The Contingent Workforce and Services (CW/S) Insider’s Hot List: March 2019

Welcome to the March 2019 edition of Spend Matters Insider’s Hot List, a monthly look at the contingent workforce and services (CW/S) space that’s available to PLUS and PRO subscribers. For those new to the Hot List, each edition covers the prior month’s important or interesting technology and innovation developments in the CW/S space.

In last month’s Hot List, we examined some noteworthy developments in the established core of the contingent workforce management sector along with newly released survey findings about the freelance workforce. We also looked at a new talent marketplace in the bio-pharma industry as well as three new blockchain-based freelance platforms, which included “a blockchain-enabled banking solution” for independent workers and the self-employed.

In February, the CW/S space continued to simmer, so for this edition we’ve taken a taste of what’s cookin’ in the kitchen — M&A, millions in funding raised and organizational developments.

Vndly Raises $11 Million in Series A Round

This is getting serious now. And this is what the Hot List is all about.

Vndly, which seemed to come out of nowhere in late 2017 announced that it had “closed $11 million in Series A funding, bringing the company’s total funding to $14 million.” According to the announcement, Battery Ventures and Hyde Park Ventures led the financing, with participation from EPIC Ventures, Bowery Capital, and several F500 customers, including Kroger and P&G through the Cintrifuse Syndicate Fund. (Check out our analysis: Vndly … A VMS Category Buster in the Making?)

Vndly, which in Spend Matters’ SolutionMap benchmark is a recommended provider for Nimble buyers in SolutionMap’s Temp Staffing sector, appeared as a new entrant and a challenger in the decades-old, slowly evolving VMS solution segment. But it quickly became clear to industry stakeholders and observers (and apparently VCs), that Vndly was a different sort of animal.

Battery Ventures General Partner, Michael Brown, said in the announcement, “I’ve been following and investing in software for 20 years. After I met with Vndly, I knew that we had stumbled upon something very unique.”

Vndly refers to itself as a cloud-based work management system (WMS) “the ERP of record” that will enable organizations to handle “the entire non-employee engagement lifecycle” for the modern, multi-channel diversified contingent workforce. Hence, a WMS and not a VMS.

According to the announcement, “unlike legacy VMS offerings, Vndly uses an ‘outcomes’-based management approach rather than a traditional “process” based approach. Vndly uses Machine Learning (ML) Artificial Intelligence (AI) and algorithms to automate manual tasks, enabling organizations to effectively compete for top talent in today’s digital and agile world. The Vndly platform is comprised of four major modules: Contingent Workforce Management, Statement of Work (SoW) Management, Independent Contractor (IC) Compliance and Total Talent Acquisition.”

Granted, in many cases, a vendor inventing a category name is a more a sign of marketing imagination than concrete innovation. But this seems not to be the case in this instance (in fact, Vndly has no marketing department yet).

Vndly co-founder and CEO, Shashank Saxena, also noted that two years after its inception, Vndly is “on track to hit almost $1 billion in annual spend under management by Q4 2019” (the implication being, it must be doing something right).

Upwork Grows in Stature (If Not Net Income)

Late in February, Upwork reported its first fiscal year financial results as a publicly traded company. On the positive side, the company is continuing to grow. Revenue for FY 2018 rose 25.1% year over year to $253.4 million. Marketplace (including Upwork Enterprise) revenue rose 25.7% to $223.8 million.

Investing significantly in its own growth, Upwork’s FY 2018 operating expenses were $183.6 million, up 30.9% year over year (growing faster than revenue). The sales and marketing expense (which accounts for 40% of total operating expense) increased 37.6% year over year from $53 million to $73 million. R&D expenses rose 21.7% year over year to $55.5 million in FY 2018.

