The Rise of the Passion Economy and Its Impact on the VC Market and Traditional Employment

By Taras Polischuk, and Andrew Gershfeld

Since 2000, small businesses have generated over 10.5 million jobs in the U.S. alone, and the current estimate of small businesses worldwide is about 400 million.

Self-employment has also hit an eight-year high, with nearly 5.4 million new business applications filed this year. The pandemic has made remote work the “new normal,” and this has significantly impacted how people perceive entrepreneurship. The shift in perception surrounding the idea of monetizing a hobby or skill, especially in digital spaces, has gone from a pipe dream to something that seems far more attainable.

The passion economy market is currently worth over $38 billion worldwide, and estimates say that, by 2030, the passion economy will be responsible for 85 percent of the new jobs that currently do not exist in 2022. This will have a tremendous impact on both traditional employment and the VC market.

What Drives the Passion Economy

There are several factors that have boosted the popularity of the passion economy.

First, it fits perfectly with the remote and hybrid work styles that have become the “new normal” for the global workforce. It also allows for broader diversity and inclusivity, a critical requirement for businesses today.

Secondly, the market downturn marks new opportunities for launch. When the economy is facing challenges, this is often the time when entrepreneurs decide to “try their luck.” In fact, according to one study, over half of the companies on the 2009 Fortune 500 list started during a bear market or recession.

Companies Should Take Note: The Passion Economy Will Change How We Work

We’re in the midst of a recession, meaning that macroeconomics will substantially influence jobs. People tend to either play it safe and find a job with a stable corporation, or they decide to take a risk and start their own venture.

There are two noteworthy ideas here. The first is that most people are no longer willing to accept the traditional “9-5 cubicle drone” jobs now that they’ve experienced remote and hybrid work. Companies will have a hard time filling those positions, even in an economic downturn, if they do not overhaul their hiring and work processes.

The second idea is this: Many of the people who are refusing jobs at large firms are instead taking the plunge and starting their own businesses. If these entrepreneurs can attract funding during a recession, they will be poised with an ideal product-market fit when the recession ends, and their companies will skyrocket.

Here’s How the Passion Economy Will Affect the VC 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 began as a skill or hobby and turned into a small business.

Investors are always searching for the best ideas that have the potential to become unicorns. In a passion economy, the top of the “ideas funnel” dramatically increases, so investors must spend more time carefully evaluating each business idea. Investors may be overwhelmed with the influx of businesses seeking funding, but ultimately, the ideas with true potential usually account for a minimal amount of the overall demand.

This means that emerging startups must realize they’re in a highly competitive market when it comes to acquiring VC funding. The best startups will get funding and flourish while the competitors stay small and eventually die off. It may sound discouraging, but this is good for the industry because it elevates all of the businesses that have the potential to become internationally successful.

Venture capital firms should also pay close attention to the businesses that serve the passion economy infrastructure. As noted earlier, the industry is worth $38 billion and growing, so it needs tools to continue growing, progressing and scaling. The startups that are offering solutions for these problems have excellent unicorn potential.

Finally, current VC tactics will likely need to change to effectively invest in the right small businesses moving forward. Rather than utilizing traditional VC strategies, investing in the startups that are representative of the current passion economy will require a different set of skills and expertise that are closer to small business banking processes.

Because of this, it is possible that there will be a transformation in the low-fi venture capital deployment tactics. In this case, small checks from backers to help start a business would be substituted or complemented by larger venture capital institutions that build their investment thesis around the passion economy. These institutions have funding at scale that is accompanied by education, marketing support and recruitment help for founders.

The Passion Economy is the Future

The pandemic sparked a desire in the workforce to separate work from employment. People are more interested than ever in seeking ways to monetize their skills and hobbies via entrepreneurship.

The passion economy is thriving and will continue to grow, which means that traditional corporations and VC firms must shift tactics to see continued success.

About the Authors:

Taras Polischuk, Co-Founder of Oneday, a platform for educating aspiring entrepreneurs and helping them launch business,

 

Andrew Gershfeld, partner at international VC fund Flint Capital