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Talking 1099 Workers (and More) with Redpoint’s Ryan Sarver

Last week, the California Labor Commission found that a San Francisco-based Uber driver should have been legally classified as an employee, and not a contract worker, by the company.

The ruling could be a very big deal for Uber and many other on-demand companies that argue they’re an appealing alternative to people who want to work flexible hours and to be their own bosses — even if they aren’t paying them unemployment, workers compensation or health benefits, all of which would cost such companies roughly 30 percent more per worker.

The ruling could also be a big deal for investors who’ve poured hundreds of millions of dollars into such companies, though at a dinner last week with partner Ryan Sarver of Redpoint Ventures, it was clear that Sarver isn’t concerned about Uber and its ilk losing this fight. We talked at some length about the case, as well as what types of on-demand companies Sarver wouldn’t be inclined to fund, regulatory tussles notwithstanding. Our chat has been edited for length.

You’ve invested in a number of on-demand companies, including [the peer-to-peer car buying and selling marketplace] Beepi and [home-cleaning service] Homejoy. If contract workers are reclassified as full-time workers, what happens to them?

It’s so hard to predict where things are going to go. There’s a huge new class of people who really want flexible work, and that shift is happening and it’s growing and it’s not going away. You’re then trying to match regulation to them that was written in the 1930s and hasn’t been updated since. I don’t know where we land, but we need regulation that maps to those trends.

What if we don’t get it? How big an impact would that make on, say, Luxe [an on-demand valet service that Redpoint has also backed]?

It’s hard to say until we know what the rulings are going to look like, but labor is really important and Luxe is competing for it with Uber and Beepi and other [on-demand services]; it’s competitive. And [success] will come down to who can attract and retain that labor.

Toward that end, what should these companies’ priorities be? Helping their contract workers land health care? Educating them about savings? Beyond the break room and free snacks, how do you win the labor race?

Churn on the supply side is a big problem for a lot of these on-demand companies, so many of them are focused on hiring, training, and retaining [contract workers]. I think you need more than [break rooms], I agree. What Luxe is doing is giving employees a career path. If you become a really good valet, you become a shift captain. If you become a good shift captain, you can move inside Luxe’s operations center and become a full-time employee. I think smart companies are telling these employees: maybe you want flexible schedules now, but down the road, if you want to move into a full-time position, we’re also going to offer that to you.

A new layer of companies is emerging to cater to these contract workers, providing them with shift-management software and other things. As an investor, do you think they’re interesting?

The on-demand labor market is still pretty small; even with a million or so [on-demand] drivers around the world – that’s still a small labor force. As it continues to grow, maybe it becomes more interesting over time, but I think it’s a little too early to tell [what the potential] of those services will be.

What’s the craziest business you’ve been pitched?

Well, I did see bodyguards on demand. [Laughs.]

Are you interested in telemedicine or these other on-demand startups that don’t require big city rollouts?

I’m a big Doctor on Demand user and I love it, but it’s super infrequent. You’re going to use it in the moment, not every week [because it costs $40 for a 15-minute consultation]. There’s another startup, Better, that gives users access to “personal health assistants” that you might use on a more frequent basis, like, “Hey, our little guy has a rash, what should we do?” I think eventually, there will be a blending of the two, so that you can touch a service in a lightweight way and escalate [to the doctor level] if you need to.

[Most consumer spending] goes to transportation, food, and housing, though healthcare is also an enormous one.

Housing is interesting. What do you think of OpenDoor, the on-demand online home-selling service?

We [invested in] Beepi and they’re very similar models from what I know. OpenDoor will take inventory and buy it from you and fix it up and resell it. Beepi won’t fix up your car, but they’ll send in a mechanic who has a very structured checklist and goes through the service and gives you a price to buy it that day and take it off your hands and bring it into their inventory. Then someone can buy it sight unseen because they trust that the mechanic has done the work and priced it properly.

I think OpenDoor is doing something very similar, but they’re trying to increase the value of the homes. It’s really interesting and much more complicated than what Beepi is doing. It’s a very big swing.

As On-Demand Valet Battle Intensifies, Luxe CEO Shifts Gears

The battle to baby your car is heating up. This morning, Zirx, a year-old, San Francisco-based company that will park your car, wash it, fill up its gas tank, and rotate its tires, is announcing $30 million in new funding. The round comes roughly a month after Luxe, another San Francisco-based valet app, raised $20 million. (Luxe has now raised roughly $25 million altogether, while Zirx has raised around $36 million.)

Yesterday, we talked with Luxe CEO Curtis Lee – a former product manager at Zynga, YouTube, Google, Skype, and Groupon — about the competition, and whether and when these types of companies turn profitable. Our chat has been edited for length.

You now have 40 full-time employees and hundreds of contract workers parking customers’ cars in San Francisco, L.A., and Chicago. Yet you say that parking cars is step one. What’s next?

We’re more of a services platform than anything else. We happen to park your car, but we’re already doing gas fill-ups, car washes, and oil changes . . . Your car is effectively an urban locker, and we want to get stuff delivered to your car, as well as do things with it, like pick up your keys, get your groceries . . .

How do you decide when to roll out new services?

I’m a product manager. My cofounder [CTO Craig Martin] is a engineer. We worked at Zynga together, and we tend to like to do experimental things often. If they work, we double down. If they don’t, we won’t. And we saw that early on, the primary reason customers decided to use us was for our additional services.

What are you charging for some of these services?

Our rates vary depending on the city, but in San Francisco it’s $5 an hour [to have your car valet parked] and $15 per day. Car washes are $40. Gas fill-ups are the cost of the gas plus a $7.99 surcharge.

