A couple of multi-billion dollar start-ups got us thinking. What’s the common thread between Uber and Airbnb? They don’t sell stuff to people. Rather they help people sell their own stuff. In the case of Uber, they help people sell their driving services. With Airbnb, it’s accommodations that are sold. Just a coincidence or something bigger at work? Then we noticed a few more very successful newcomers that fit this theme – Lending Club, Shopify and Square, among others. Lending Club helps people make a profit by directly lending to other people. Shopify and Square help people sell their goods through e-commerce and transaction engines.
Some have termed this the sharing economy or peer-to-peer sharing. We prefer to look at the theme a bit differently. There are companies that facilitate sharing such as carpools (Live Rides) or even wifi signals (Fon). We don’t necessarily include these categories in our definition because the emphasis is on sharing rather than selling. There are other companies like Shopify that don’t necessarily fit into the “sharing economy” because they sell their software to merchants in somewhat traditional fashion. Why we include them under our definition is because their tool enables anyone to build an online store and sell things.
So why do we like this mass entrepreneurship theme? Maybe the great recession of 2008/2009 and resulting unemployment rise prompted the general populace to take matters into their own hands. Perhaps due to a growing distrust of the “corporation” or perhaps simply out of necessity, people sought new ways to make money their own way. And companies that were able to offer the tools to facilitate this new found entrepreneurship would prosper. Airbnb, Uber and Shopify were founded in 2008 and 2009, at the height of the recession. Lending Club and Shopify were founded just a few years before.
These innovative companies have helped us, the ordinary consumer, compete with banks (Lending Club), hotel chains (Airbnb), cab companies (Uber) and retailers (Shopify and Square). In our view, this is quite a change to the tech landscape of the 80s, 90s and even 2000s. While the stuff you buy from Apple, Microsoft, IBM, Google or Cisco can help you sell goods or services, the onus is generally on you to put it all together. The start-ups mentioned above have been formed with one key thing in mind – helping you make money. Uber and Airbnb don’t get paid until you get paid. Lending Club, Shopify and Square will not stick around very long if their customers don’t make money.
So are these examples just the tip of the iceberg or is this a flash in the pan trend that will expire as quickly as it arrived? It’s a tough question but we are inclined to believe there is more to come from this theme. The younger generation has been hit with two major recessions since joining the workforce in the late 90s and waves of corporate scandals have done little to alleviate their concerns. A poll from a few months ago stated that only 36% of Americans feel corporations are a “source of hope” for their economy. 40% of millennials see corporations as a source of fear.1 There are likely millions of people that have made meaningful money independently with the help of Uber, Airbnb, YouTube and others while corporate distrust continues to linger.
We at Difference Capital will continue to keep our eyes open for emerging tech companies that further aim to exploit this grand entrepreneurship theme. We find a couple of smaller examples rather intriguing:
Kitchensurfing – an Airbnb for chefs. Good cooks post their best meals and pricing on line. You book them and they come to your door to make a great meal.
FlightCar – instead of just parking your car at the airport for your next trip, give it to FlightCar where they will rent out your vehicle to incoming travellers.
DogVacay – charge to take care of a dog while the owner is travelling. Dog owners hate kennels. Dog boarders get paid to babysit in their own house
Where else do opportunities lie in this new mass entrepreneurship economy? Perhaps healthcare. While the regulations are steep and we don’t expect surgeries to be performed through online hook-ups, we believe there are opportunities on the periphery of healthcare services. Perhaps law, where retired lawyers or those more interested in work/life balance can offer legal services when and how they see fit. Perhaps food. With growing awareness around food quality and safety, perhaps a crop of micro-farmers begins to sell organic vegetables, eggs, milk and meat to urbanites that become less willing to accept factory produce from mega marts.
We look forward to seeing more emerging ideas around this mass entrepreneurship theme in the coming years. All things cycle and there will likely be a time when corporations come back into vogue but we think this trend has legs into the foreseeable future.
Dushan Batrovic, Vice President, Difference Capital
Mr. Batrovic brings 10 years’ experience in capital markets and equity research. He is recognized as a technology industry thought leader, having published reports related to software, networking, wireless and digital media and making regular appearances in news media including the Financial Post, Globe and Mail and BNN. Prior to joining Difference, Mr. Batrovic was a co-founder of 4Front Capital Partners and was a Vice-President of Equity Research. Previously, Dushan was a senior technology analyst at Dundee Securities and an equity research analyst at Canaccord Capital. Dushan graduated with a Bachelor of Applied Science and Engineering from the University of Toronto where he ranked top of his senior year class. Dushan has a Master of Business Administration from the University of Toronto where he earned Deans’ List Honours status in both years of the program.
About Difference Capital Financial Inc.
Difference Capital Financial Inc. invests in and advises growth companies. We leverage our capital markets expertise to help unlock the value in technology, media and healthcare companies as they approach important milestones in their business lifecycle. Difference Capital Financial Inc. is traded under the Toronto Stock Exchange under the symbol “DCF”. https://www.differencecapital.com