Small Business Labs

What are DAOs (Decentralized Autonomous Organizations)? And Why You Should Care.

The simplest way to describe DAOs - distributed autonomous organizations - is they're online communities owned and controlled by their members.   

The basics are a group of people with a common goal get together online, pool their resources and collectively attempt to accomplish the goal.

Think of them as online co-ops.

But unlike traditional co-ops, DAOs are governed by smart contracts ((collections of computer code) that define the DAO's operating rules. 

These smart contracts operate on blockchain technology, which provides rule transparency (everyone can see them) and security (the rules can't be changed without member approval). 

Key DAO operating decisions and changes to the DAO's  smart contracts are made collectively by the members voting.  

A good example is the recently formed Constitution DAO, which had the goal of acquiring an original copy of the United States Constitution at a recent auction.  

Their bid failed, but in just a few weeks, an online core group of about 35 people was able to form the DAO, recruit 17,000 members, raise $47 million, and bid to buy the Constitution.  

This effort nicely illustrates some of the advantages of DAOs,

They can be formed quickly and easily, they can tap into online audiences for members and supporters, and the members share in the rewards or accomplishments of the DAO. 

Another important advantage is the rules-based nature and transparency of smart contracts means trust is built into the system. 

The last point is very important. Without that trust, it's very unlikely the Constitution DAO could have recruited so many members and raised $47 million so quickly.

As the chart below, which is from The Bankless DAO's article  State of the DAO 3 - Overview of the DAO Ecosystem, shows (click to enlarge), most any kind of organization can be formed and managed as a DAO. 

See the Bankless DAO article for more information and details on the various types of DAOs in the chart.

DAOs are important because they are proving to be a cheaper and more efficient way to form and operate for certain types of organizations than more traditional corporate structures are. 

For example, we think DAOs are likely to become a popular teaming mechanism for groups of independent workers.  

Using a DAO, groups of independent workers could quickly and easily form up to accomplish a task, and deform when finished.  

Having said that, there are still unresolved issues and problems with DAOs.

A big issue is a lack of laws and legal clarity around DAOs.  So far, only Wyoming has passed a law providing legal status for DAOs (they're a type of LLC if registered in Wyoming).  

This means when problems occur, the legal ramifications are unclear - and potentially very problematic.  

DAOs also face the same issues traditional co-ops face, with a big one being that management by voting can be inefficient and/or contentious.  This often results in co-ops being less able to respond as quickly as more agile organizations in the face of change.  

But it's clear that DAOs have advantages relative to other organizational forms.  And because of these advantages, we expect to see many more DAOs formed in the coming years.

The Rise of the Solopreneur Travel Agent

Fora is a new platform that provides full and part-time independent travel agents with the tools needed to run their travel business.  They recently raised $5  million in seed funding. 

Fora joins a growing list of vertical market platforms providing solopreneurs with infrastructure tools for operating their own business.  

The VC firm leading Fora's round, Forerunner Ventures, refers to independent workers as "the entrepreneur next door".  Key quote from their article on why they invested in Fora:

At Forerunner, we’re passionate about the empowerment economy, especially opportunities that help marginalized demographics enter the workforce. We love businesses that leverage a technology backbone to streamline previously manual processes, and we’re focused on a future post-COVID world, where people are once again able to explore and travel.  

Fora's interesting because it's linked to a mix of growing and powerful trends.

The first is the growth of self-employment and independent work.  Fora's travel advisors are independent workers who access Fora's marketing and operation tools to help them run their travel business.  

More specifically, Fora is tapping into the creator economy, a fast-growing subset of independent work.  Content creators who focus on travel are a large creator economy segment.  Adding travel services is logical monetization path for this group.

And, of course, there's a lot of pent-up consumer travel demand due to COVID.  

Fora is also tapping in to the long-term growth in personal services companies.  These are niche businesses that provide life support services to increasingly harried, time-constrained consumers. 