Are you dealing with much poaching?

Certainly, other companies are trying, especially because our guys are so obvious on the streets [wearing the Luxe uniform, which are bright-blue jackets]. We’re the only company that shows customers where our lots and our valets are on a map. That makes us vulnerable sometimes, but our retention remains very high. We think [our workforce] is fairly happy. We also have more demand than our competitors, and [valet pay] is hourly based, so [our valets are] not going to make as much money elsewhere. It’s like Uber; people want to work for Uber because it has the [consumer] demand.

What of allegations that on-demand startups short-change workers by classifying them as independent contractors?

We’re not obsessed or worried about it. I think it’s more a philosophy thing than the letter of the law. You treat employees – and independent contractors – with respect. It’s not as much about classifications. Who knows what will happen. [Any potential legal changes] aren’t in our hands. But we’re keeping an eye on it.

Do you pay your valets minimum wage? Do they make much in tips?

It’s completely optional, but our customers can give tips [via our app] because they were trying to do it regardless, through cash. Our guys make way more than minimum wage for sure because of the demand we get.

Also, our guys don’t need to own cars. There’s no equipment necessary [beyond a scooter to get to customers more quickly]. Twenty percent of Uber drivers’ salaries go toward wear and tear and gas.

It’s seems like potentially hazardous work, zipping around town to pick up and drop off customers’ cars as quickly as possible.

We put [our valets] through extensive training so they understand where they need to drop off people’s cars, as well as make sure they aren’t doing anything that puts them at risk. Our bright blue jackets are also designed to ensure people see them. And we have a valet office where people can hang out and eat free food and relax and, if there are issues, go to office hours and talk with us.

Your arrangement with city garages is pretty central to your future profitability. Are these typically monthly arrangements for spots?

We have different agreements with different parking lots all the time — everything from monthly to yearly to daily arrangements. But parking lot owners take care of us and we take care of them, turning over the space enough times that we can make a profit on a per unit basis. The best analogy is to Priceline. For hotels, unused rooms are sunk costs. Priceline has created a billion-dollar business just by providing discounts to customers and getting [hotels paid] for their underutilized inventory.

Still, some VCs think services businesses like yours are too cost intensive. What are they missing?

We’re basically creating a behavioral change. Those days of searching for parking, wasting time, wasting gas – they’ll disappear in time. Also, parking alone is a $100 billion market globally and a $30 billion market in the U.S. And you’re seeing tremendous growth of car ownership internationally, including in Brazil, China, and India, all of which are undergoing massive urbanization without enough infrastructure to keep up. There are just huge opportunities for us.

Will you be fundraising again this year?

We’re open to raising [again] when the time is right.

Photo courtesy of Forbes.

(Bay Area readers, to learn more about the shifts in on-demand startups, you might want to check this out next month. We’ll be there to moderate a panel.)

A Global VC on Outsiders’ View of the U.S. Right Now: “Speechless”

Mathias Schilling is the cofounder and managing partner of e.ventures, an early-stage venture firm that invests out of dedicated funds in five geographies: the U.S., Russia, Germany, Asia, and Brazil. The vantage point gives Schilling a unique perspective on how the world sees the U.S. debt crisis. During a quick chat yesterday, he told me his partners are, in a word, “confused.” We also talked about what he’s seeing around the globe.

You have these dedicated funds where you share carry. Do you sign off on deals as individual firms?

We look at every region very locally, but we [employ] different structures for different deals. Sometimes, we’ll have an investment committee where I’ll participate in the decision-making. Sometimes, we don’t get involved at all. Our mantra is to keep local teams to two to three partners so we can make decisions quickly.

Last year, you and Redpoint Ventures joined forces for your Brazil-focused venture fund, raising $130 million. What are you seeing there in late 2013?

Brazil has had many lost decades, including after 2000. So many basic [online] categories still haven’t been created and funded. There’s also a lack of capital, and entrepreneurship culture, and there’s a difficult regulatory environment. But I’m very positive on Brazil. We’re not only seeing copycats, which obviously makes sense, as large categories need to be created; we’re also seeing a lot of very high quality entrepreneurs. We’ve [backed]10 companies in the last 18 months or so, in e-commerce, financial services, advertising, travel.

Right now, it’s cooled off on a macro level, in terms of investors going there, because if you aren’t local and make a commitment to stay, it’s very difficult. It puts us in a good position there.

What can you share about the other markets you’ve entered?

Japan is an interesting market. It’s traditionally been a tough venture market – people are very hierarchical and risk averse, which is also true of Brazil and, to some extent, Germany. But on the mobile side, we’re seeing a lot of advanced things happening. Half of Android’s revenue is coming from apps being made in Japan and South Korea.

Berlin is building great critical mass; it’s cheap, exciting, and innovative. Russia is more technology driven, with a lot of very strong engineering. But it lacks general management skills.

Each is distinct, but I believe you have to go into these markets and build a commitment there and stay for the long run, because I don’t think you can stop the trend. We are globalizing.

Is entrepreneurship as widely celebrated in other parts of the world?

I think it’s cool to be an entrepreneur in most countries at this point. Everyone knows some fantastic success story of some guy who really did it. And some of these people really had to pull through to be the first [success story], so they’re great role models.

Culturally and psychologically, people don’t want to work for big companies anymore.

I gather the rest of the world is very concerned by the U.S. government right now. What are you hearing from your far-flung partners about this mess?

I think people are speechless. Honestly, they’re shrugging their shoulders. They don’t get what’s happening and why. And to some extent, it is a bigger deal elsewhere than it is here. They think it will be resolved. It has to be resolved.

Redpoint

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