The company’s operating loss increased from ($3.1 million) in FY 2017 to ($11.7 million) in FY 2018. Upwork’s bottom-line net loss also increased several-fold from ($4.1 million) in FY 2017 to ($19.9 million) in FY 2018 — owing to the ($11.7 million) in operating loss, interest expense of $2.0 million and other net income/loss of ($6.1 million).

At the same time, Upwork’s balance sheet strengthened considerably over the past, with significantly decreased debt and a near doubling of total current assets. Cash and cash equivalents increased from $21.6 million at the end of FY 2017 to $121.1 million at the end of FY 2018 (a tidy little war chest).

For its IPO on Oct. 12, 2018, Upwork’s opening offered price per share was $15; it peaked the next day at $21.80 and then started its descent into December. Two weeks ago, we reported that Upwork’s share price — that had been hovering at the $18-19 price from the start of 2019 — rose by 25% from $18.58 on Feb. 1 to the closing price of $23.18 on Feb. 14.

Even with the complexity of the FY 2018 financials, investors still appear to love Upwork. It’s complicated, perhaps. But in the equity markets, love is never blind. On the day the FY 2018 numbers were reported, trading opened at $24.1 per share and closed at $23.7 per share, leaving Upwork with a market cap of $2.5 billion.

Fiverr Acquires Again

The well-known, online creative services marketplace Fiverr acquired content marketing platform ClearVoice. While ClearVoice had its own creative talent network (much smaller than Fiverr’s), the company brings much more to the table. Its platform provides advanced collaboration and workflow automation tools that enable the creation of quality content in a repeatable and scalable manner. Also significant, ClearVoice’s platform is also built for and used by large enterprises.

As we reported in February, the acquisition continues Fiverr’s strategy of investing in complementary capabilities to provide added-value to businesses and freelancers (AND CO, acquired in 2018) and now (in the case ClearVoice) to move up-market. Suggesting future acquisitions, Fiverr CEO Micha Kaufman stated in the announcement that the company is “positioned to consolidate best-in-class vertical players to offer our customers a better solution and an improved experience” and to advance the company’s efforts to continue its “strategic move up-market toward higher-end digital services and customers.”

It is noteworthy that Fiverr started out as a classic disrupter, intermediating $5 services between freelancers and very small business. Over the last several years, the well-capitalized company has been growing its marketplace organically, raising project/services values and serving more small-to-medium-size business (and likely a considerable number of individual rogues in larger enterprises). But now Fiverr seems to be entering a different growth stage of making strategic acquisitions. The acquisitions of AND CO and ClearVoice reflect Fiverr’s recognition that it must deliver more value over and above just “the match” to both business and freelancer users, while also moving gradually up-market.

We have been watching Fiverr with much interest, based on characteristics like high growth, patient expansion strategy, market focus, being more of services marketplace, etc. — and we wonder if at some point enterprise creative departments and agencies may be turning to Fiverr less for its freelancers and more for its services e-catalog. Time will tell, and we’ll be watching closely.

Services Beyond Core CW/S

A significant portion of CW/S spend traverses non-VMS enterprise procurement technology solutions with roots in materials and goods procurement (e.g., S2P/P2P, SRM, CLM, e-procurement, spend analysis, etc.). For many in the core CW/S industry (or silo), having a dominant focus on temporary staffing and total talent, this may have become something to think more about after Coupa’s acquisition of DCR Workforce, its prior launch of Services Maestro and its acknowledgement that nearly 50% of spend crossing its platform is services spend.

Other core procurement systems we are tracking are also, to a greater or lesser degree, addressing services spend in one way or another. And while contingent workforce or complex services may not yet be a significant consideration in the strategy and M&A planning of core procurement solution provider, we believe it important to stay on top of what is happening with these providers, how their services procurement strategies may be unfolding and even if the change of circumstances or opportunity set bring services procurement into a different light.

In mid-February, we covered the merger of supplier risk management companies, Avetta and Browz. The combined company, called Avetta, will now serve 85,000 clients (including suppliers) worldwide.

