Yesterday I completed my first startup investment of the year in a company called VillageLuxe.

Founded in New York City by a dear friend of mine Julia Gudish Krieger, VillageLuxe operates in the sharing economy and aims to be ‘the Airbnb for high-end fashion’, as Forbes magazine put it in a recent article.  Very simply VillageLuxe allows you to rent out your closet to utilise ‘spare capacity’ much like Airbnb does with your apartment; and conversely as a renter to open you up to a whole new world of possibilities without having to fork out the full purchase price.

Aside of  the obvious reason of operating in the sharing economy for which I feel very passionately about having ran PeoplePerHour  for a good decade now, I invested in VillageLuxe for the following reasons:

1. I believe in Julia, the founder, blindly. She’s a Harvard grad who started off in Venture Capital and so she’s clearly of high intellect and has seen many businesses succeed and fail. Although she’s young and has a lot to learn, her energy, drive, passion and magnetism will definitely be assets that help her plough through inevitable roadblocks.
2. Julia has managed to attract some great people early on in building her team. Especially in a place like New York with so many startups fighting over talent, a founder’s ability to both identify and woo them in is a key ingredient of success. If shows good judge of talent to start off, but equally important, persuasion, grit, tenacity and charisma.
3. Great PR: in its relatively short existence VillageLuxe has managed to generate some impressive PR coverage and get the brand out there amongst influencers. Putting money behind organic marketing is always a safer bet than paying to generate traction – and the latter can be very dangerous as could make the founders bask in the sunlight of fake growth that never sticks. This was also our story at PeoplePerHour – PR was our key jump-starter of growth in the early days.
4. Downside limitation: even if it doesn’t become the Airbnb of high-end fashion, as a platform businesses it can be  very capital efficient (if VCs don’t push you to do stupid things) and so can reach profitability relatively easily and high Return On Capital ratios. The challenge is to resist over-expanding beyond a point of no return in pursuit of the big dream.
5. It’s a business i can help and contribute with my experience of building a successful marketplace, so that makes the investment all the more meaningful to me. What’s more i would greatly enjoy working with Julia: she’s smart but not a ‘know-it-all’; she’s thoughtful, has humility and listens; attributes which i rate higher than raw intelligence in the path to success.
6. The market cannot NOT grow: again the key question (much like a VC would ask on Day1) is how big the market for sharing one’s closet will become. Maybe it will be a huge phenomenon like Airbnb or Uber, but, lets face it: it doesn’t have to be be at that level to make a successful business.  The way i see it it’s highly unlikely that it won’t grow from where it is today: it just makes sense in every way that matters to the consumer: price, diversity, ease of use. And that will only increase as more people get online and get more web savvy which again cannot NOT happen over time.

Last but not least – maybe i can rent some stuff myself and become a little more fashionable 🙂

Julia – wishing you every success, I know you’ll do great and look forward to the journey ahead!

A big misperception about the sharing economy is that it’s totally substituting the incumbent way of doing things. In other words it’s a ‘zero sum game’. Turns out that in most it’s cases it’s actually growing the pie considerably.

Take hotels for example. Despite the unquestionable success of Airbnb, the hotels business in big metropolitan cities like London and NYC is booming. They can’t build hotels fast enough. Try booking a hotel in either and you’ll see -you’ll be lucky to get a room. Mean time Airbnb has captured a mere 5% of the inventory in NYC and less so in London.

An analogy outside the sharing economy is low cost Airlines. If you’ve ever flown on EasyJet or Ryanair in Europe you will know that there’s a distinct difference in the passengers to traditional airlines. When was the last time you saw men dressed as peacocks getting drunk and rowdy in the corridors of a BA or Virgin flight? Do they just flip and change pending on what airline they’re on? No. Many of those people would previously not travel or travel much less. With a drop in air fares now they do (unfortunately!). Low cost airlines undoubtedly increased the total pie of travellers.

It’s the same with Airbnb. People who would seldom book a hotel before – possibly for a myriad reasons, cost being one of them but also the comfort factor(many people don’t feel ‘homely’ in a hotel to the point where it would put them off travelling) – now have an alternative.