Examples include personal trainers, wealth managers, dog walkers, mow and blow services, sports, music and education coaches for kids, and many others.  

We started covering the personal services trend in 2008, and it's been one of the fastest-growing small business and independent worker segments since then.  

Expect to see more vertical market platforms that enable independent workers and small businesses to provide personal services.

Good Morning America on Side Hustles

Good Morning America had an excellent segment on gig economy side hustles this morning (see the video below).

It focused on women and side gigs, but they hit on the main reasons both men and women get side jobs - they provide a flexible way to supplement their income and earn money in response to a financial shock.

We also liked the end of the segment when the announcers talked about the side gigs they've done. The fact that TV personalities have done side gigs illustrates how common they are.

Good Morning America covering the gig economy is a clear sign that it's mainstream.

VCs Betting Big on the Metaverse

Crunchbase's VCs Will Spend Billions More To Make The Metaverse A Reality covers the growing amounts of venture capital going to companies involved in the metaverse.

For those not familiar with the metaverse, here's how Crunchbase describes it:

While still a fairly nebulous concept, the metaverse is, broadly speaking, viewed by many as the next phase of the internet, where online experiences will combine to form something of an immersive virtual experience. It combines virtual reality, augmented reality, gaming, and other digital social experiences into 3D virtual worlds.

According to the article,  metaverse related companies "have raised nearly $10.4 billion so far this year across 612 deals".  This is up from $5.9 billion over the same period last year.

This year's funding falls into 4 broad categories

• Gaming: about $7.5 billion (382 rounds)
• Online Games: about $2.5 billion (110 rounds)
• Augmented Reality: about $2.1 billion (176 rounds)
• Virtual worlds: $62.8 million (9 rounds)

Not included in these numbers are investments in crypto and blockchain. 

These technologies aren't specific to the metaverse. But they provide much of the technology underpinnings that enable many of the features being promised by metaverse proponents - especially in the areas of commerce and persistent identities.  

The high level of VC metaverse investments - coupled with the large investments being made by the big tech companies - means the metaverse will, in some form, continue to grow and likely become very, very big.

Our article The Metaverse is Coming provides more information on this topic.

7.1 Million Americans Work in the Creator Economy

Welcome to the Creator Economy, a study from MBO Partners and Emergent Research, found that 7.1 million American independent workers (freelancers, self-employed, etc.) earn money by creating and monetizing online digital content.

In addition to sizing the U.S. creator economy, the study also explores the demographics, motivations and attitudes of digital content creators.  

As the study chart below shows (click to enlarge), most digital content creators are young, with three-quarters of creators aged 40 or younger and a bit over a quarter (27%) being under 25.  

This is not surprising. 

Most creator economy platforms are relatively new and target younger audiences - think TikTok, Twitch, Instagram, etc.  Younger people are more familiar with these platforms and more likely to be able to create content that appeals to platform users.

But a large share of creators are older (25% are over 40) and we expect this share to grow. 

Already, older creators are using platforms like TikTok to produce content of interest to older audiences in subjects like finance, lifestyles, health and wellness and others.

Other key findings about creators include:

• Most (63%) are part-time independent content creators and 59% have either a full-time (46%) or part-time (13%)  traditional job.
• Most are either highly satisfied (83%) or satisfied (9%) with their work, and few are dissatisfied (4%).
• Their biggest challenges are a lack of predictable income and creating and maintaining a sales/revenue pipeline.  

Content creators also cited two other major challenges.

Almost 4 in 10 (38%) said it's hard to be successful and a third of content creators (34%) report struggling with burnout.  

BTW, there isn't standard definition for the "creator economy" or "creators" and definitions vary substantially.  

For this study, creators are defined as independent workers (freelancers, self-employed, etc.) who earn money creating and distributing online digital content.

This includes independent writers, musicians, designers, artists, instructors, video makers, online influencers, and others who create and monetize digital content. 

