Investors Could Make More Money — and Fuel the Economy — By Pouring Into This Key Industry When it comes to accessing capital, freelancers and solopreneurs face several hurdles. By understanding their total value, investors and independent contractors can both thrive.
By Andre Lee Edited by Kara McIntyre
Opinions expressed by Entrepreneur contributors are their own.
It's no secret: When it comes to financial solutions to grow their businesses, solopreneurs and freelancers are limited; their income is volatile. Without financial capital, their income cannot grow beyond those constraints. One sustained period in the red can cause a lot of financial distress. Excessive, prolonged stress can result in decreased quality of life, mental health disorders, depression and disease.
Access to capital could stabilize finances during these periods and mitigate this stress while supporting a growing class of workers — over 20 million people full-time. Financial products designed explicitly for solopreneurs and freelancers would help launch more successful opportunities.
But currently, products like that don't exist. Investors don't typically consider freelancers and solopreneurs an investable asset. All of that value is trapped.
But freelancers and solopreneurs are, in fact, precious assets. If we collectively took those 20 million people and gave them the capital to realize the opportunities they encounter, the growth potential for the U.S. economy would be massive. Investors need to understand the total value freelancers and solopreneurs have by evaluating their personal equity, then tap into it with better financial resources to help them grow.
Related: Why Freelancers are the Key to Achieving Talent Scalability On Demand
The current picture
Only some see the chance to take something and grow it into a meaningful business that produces revenue, pays salaries, feeds families and moves money through society to grow its economy. Only some people are as persistent with adequate financial resources, meaning fewer take action at every opportunity.
Solopreneurs and freelancers are entrepreneurial people and, by nature, pretty resilient. They must enter entrepreneurship knowing that everyone who attempts this faces uncertainty, poor infrastructure and inadequate tools. Their mindset allows them to adapt to these situations and maneuver the right pieces together to create a business and a cash flow to support it. They're good at it. They learn as they go and stay open to opportunities.
But while freelancers and solopreneurs carry such untapped potential, without better tools and infrastructure, their growth may never occur. Entrepreneurs typically go to an angel investor or venture capitalist (VC) to start a new business. Still, with only so much capital, investors must seek out investments with maximized potential returns. The opportunities most solopreneurs and freelancers come across to build themselves out and become profitable represent a lot of growth collectively. Still, each instance may not be big enough for a VC or angel investor to consider: They typically look to billion-dollar markets, not those pulling in a few million a year.
As a result, investors segregate financial products, treating freelancers and solopreneurs as consumers and offering them loans or credit cards as their only means to obtain financing. The financial investor sees themselves buying a pile of credit card receivables, all priced at 18% with a default rate of five percent and 13% left. But with this mentality, investors are missing out on a lot of value in the freelance market and holding our country's potential innovators back.
Related: Freelancers Make Up 34% of the U.S. Workforce. Here's How to Find, Hire and Manage Them.
How to change the trend
By understanding how valuable freelancers and solopreneurs could be, investors can start freeing up that trapped value by providing them with the financial tools needed to grow. These entrepreneurs are the sales, operations, admin, finance and labor teams all rolled into one. They work and produce an income differently than a full-time worker or a small business with many employees. Because of these differences, they need financial products and solutions to match.
People don't need a loan from investors to start a new business; they need equity — permanent capital. To respond to this need, we've been working on a way to think about personal equity as an asset — one's value today and how that might grow — so lenders can better quantify their investments in solopreneurs and freelancers. By quantifying the common investment characteristics and risks for freelancers and solopreneurs, it becomes easier for investors to decide on backing them.
To maximize their personal equity, freelancers must work — and investors need to understand how they work. They must examine the bigger picture and identify opportunities for better financial support with more meaningful or substantive solutions. What is missing for freelancers to monetize the intellectual property they create, and how can we empower them to do more? Once we strategize meaningful financial solutions with this working class in mind and deploy them into the marketplace, these freelancers and solopreneurs can take advantage of financial solutions, more easily obtain capital and put it to good use.
Related: Investors Are Overlooking the Gig Economy. Here's How to Unlock Its Untapped Value.
Freelancers deserve a chance to grow
With access to capital to support their businesses, freelancers and solopreneurs can live easier, better lives. By giving them a voice regarding the specialized financial options they need, banks and lenders also stand to benefit by listening. The first financial providers to cater to this underserved market will get to ride along with their surging growth, and freelancers will get the capital they desperately need to grow. Investors who give freelancers their voice will find ample opportunities for greater profits, and they help freelancers discover their worth in the process.
The right financial products turn freelancing into a more legitimate and sustainable career move for more people, especially those who may face discrimination challenges in a traditional job hiring situation. With proper funding opportunities, freelancing can provide a stepping stone for more people to enter the economy by starting something of their own. As more freelancers can support their families and communities with their growing businesses, they generate more wealth. They invest in properties, companies or charities. They travel and feed into tourism economies in other countries. Financially supporting these entrepreneurs contributes to the bottom line of many people downstream.
With adequate capital from investors to expand their businesses, freelancers and solopreneurs can feel fulfilled and achieve a sense of dignity in their careers instead of enduring the weight of financial distress. Both parties can flourish by creating tools to measure freelancers' personal equity. Simultaneously, investors can tap into this valuable asset while giving freelancers the voice (and financing) they deserve.
Related: Freelancers Deserve a Voice: Here's How to Give It to Them
