The next generation of the gig economy could look more like decentralized finance (DeFi) than Uber.
Announced Thursday, Braintrust, a tech talent marketplace that will essentially be owned by the IT freelancers and companies using it, has raised an $18 million strategic growth round, bringing its total funding to date to $24 million.
Employing a system of blockchain-based tokens to align the incentives of users and keep fees low, Braintrust boasts a nice mix of seasoned Silicon Valley VCs and crypto heavyweights like Pantera, Multicoin and Galaxy Digital. Notable joiners on today’s round are Omidyar Technology Ventures, the original online marketplace builders.
San Francisco-based Braintrust is another example of how the core tenets of DeFi’s multi-billion dollar science experiment can be applied to real-world use cases. Unlike the often vague “utility” of ICO tokens that were sold in the billions back in 2017, Braintrust is focused on solving the liquidity problem encountered when establishing two-sided marketplaces.
Braintrust’s solution reflects the pooled flexibility and decentralized governance of protocols like Compound Finance, on which some of its software is based.
Stepping back, Braintrust CEO Adam Jackson is a veteran at building two-sided marketplaces, including an e-commerce platform acquired by Intuit, an automotive marketplace acquired by Advanced Autoparts and another called Doctor on Demand. The common denominator is how expensive it can be to build liquidity into these networks in order to make them fly, and the effect this can have further down the line.
“The typical playbook from eBay, all the way up to the gig economy players we see now is you raise hundreds of millions if not billions of dollars, and use that money to subsidize one or both sides of the marketplace,” said Jackson. “You’re essentially paying people to show up.”
And the way this typically plays out is the investors, who are the owners of the marketplace, sooner or later start taxing the network, turning up the fees. This then starts to erode the network effects of the business, said Jackson, creating divergent incentives between the operators of the service and the people who make a living there.
The depressing nadir of this is encapsulated in the iniquities of Uber; the sort of stuff that has effectively lowered the minimum wage in the U.S., said Jackson.
“While five guys in San Francisco became deca-billionaires, a third of all Uber drivers live below the poverty line, some of them even live in the cars they drive,” he said. “So I wanted to figure out how we could create a marketplace that is owned and controlled by its users, instead of investors who just want to tax it.”
Jackson describes Braintrust as a “labor protocol” in the same way that Ethereum is a smart -contract protocol. As such, it’s more like a non-profit, a kind of public good, he said, upon which other businesses and use cases will flourish, rather like the composability, or the Lego-like functionality of building with DeFi.
“Our business model with Braintrust involves lowering the fees to almost zero. We charge talent zero; we charge clients 10%, that’s just meant to kind of pay our bills and sustain us,” Jackson said. “By lowering fees to zero, you enable a whole new class of big transactions that could never touch a place like Upwork, because the fees are too high.”
Likewise, the project’s tokenomics are confined to governance and voting decisions (there will be a free issuance of tokens to Braintrust users in the middle of next year). The tokens are simply a way to get millions of users across the world on the same page because you can’t have someone in Ukraine or in India custody a share of a Delaware C-corp, said Jackson.
“A blockchain-secure token is a perfect value-capture incentive and governance instrument to replace a share of stock,” Jackson said. “And when I say replace, I don’t mean a financial token, there’s no dividend.”
Once the Braintrust community of freelancers is up and running, they will be able to use their tokens to vote on proposals such as fee levels, categories of work to be added, standards for allowing workers to join and so on.
Braintrust’s token voting system is a fork of the governance framework created by DeFi money market Compound Finance, actually using some of the same code. (Compound CEO Robert Leshner is a close ally and advisor to the project.)
Jackson pointed out that he started Braintrust well before DeFi was a thing, but said the comparison is apt.
“What DeFi figured out was how to use a token as an incentive mechanism to bootstrap liquidity in a two-sided marketplace – DeFi’s lend and borrow,” he said. “We’re doing the same thing, using a token to bootstrap liquidity in a two-sided marketplace. Ours is labor and clients.”
An ill wind
Following a two-year incubation and armed with a $6 million seed round, Braintrust’s private beta was just getting off the ground when the COVID-19 pandemic hit.
But after “a terrible few months,” clients started calling back, with more and more large firms accepting that working remotely was becoming the norm. “So that has become a big tailwind,” Jackson said. “Our Q3 was two times our pre-COVID financial plan for marketplace transactions and that has brought us to this fundraising round we are announcing.”
In terms of numbers, Jackson said Braintrust currently has several thousand testnet token holders and a waitlist of 40,000 for when the service goes public next year. There’s also an impressive roster of 50 or so Fortune 100 clients.
“We just won a job at NASA, where we have a group of engineers building software that will track packages to and from the International Space Station,” said Jackson. “We’re building car software for Porsche, insurance shopping software for Blue Cross Blue Shield. So these are big jobs. It’s not like a logo on a website.”
The thing that’s attracting big enterprise players like Porsche and Nestle are the low fees, Jackson reiterated, and not some kind of tech wizardry.
“It’s not because we are building on a blockchain,” he said. “These guys don’t give a shit about that.”