Creators were identified through a series of survey questions about their independent work, digital content creation and monetization activities.

See the report for more information and details on the study methodology. 

Telehealth for Pets

Forerunner's Pet health is going the way of human health; our investment in Dutch covers the reasons the VC firm has invested in the pet telehealth startup Dutch.

The main reason is fairly obvious. The pandemic accelerated the already growing trend towards pet ownership.  

According to the ASPCA, 23 million American households acquired a dog or cat during the pandemic.   

And as the article points out, the increases in pet ownership came with increases in the demand for veterinarians and vet services. 

Unfortunately, there weren't enough vets to meet the new demand, which led to challenges getting vet appointments and increases in appointment wait times.

Dutch is hoping to take advantage of the new demand by offering telehealth vet services.  Key quote from the article:

Dutch just launched its platform for virtual, vet-prescribed treatment plans for pets’ underserved conditions, delivered to their doggie doors. Dutch will initially address chronic veterinary issues like pet anxiety and dermatology/allergies, adding treatment for more ailments over time.

Telehealth for humans boomed during the pandemic.  Thanks to looser regulations and spurred on by fear of visiting doctors offices during the pandemic, telehealth doctors' visits have become quite common.

The longer term trend towards pet humanization has led to many companies offering anthropomorphic products and services like canine couture, feline wine and dog hotels. 

So it makes sense that vet telehealth services would follow their successful human counterparts.  

We're often asked why we cover pet trends.  There are 3 main reasons:

1. the pet sector is large, growing more rapidly than most other consumer sectors and lots of small businesses and independent workers participate in it.
2. pet humanization is a powerful social and demographic trend.  It's linked to declining birth rates, economic insecurity and other social trends we follow.
3. we like pets and it's a fun topic.

Gig Platform Workforce in England and Wales Nearly Tripled Over the Past 5 Years

The UK's Trades Union Congress (TUC) recently released a study that found that about 14.7 percent of workers in England and Wales - about 4.4 million workers - regularly perform work via an online gig platform. 

They also found that 22.6% of workers in England and Wales have used gig platforms to find work at some point.

This is up from 5.8% who performed work via online platforms regularly (at least once per week) in 2016.

The study breaks platform-based gig work into four categories:

1. Drivers and delivery workers increased from 1.9 percent of the workforce in 2016 to 8.9 percent in 2021.
2. Household services workers rose from 3.2 per cent in 2016 to 7.9 percent in 2021.
3. Workers running errands from 2.3 per cent to 6.2 percent in 2021.
4. Workers performing remote digital tasks grew from 4.9 percent  in 2016 to 11.9 percent in 2021.

Because platform workers often do a mix of platform work, there are overlaps across these categories.

One of the study findings that jumped out at us is that the share of gig platform workers doing this work to supplement their income has substantially increased since 2016.

As the chart above shows (click to enlarge), the share of gig workers who earn less than 25% of their income via gig work increased from 37% to 53%.

This is similar to what U.S. studies have found.

So just as supplementing income is a key reason most Americans do gig work, the same is true in England and Wales.

The study report goes into more detail on the data and includes ideas about improving the working conditions and financial security of gig workers.

It's well worth reading for those interested in platform-mediated work.

Bank of America's 14 Moonshot Technologies

Somehow we missed Bank of America's report To the Moon (shots)! - Future Tech Primer report, which they released in September.

But we ran across it recently, and it covers 14 technologies that could "transform our lives" by 2030. Because of this, BofA also thinks these technologies are good investment areas.

Key quote from the report:

"Moonshots are radical technologies that could change our lives and accelerate the impact of global megatrends," Israel's team said. "They are not as far into the future as you might think ... Failure to identify future tech today could mean missing out on the next big revolution." 

The report chart below (click to enlarge) lists the 14 moonshots.  

None are surprising, and we've covered all of them in one way or another over the past few years.

