Smart Investors Know How Much Potential Wealth Is Trapped in This Key Market As a whole, freelancers and solopreneurs provide an investment opportunity that should not be ignored. Here's why.
By Andre Lee •
Opinions expressed by Entrepreneur contributors are their own.
Where's the crowdfunding for freelancers? Over the past decade, there's been a tremendous rise in alternative investment models, but the demand in one key market is far outpacing the supply.
The number of freelancers — people whose business is their own labor — is growing, but the financial products available to them are stagnant, which is to the detriment of both investors and the freelancers themselves. Let's explore why.
Related: Democratizing Alternative Investments: A Bright Future Is Just Around the Corner
A growing asset class
Investors need to keep up with the individual economy's meteoric expansion. By all estimates, 50% of the workforce will be freelancing in the next decade. The freedom and flexibility of freelancing make it highly desirable, and when coupled with trends away from traditional employment brought on by the pandemic, freelancing is not going anywhere.
These freelancers have the same need for access to capital that any other small business has, but their options don't provide many routes they can take. Usually, they can't find investors because they're not going to grow into million-dollar companies and banks only offer them personal loans. The current product offerings simply don't work for many freelancers because of their unique circumstances.
Unfortunately, there's a heavy impact when 50% of the workforce can't access capital. A robust middle class is the backbone of a healthy economy and without the ability to grow their businesses and support themselves, freelancers can't contribute. The rest of the country suffers when freelancers' ability to produce wealth suffers. Right now, it's suffering because freelancers can't find capital that works for them. But it doesn't have to be that way.
Related: The 'Great Resignation' Will Transform the Gig Economy. Are You Ready to Take Advantage?
A product for investors of all types
To solve this problem, smart investors are beginning to calculate how much potential wealth is trapped in the gig economy right now. Offering better products to freelancers would carry many benefits for both freelancers and investors. There are two ways to look at this transition for forward-thinking investors and traditional investors.
- Future performance evaluation for innovative investors. Forward-thinking investors should examine existing data points to determine the growth potential for freelancers. We'd argue that freelancers follow a similar s-curve to most businesses, albeit on a smaller scale. As freelancers start, it's often a grind, and their earnings will be low or possibly non-existent. Capital to get them through this part of the curve, without an immediate requirement for repayment, is critical to get them to the back half of the curve when their earnings become more stable and higher.
- Crowdfunding for traditional investors. Crowdfunding platforms have the potential to open the gig economy to traditional investors simply looking for an alternative investment. Pooling freelancers and interested investors together to share in profits would be an excellent way to mitigate the risk from one freelancer and open these profits to average investors. As the market matures and more lending platforms become available, the benefits to both parties will significantly expand.
Related: How the Rise of the Gig Economy Influences the Workforce
Untapped benefits no longer
The benefits that better investment models would bring to lenders and investors of all shapes and sizes cannot be overstated.
- Untapped potential: The gig economy is largely ignored in today's lending markets, leaving enormous rewards for the ground-breakers who develop innovative products early.
- Supply/demand: Right now, the lending market for freelancers is supply-light and demand-heavy, creating ideal conditions to maximize profits.
- High potential returns: These conditions create high potential returns for innovative investors and lenders.
Investors looking to broaden their portfolio's diversity while at the same time taking advantage of considerable upside would do well to tap these potential benefits. Lenders who've left freelancers and other people in the gig economy out of their equations are actually taking a risk of missing out on considerable gains over the coming years. Couple that with the relatively light competition offering suitable financial products to freelancers, and there's an opportunity here to get in on the ground floor and help build the gig economy financial market.
Why continue to leave a considerable market for growth on the table? Freelancers need these products and lenders can provide them. All it takes is some creativity and the courage to be one of the first to take advantage of this underserved asset class.
Related: 5 Ways to Grow Your Wealth Quickly and Effectively
A better asset class
As a whole, freelancers and solopreneurs provide an investment opportunity that we should be hesitant to ignore. Unfortunately, freelancers are treated as consumers instead of small business owners, but this shouldn't be. The market isn't seeing its potential right now, but this could change with a shift in investment models. The results from this shift would provide investors with access to an underserved asset class with tremendous growth potential. It's an exciting time to break into the gig economy with financial products that actually work.