An earlier Spend Matters review of Avetta noted that the company is known in certain markets, especially industries that rely heavily on field work and contractors. And it noted further that “the solution allows a company to vet and certify both providers and individual employees, as well as specify exactly what contractors are certified to do, what clearances they have, what sites they can work on and even tag what supervision is necessary.”

Unlike most other supplier risk management solution providers, Avetta addresses compliance and risk of not only services providers (suppliers), but individual contractors as well (services providers employees and independent contractors). The same is more or less true of Browz, so the potential synergy and scale from the merger promises to create a powerful new player in supplier risk management and other solution segments.

In a recent Spend Matters interview, Avetta CEO John Herr, said his goals include merging the two businesses to take advantage of the combined network of suppliers as well as develop new products.

“There’s a whole opportunity in expanding the network — adding services for all the 85,000 clients, like starting a matching service for contractors and suppliers and tradespeople,” Herr said, further noting that finding the right talent for the job has a lot of value. Herr also mentioned what he considered big opportunities, including “vetting workers and their equipment as well as evaluating subcontractors.

RigUp Raises $60 Million Series C Investment

While Avetta/Browz becomes one and ponders future opportunities, a new business called RigUp has been growing in one of its key market segments: oil and gas.

RigUp caught our attention as one of 50 “potential” unicorns appearing in a list created by CB Insights and recently featured in a New York Times article where the company was described as an “online platform for contract workers in the energy industry to find work.” RigUp was founded in Austin, Texas, in 2014 and has since raised $129 million in funding (including a $60 million in a Series C round on January 29, 2019).

RigUp positions itself as the “energy industry’s largest marketplace, connecting independent contractors with work and matching service providers and operators with the workforce that will get the job done.” The company has indicated that its network consists of 15,000 entities.

The multi-side platform creates value not only by aggregating workers and matching contractors, service providers and operators. It also provides a bundled set of services, RigUp Connect, comprised of services such as drug screenings, background checks, certifications, insurance along with invoicing and accounts receivables.

The company describes RigUp Connect as an “innovative, digital subcontracting program” that allows operators and providers to initiate and do business in an efficient, low-friction way through what RigUp calls a “global MSA.” RigUp states on its website:

“We take responsibility for all billing and operational risk that may arise over the course of a job. By leveraging software and technology, combined with a proprietary contractor insurance program, RigUp ensures 100% compliance and 100% cost control for all work that is subcontracted.”

RigUp Connect is an offering for providers, but obviously operators and contractors benefit. All well and good.

Our juxtaposition of Avetta/Browz (founded in 2003) and RigUp (founded in 2014) illustrates a number of things in the contingent workforce and services procurement space.

First, there’s a lot going on outside of the conventional contingent workforce solution silo; and it is happening across a range of vertical industries, where service providers and contractors are a critical part of the supply chain and where relationships and economic transactions among all parties must be enabled and with minimum friction, time and risk.

Second, it shows how industry dynamics and composition can start to change rapidly. The combined Avetta/Browz (now Avetta) global client base (network) is estimated at 85,000 entities vs RigUp’s network of 15,000+. Avetta is clearly a much a larger, established company, serving a broader set of industry market segments with a more sophisticated and expansive set of supply chain risk management capabilities.

It’s interesting: While Avetta appears to be a supplier risk management solution provider that may be moving in the direction of labor aggregation and business matching, RigUp (which started as a “workforce bidding platform”) has emerged as a workforce marketplace platform, but seems to layering in supplier compliance and risk management.

When we googled Avetta together with RigUp, they did not appear together in any articles or analyst briefs. So they must not be competitors, right? Are they competitors or complementors; solution vs. platform; disrupted or disruptors? It remains to be seen.

And that brings the March 2019 installment of the Contingent Workforce Insider’s Hot List to a close. We plan to be back with more in April. In the meantime, remember: When you’re hot you’re hot, when you’re not you’re not.