But two did jump out, mainly because it's hard to agree with BofA that these technologies will change our lives by 2030. These are emotional A.I. and immortality, which BofA describes as:

Emotional Artificial Intelligence: Emotional AI (EAI), also known as “Affective Computing” and “Cognitive Computing,” is designed to capture, analyze and respond to human emotions and simulate human thoughts. EAI can potentially collect, analyze and respond to completely new varieties of data and situations and predict or simulate human thought, leading people to take action.

Immortality: Breakthroughs in healthtech, biotech and anti-aging drugs could result in radical life extension that ‘disrupts death’. Traditionally, aging has not been viewed as a disease that can be treated but this is changing. Actors in this space are increasingly looking to tackle the hallmark of aging via pathways such as ‘genomic instability, telomere attrition, mitochondrial dysfunction, and cellular senescence’ among others.

Hey, we'd like to see immortality breakthroughs by 2030, but that seems highly unlikely given our current state of understanding about aging and what could potentially be done to greatly expand human life spans.  But we'd be glad to be wrong about this.

The same holds for creating AIs that truly can think and respond like a human.  Not even the most optimistic AI researchers we've talked to are suggesting anything close to this is possible over the next 9 years.

We like following tech investment research because investors don't just talk about tech breakthroughs - they place serious bets on them.  

See the report for more details.  

The Pandemic Accelerated Boomer Retirements

Research from the Federal Reserve Bank of St. Louis found that the pandemic pushed about 3 million baby boomers to retire earlier than they would have otherwise.

As the study chart below shows, the share of retired Americans has surged since the start of the pandemic, and is well above the trend line.

The research points to several reasons for what it calls the "excess retirements".  These include layoffs, health concerns related to the pandemic and rising asset values, which may have provided more boomers with the financial cushion needed to retire.

The research note points out many of the excess retirees may not stay retired.  Key quote:

"Finally, there is the question of whether the excess retirements are permanent ... many of these new retirees may decide to return to the labor force, which will depend on personal factors as well as aggregate labor market conditions."

We suspect this will be the case.  Between financial need and a desire to stay active, many will likely return to work.

And many early retirees re-entering the workforce will do so as independent workers.  

As we've covered before, self-employment rates scale with age and are the highest for workers over the age of 65.  This is due to a mix of reasons, including older people valuing the flexibility, autonomy and control independent work provides, and what Axios calls in their article on the study the "persistent ageism" of corporate America. 

So we expect to see the number of older independent workers increase over the next two years as some of the early retirees return to the workforce.  

The Explosion in Seed Round Funding

Crunchbase's How Seed Funding Has Exploded In The Past 10 Years reports that:

Fewer than 3,200 companies received seed funding in the period between 2006 and 2010. A decade later, that had ballooned to more than 23,000 startups.

Crunchbase data also shows that the average seed investment has grown from $1.7 million in 2011 to $4.6 million in 2020.

The article points to the launch of Amazon Web Services in the mid-2000s, which made it cheaper and easier to start a software company, as a driver.  

That's certainly true.  But many factors contributed, not the least of which is the broad adoption of technology across industry and society during this period.  This opened up a wide variety of new market opportunities for tech startups. 

Also contributing is the massive increase in public and private valuations for tech firms.  This is attracting more capital to seed rounds, which leads to more seed stage firms raising money.

Pitchbook's Seed market braces for an onslaught by top VC firms covers the influx of large VC to seed investing.  Key quote:

Earlier this year, Sequoia and Index Ventures each unveiled seed funds of roughly $200 million. Then, Andreessen Horowitz and Greylock Partners announced seed-focused pools of capital with $400 million and $500 million, respectively.

In the past, the large A-list VC firms did few if any seed rounds.  But getting in early means the opportunity for greater returns. It also greatly increases the VC's the ability to put more money into successful firms in later, highly competitive rounds.  

We expect seed funding to continue to grow, which is good news for entrepreneurs.