We see the same in the Gig economy in which we operate in. Numerous stats now show that 1 in 3 people in the working population are freelancers. In smaller companies less than 20 people in size 50% of the headcount are temporary / contract staff, and even in larger companies now HR managers foresee that as much as 20% of their head counts in the future will be freelance staff (a figure which I believe is grossly understated). Does that mean that Employment as we know it is over? Is it the death of PAYE? Many of our peers keep pushing that message to get more PR and buzz but I question whether they truly believe i. It would be the equivalent of Airbnb saying Hotels will die, completely and forever.

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The numerous law suits against companies like Uber and HomeJoy (which actually forced it to liquidate as a result last week) has spurred huge political debate around the sharing / on-demand economy, Employee classification and protection.

The arguments against companies operating in this space are mainly that they disguise employees as independent contractors therefore resulting in loss of protection for the workers and – more to the point – less tax income for the IRS.

I think this argument is very skewed and in fact hypocritical. Firstly, Tax income IS the real concern for the government NOT worker protection, yet subtly forgotten in the debate. Secondly, in an nation that’s thrived due to peoples appetite for risk with the inevitable loss of protection for the pursuit of upside it’s far too populist and goes against the grain of what made America great. Why do we celebrate and praise Entrepreneurs yet we pity the  ‘Solopreneur’ and want to protect them. Both choose to forego the perks of a secure job for the freedom to work for themselves, determining their own times and patterns of work and in many cases earning more.

On our site PeoplePerHour.com for example consistently over 80% of our 1m+ freelancers polled tell us that they would never go back to secure employment. Our top earners make north of $10k per month in net earnings which in most cases exceeds what they made or still make in their 9-5 job. Numerous conversations I’ve had with Uber drivers testify to the same, and I’ve recently met one person (of many others I’m sure) who made more money renting out his place on Airbnb that he quit his job and turned that into a business!

The real question that’s missed therefore is that of real ‘choice’. One in three people are now members of this freelance economy, a number backed by Mary Meeker’s latest report. Of those the vast majority choose to do so for some of the reasons mentioned above.

Yet, unquestionably, there are some edge-cases where companies force this ‘contractor’ engagement on Workers, whilst stripping them of the freedom to dictate their own work conditions. In these cases the argument that they are in essence employees in disguise stands correct. FedEx was one such example, losing a long standing suit instigated by its drivers which was settled in 2014 forcing it to reclassify their workers as employees.

The distinction needs to be understood though. There is a big difference between an Employer dictating when you turn up at work, what you wear (in this case a uniform), the hours you work and whom for, or how you perform your duties. These are the elements that define the level of control an organisation exerts on the worker. The litmus test is to ask ‘how different would it be had that person been an employee’. If the answer is ‘not materially different’ then its Employment in disguise.

The answer is different for most participants of the tech-powered on-demand economy today because of exactly that: technology empowers workers to make that choice theirs, and be truly independent. In the digital economy, in which we are participants, this holds absolutely true. Freelancers on PeoplePerHour or SuperTasker CAN AND DO choose when to work, for whom, the location from where to work, and they can choose to work as much or as little as they want and for what rate. In fact 95%+ of the work gets done remotely and the lack of physical dependency means that they can also be performing multiple jobs simultaneously (whilst a cleaner for HomeJoy or a FedEx driver cannot be at two places at the same time)

Uber arguably does dictate the ‘where’ by routing drivers to a specific location but we forget that the drivers choose when to toggle in and out of the network. They have that self-chosen freedom. De Blagio’s decision to drop the claim this week was therefore – in my opinion – correct.

So in short, I believe that some regulation is indeed needed to monitor and prevent these edge-cases from going mainstream and protecting workers’ rights (and Uncle Sam’s coffers), but they should not be misunderstood as being the norm, else we run the risk of over-regulating a growing and very promising market, destroying healthy businesses and limiting choice for the consumer.

The sharing economy is not a fad. It’s a truly revolutionary movement that unlocks waste in an economy, or ‘spare capacity’, be it people’s skills or time, their spare bedroom, their car sitting in the garage or their closet. Its putting idle resourced back to good use for the benefit of society. I often think of the sharing economy as ‘Recycling 2.0’. What recycling did for physical consumables is now – unbeknown to most – generating half a trillon dollars and touching everyone’s lives, plus making the world a better place. Out of what would have been just trash!

The sharing economy has the potential to do exactly the same for intangibles and physical assets. What machines did for trash, the internet and software is doing for almost everything that surrounds us. And that will certainly make the world a better place.