More VCs Need To Wake Up And Smell The Freelancers

May 18th, 2016

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By Michael Solomon and Rishon Blumberg, 10x Management Founders

There is a new trend emerging in the VC community, that’s been a long time coming.  As the fulltime technology talent dearth continues to expand, these funders of startups have finally been forced to make a choice.  As their portfolio companies continue to compete for talent, they are increasingly weighing the pros and cons of finding the W2 people that they want for their companies versus using high-level freelance technologists to build out their MVPs. Or in some cases, they’re using a hybrid model that mixes a little of each concept.

It’s true that there is a real shortage of great full-time tech talent but that’s not really the case when you look at the tech freelance marketplace. There has been a growing dependence on freelancers in the tech world for several years now. At 10x Management, we believe it’s crucial that all segments of the private and public sectors adapt to take advantage of these market force changes in order to remain competitive. Though slower to adopt to these changes, venture-capital firms have visibly acknowledged the growing dependence on gaining access to tech freelancers in a few different ways; through direct investment into the space and greater leniency in allowing their portfolio companies to utilize this kind of talent.

Significant trends and further evidence of shifts in thinking

Several VCs have invested in “freelancer platforms” (modeled after O-desk and Elance who merged and are now called Upwork). These sites make freelancers available as part of a global marketplace. However, these platforms don’t really help companies find the “right” talent, they just give them broad access to freelancers that they themselves must vet. It’s a “buyer beware” environment, but if you’re a savvy consumer you may find some good deals on these platforms. Not to toot our own horn, but this is one of the essential values 10x brings to the freelance sourcing world. We select the right highly qualified developer whom we deem the best fit for the project and happily the companies that we work with accept our first offering more than 95 percent of the time. This process helps speed up the time it takes to move to contract, takes the guess work off their plate and ensures a great fit from the outset.

The more significant trend and further evidence of a shift in thinking, is that some VCs are now encouraging their portfolio companies to use freelancers when full-time employees are not available. There are essentially two schools of thought a VC can take with one of their companies as it relates to product development; I’m sure you can guess which avenue we endorse!

The first and traditional option has been to have their portfolio companies wait to build, while doing extensive searches for permanent W2 talent (which often takes between three and nine months – if you can find someone at all).  The problem here is that this can cause a startup to burn through capital while not building product.  With competition for talent growing by leaps and bounds, this first option has become harder and harder to strictly adhere to. This has forced the hands of many VCs to embrace option two.

The second option, which is increasingly being utilized, is to begin building a product with high level and readily available freelance tech talent whilst you keep looking for some form of longer term solutions. Many of these freelancers are trained and versed in building and documenting products for smooth hand-offs. Some of these firms like many of our clients, end up staying with the freelance talent because they like the results while others use them as a stopgap measure until they can find the right permanent two members.

 

Victoria Liang of Cota Capital states, “With the market for talent being so competitive, we encourage our portfolio companies to look into all alternatives, including consultants.  Well-vetted candidates can usually hit the ground running and get us moving toward a key product or commercial milestone while we look into longer-term solutions.”

 

What’s the best solution?

While we would never advocate that every job be outsourced to a freelancer, what we are seeing with increasing regularity is that both public and private sector companies are learning to integrate strategic freelancers into their product development cycle. It’s a good sign that VCs are seeing the benefits of following this evolution. Startups are one of the most logical places to utilize this kind of talent since they need to be nimble, get to market quickly and often need to iterate and pivot. All of these elements require easy access to capabilities that are becoming harder and harder to find within the full-time employee W2 realm.

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You might also enjoy reading, Working With Freelancers – 4 Steps for Success.