing little value after the initial intro.

This is highly unlikely to happen with your Uber driver, however.   Who knows where they’ll be the next time you need a cab, and you’re not likely to use the same driver twice.  In this case, it’s not about the cash, but about their ability to replicate the volumes off platform.

Recently, I’ve gotten interested in two models where the marketplace was cutting the provider in for a slice of the sales, whereas they used to just get paid a flat, hourly wage.  Being on the platform would be a huge boost to their net income.  

2. You need to get a nice chunk of the transaction to make it worth it as a marketplace.  

With some platforms, I can’t help but think that a heck of a lot of human effort was expended to net the platform not a lot of cash.  If you’re only taking a small cut, you’ve got to have huge volumes to make up for it, and that just takes a long time.

How can you provide enough to the labor so that they accept giving up 25% or more?  Otherwise, the land of the 5-15% cut is just really tough to make a lot of money on.  

I had some other rules down, but they really always seemed to come down to the two above.