Venture capitalists are changing the nature of labour - Here's how:

Back to the future

My geography teacher once told the class, “when I first heard of the internet in the early ‘90s, I imagined that you’d be able to try on clothes with a virtual avatar.” The late Mr. Gold’s prescience regarding the future of e-commerce has been confirmed by the likes of Tweady,, Yoox, Drapr and Zeekit doing just that.

Mr. Gold captured the essence of what innovation is all about: minimising the human labour inputs that go into solving a problem - in this case, the retail store assistant.

Those pushing towards new frontiers understand this. Whether it’s autonomous trucks using LIDAR to eliminate the solitude of an HGV driver; an insurtech algorithm replacing actuarial models based on just 12 data points, or a military drone negating the risk of a pilot being shot down. Tech should always seek to automate monotonous, dangerous and arduous tasks.

But rather than making humans obsolete, technology is changing the nature of labour. When you consider that 80% funding at Series A-B is spent on hiring, VCs are directly impacting the composition of the labour force.

The developer / founder class

First, the developer class is emerging, with coders becoming the gatekeepers of the new economy. There are an estimated 26.9 million software developers worldwide as of 2019, with 5.3M in Europe. The global total is expected to rise to 28.7M by 2024. That forecasted rise seems modest, indicating that wages will stay high in the sector as the demand for these skills increases. 

That is not to say that every developer will pillage menial jobs sector by sector. In the spirit of globalisation, outsourcing tech hubs will mirror the call centre phenomenon that spurred India’s growth. Ukraine boasts 200,000 developers and a $5B IT industry, with an expected growth of 10,000 developers per year. Romania also has 100,000 developers. 

In effect, this will allow startups in Western Europe to bypass bottlenecks in the labour market for engineers for tasks of an executional nature, until the natural development of these nations’ domestic ecosystems. 

Techno-globalisation leaves the new gatekeepers to exist at the confluence of tech, management and strategy. This cohort infuses the knowledge of fixing inefficiencies in markets (often learnt from an MBA or IB) with a holistic understanding of the software that can achieve this.

In the future though, founders are less likely to come from traditional management backgrounds. As more startups exit, the recycled capital will see the emergence of ‘mafias’ resulting in more technical founders. 

The product and business services class

This includes the majority of employees at any given startup. The sales and marketing profession has been bolstered by new mediums available to acquire customers. Both functions have been augmented by technology.

Sales, in the bifurcation of inbound and outbound. And Marketing, well there are so many sub-schools emerging that it’s difficult to keep up; product, growth, content (me!), community, performance and paid social - you name it. 

Yet perhaps the most interesting relationship is that of tech and client services. The aim of the developers is to reduce the need for client services. But many startups’ customers need human assistance, hence a quality customer success team is required to ensure a smooth UX. That being said, for many more basic products and services, a simple Q&A chatbot has replaced many of these roles

Then there are those who aren’t client-facing. Operations and recruitment have a crucial role in maintaining high performance on the employee side. HR and enterprise software has, too, transformed these positions.

Source: Notion Capital

The servant class

Admittedly, I’ve made some glaringly obvious points above. But alas, we are led to the new underclass. That’s right, it’s gig economy contractors (or in some cases workers), turbocharging the ride-hailing, grocery delivery, and e-commerce revolutions across the world. 

To stop humans from undertaking a transaction in person, we’ve enlisted an army of servants instead. Menial jobs in urban areas have translated into intermittent work governed by the algorithms of marketplaces. 

Sequoia’s Michael Moritz, investor in US-listed grocery delivery firm Instacart and Turkish unicorn Getir sees future consolidation in the space, given the number of entrants. Yet these apps don’t have an Ocado-like level of automation, but still attract large amounts of VC cash due to strong revenues. They seek to emulate the Amazon model of mass-data accumulation from low-margin services, before diversifying into sectors with a higher spread. 

But most are forgetting how Amazon achieved this: through vertical integration, quelling unionisation, and acquisitions, with the cushion of AWS and Kindle. Diversification bought it the time to streamline its logistics via automation. Since it introduced human-free stores (Amazon Fresh), and has began patenting aerial warehouses and drone towers, Andy Jassy (Bezos) sees the next stage as reducing the labour force. 

How long can labour-intensive B2C startups stay reliant on the servant class for? The answer seems to be ‘until all the competitors are vanquished and the cash runs out.’

Why should VCs care about this?

I know what you’re thinking. Marxist class analysis that belongs in the theatre of a sententious uni lecturer. On the contrary, every VC should be thinking about how their investments impact the labour force - and how labour constraints impact the unit economics of their investments.

This is not borne out of ethics, because cutting out rent-seeking intermediaries can be a good thing. In fact, It's that becoming profitable is elusive with a large (blue-collar) headcount, so there must be a high level of automation. 

The first part of the VC’s job is to calculate how much labour (and at what wage) is needed to produce one unit. 

The next is to work out how long it will take to automate analogue tasks, and how many developers will be needed to achieve this end. 

The former is easy to quantify, the latter is more difficult.

The old aphorism asks ‘how many men (/women) does it take to change a lightbulb?’

Today, I would pose a less snappy question. 

‘How many engineers does it take to bring in Universal Basic Income (UBI)?’

Tal Feingold