Bloomberg Brief Q&A With Venky Ganesan
This post originally appeared in Bloomberg Brief.
The sharing economy will be great for consumers, but not so great for the income gap, Venky Ganesan, managing director at Menlo Ventures, told Bloomberg Brief editor Jennifer Rossa. The firm has invested in companies such as Uber, Poshmark, Getaround, Munchery and Rover.
Q: How did you first get interested in these types of companies?
A: Menlo Ventures has always said, let’s pick an area that’s interesting and focus on it. A few years back we felt there was a combination of things that made the sharing economy work. An important question is, why now? First is the explosion of mobile phones, which gives everyone out there access. Secondly we had the Great Recession, which created a big labor mobile force. You had people out there looking for ways to supplement their income and that brought a lot of freelance people in at a time when the sharing economy was blossoming. It’s the concept of a stranded asset. In Uber’s case it is what I call stranded capital of a car. With Airbnb it is a stranded second bedroom. Cloud services and big data are another component. A lot of these services start with information in the cloud and then use big data. We have gone through vertical by vertical thinking about which marketplaces to invest in.
Q: What does the sharing economy mean for how we think about work?
A: We’re going to be reshaping how we work and what it means to be a fixed labor force. The sad truth is, ObamaCare has probably done more to improve mobility of the workforce than any other initiative conservatives had in mind. There are lots of implications, not all good. We’ll move closer and closer to a freelance economy. People with have a much more variable view of what work is.
Q: How will that affect income inequality?
A: It will reinforce it. We all want a meritocratic world but the challenge is that leads to income inequality. If you had perfect information about all the doctors in the world, who is going to want to go to the surgeon with a lower success rate? As we get more transparency the people who are the best at what they do will get more. Ironically as you get more meritocratic the median person faces a reduction and so does everyone below. Unless you live in Lake Wobegon, most people are average, and being average isn’t great. We need to think about how we balance that wealth creation with more social nets for people who get trapped below the median.
Q: Ideas to address that?
A: I’m sure my capitalistic brethren will hate me for saying it, but you’ll have this incredible wealth creation that creates tax revenue. You need to take that tax revenue to fund social programs and safety nets.
Q: Another person we spoke to said that if this industry were properly regulated, at best it would add modestly to growth and wealth.
A: I disagree. You’d still add a lot of wealth. The challenge we have is 19th century labor laws conflicting with 21st century economics. Overtime laws were written because if you were working over 40 hours in the industrial age, you can’t take that physical toll. People retired at 55 and died at 70. Jobs are changing. People will work beyond 55 and won’t die in their 70s. We need to update our laws and should address who is an employee, who is an employer, and who is a contractor. A lot of these companies are in the middle of what I call regulatory arbitrage. Clear regulations would create a positive effect, not a negative effect.
Q: What are the next big areas forsharing economy companies?
A: I think all local services are going to be affected. Think about your day and the things you do locally. You go to the grocery. That will be a marketplace. You wash clothing. Women get a mani-pedi and other aesthetic services. There is someone doing a service for you and there is a company in the middle that hired that person and coordinated the service. When the transaction cost is low the provider can transact directly. It’s better for the person getting the service and the person doing the service.
Q: What other places besides local services?
A: High value transactions done infrequently through brokers, like real estate. Financial services—for most people they’re hard to understand, so they pay someone in the middle. A topic that’s close to home because my wife is a doctor is medicine. There’s a doctor, a patient, the employer, the insurance company. If you think about how the money flows, there are lots of people taking pieces of the transaction. Education is another big sector. Take Udemy [Menlo is not an investor]. Teachers usually do a lesson plan. Some teachers said, why have every teacher do a lesson plan? So teachers use their own money out of pocket to buy these lesson plans.
Q: Do you see big regional companies forming? Global ones?
A: I absolutely expect that there will be very meaningful regional players. In India and China Uber is behind. If Uber doesn’t have the most meaningful number of drivers in Columbus, Ohio you’ll go with Lyft. These markets will be won city by city, country by country. It’s still very early.