The rise of the passion economy and its impact on the venture capital market and traditional employment
By Taras Polischuk and Andrew Gershfeld
Since 2000, small businesses have generated more than 10.5 million jobs in the United States alone, and the current estimate of small businesses worldwide is approximately 400 million.
Self-employment also hit an eight-year high, with nearly 5.4 million new commercial applications filed this year. The pandemic has made remote work the “new normal”, which has had a significant impact on how people view entrepreneurship. The shift in perception surrounding the idea of monetizing a hobby or skill, especially in digital spaces, has moved from a pipe dream to something that seems much more attainable.
The passion economy market is currently worth over $38 billion globally, and it is estimated that by 2030 the passion economy will be responsible for 85% of new jobs that do not exist currently in 2022. This will have a huge impact on both employment and the venture capital market.
What drives the passion economy
Several factors have spurred the popularity of the passion economy.
First, it fits perfectly with the remote and hybrid working styles that have become the “new normal” for the global workforce. It also enables broader diversity and inclusion, an essential requirement for businesses today.
Second, the market downturn marks new launch opportunities. When the economy faces challenges, it’s often the time when entrepreneurs decide to “try their luck”. In fact, according to one study, more than half of companies in the Fortune 500 List 2009 started during a bear market or recession.
Companies should take note: the passion economy will change the way we work
We are in the middle of a recession, which means that the macro economy will significantly influence jobs. People tend to either play it safe and get a job with a stable company, or take a risk and start their own business.
There are two remarkable ideas here. The first is that most people are no longer willing to accept traditional “9-5 cabin drone” jobs now that they have experienced remote and hybrid working. Companies will struggle to fill these positions, even in an economic downturn, if they don’t overhaul their hiring and work processes.
The second idea is this: many of the people who turn down jobs in big companies instead take the plunge and start their own business. If these entrepreneurs can attract funding during a recession, they will be in equilibrium with an ideal product-market fit when the recession ends, and their businesses will soar.
Here’s how the passion economy will affect the venture capital market
The passion economy has always been a source of vast potential on an international scale. Harley-Davidson, Disney and Patagonia are all globally recognized brands that all started as a skill or a hobby and grew into a small business.
Investors are always on the lookout for the best ideas with the potential to become unicorns. In a passion economy, the top of the “idea funnel” rises dramatically, so investors must spend more time carefully evaluating each business idea. Investors can be overwhelmed by the influx of companies seeking funding, but in the end, ideas with real potential usually only represent a tiny amount of overall demand.
This means that emerging startups need to realize that they are in a highly competitive market when it comes to acquiring venture capital funds. The best startups will get funding and thrive while competitors stay small and eventually die. It may sound daunting, but it’s good for the industry because it elevates all companies that have the potential to succeed internationally.
Venture capitalists should also pay particular attention to companies that serve the infrastructure of the passion economy. As stated earlier, the industry is worth $38 billion and growing, so it needs tools to keep growing, progressing, and evolving. Startups that offer solutions to these problems have excellent unicorn potential.
Finally, current venture capital tactics will likely need to change to invest effectively in the right small businesses in the future. Rather than using traditional venture capital strategies, investing in startups representative of today’s passion economy will require a different set of skills and expertise more akin to small business banking processes.
Because of this, there may be a transformation in low-fi venture capital deployment tactics. In this case, small checks from backers to help start a business would be replaced or supplemented by larger venture capital institutions that build their investment thesis around the passion economy. These institutions have large-scale funding that comes with training, marketing support, and recruiting assistance for founders.
The passion economy is the future
The pandemic has sparked a desire among workers to separate work from employment. People are more interested than ever in looking for ways to monetize their skills and hobbies through entrepreneurship.
The passion economy is thriving and will continue to grow, which means that traditional corporations and venture capitalists alike need to change tactics to achieve continued success.
About the authors:
Taras Polischuk, Co-founder of Oneday, an education and business creation support platform for aspiring entrepreneurs,
Andrew Gerschfeld, partner of the international venture capital fund Flint Capital