VCs finance an economy of bondage

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I live in a house in central London with four apartments. Most nights the bell rings (often mistakenly ours, as the letters are erased from the sign) and the sound of a bulky backpack rubbing against the wall betrays our visitor – the food delivery is here. While Deliveroo is still the most common “service provider” in our house, I have also seen the recently launched Getir and Gorillas immediate delivery companies.

These 10-minute grocery startups are the latest wave of VC betting on human laziness, after taxi apps – Uber, Lyft, Via – and meal delivery – Grubhub and DoorDash in the US, Deliveroo and Just Eat in Europe. VCs have invested hundreds of millions of dollars in these companies in 2021 alone.

But that’s more than the latest unicorn bubble fad. It brings us one step closer to life in a service economy. The world’s most powerful venture capitalists are funding an economy where technology allows a “ruling class” to command a “subclass” of minions with the swipe of an application.

The new luxury: let people bring you things

Already in 2019, one in 10 Britons was employed in the economy of odd jobs, against only one in 20 in 2016. The number of people in these precarious jobs will only have increased dramatically during Covid-19, because other jobs – in hospitality and events, for example – were temporarily lost. This means “driver-entrepreneurs” for Uber and Deliveroo, runners for Getir and Gorillas (although we are slowly move away from workers in concert, at least in the UK). They help assemble IKEA furniture, clean or do other maintenance tasks in our homes. All of these jobs are part of the “service economy”.

While for some – self-isolating people, people with reduced mobility – these aids provide crucial support for purchasing goods, these workers cook, repair, shop and deliver primarily for people who don’t come in. not in these categories. On the contrary, the clients of these on-demand services tend to be people with (relatively speaking) high discretionary incomes, who are happy to pay other people to do daily tasks for them. the “New” luxury (driven by Covid) it is not mobility, but staying put and having others run around you to satisfy your desires.

The service economy also reinforces existing racial, socio-economic and generational divisions, often in a algorithmically questioned and applied way. 85% of Uber drivers are of black, Asian, or under-represented descent (similar statistics can be found for Lyft drivers in the United States). In 2018, nearly 60% of UK concert workers were between 18 and 34 years old. We are talking about people working in dark shops and dark kitchens, out of sight, out of mind – just like the servants who served the Western aristocracy (and colonialists) in the past.

One class against another

But what is at stake is not just employing people well and / or paying them well – what is often referred to as the job insecurity ”. At the heart of activating, funding, and founding this service economy is something much less tangible but substantial: What kind of economy do you want to produce with your decisions? How far do you want to push the division of labor between high educated (elite) incomes and those providing subordinate services for this class?

The economy we are sowing is one where convenience for some is worth more than community and solidarity for all. It pits a class of “entrepreneurs” at work unstable against an often older class, surely more established, endowed with safety and security, benefiting from a new choice of servant services.

It pits a class of “entrepreneurs” at work unstable against an often older class, surely more established, endowed with safety and security, benefiting from a new choice of servant services.

The financial incentives provided by some of these apps are sometimes hard to resist, especially given the venture capital money that feeds them. But is it really cheaper to have a delivery driver pick up a bottle of water for you and bring it to you within 10 minutes, rather than going to the corner store yourself? Recent mega-tours in immediate delivery applications – $ 290 million for gorillas, $ 550 million for Getir or $ 100 million for Zapp, among others – making this possible at least in London, Berlin and Paris, further widening the city / rural divide.

Venture capital is fueling this divide

Interestingly, many of these “service economy” applications are not unit economy positive even after years of operation (and far from profitable, as in the case of of Uber or Deliveroo). But profitability, that is, the creation of a business capable of sustaining itself over the long term, is not necessary for the venture capital model to work (in the current climate); contrary to origins of venture capital, focused on seeding sustainable businesses, today’s VCs are blitzscaling unicorns.

A series of mega-towers push the startup towards an exit / sale or public listing, at which point the VC can leave the table – ideally with a significant ROI. The amount of private capital available has also fueled a mad market of secondary sales, allowing VCs to exit even more easily. Whether the company survives beyond this point does not matter. Solve a real problem even less. You just need to find an investor willing to buy you out. We need to keep this in mind when thinking about who to blame and who to hold accountable for.

This brings me to an even more fundamental question: Are the structure and business model of most venture capitalists today inadequate to solve complex problems in a sustainable and long-term manner? Do we need to rethink the business model of venture capital more generally? A first starting point could be a strong adherence to ESG principles – if it is done correctly and beyond a simple checkbox and report exercise. Considering the impact (and unintended consequences) that start-up investments might have on society – where we buy, how much we travel, who we interact with – would at least spark thoughts on the dangers of what I do. calls the slave economy.

In the meantime, as consumers, we must make a conscious choice to avoid supporting the slave economy as much as possible. We may decide not to realize the absurd market projections on which VCs base much of their enthusiasm. We can choose the local and choose the community (and sometimes the exercise) over convenience.

Dr Johannes Lenhard is Associate Researcher and Center Coordinator at the Max Planck Cambridge Center for Ethics, Economy and Social Change. He writes a book on the ethics of venture capital and is also a co-author of Best company. He tweets to @JFLenhard.



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