10 Startups Coming to
Save the Social Safety Net
Why entrepreneurs, not the state, are leading the way
By Nicolas Colin (Co-Founder & Director) | The Family
In my recent book Hedge, I make the case that entrepreneurs form a vanguard for inventing a new Safety Net for our more digital economy. There are two reasons why I think tech companies have a major contribution to make on this front.
First, entrepreneurs are the best at discovering new things. Too many people wrongly assume that it’s the state’s mission to invent something like a new Safety Net. However, historical precedents suggest that the state makes a difference only at a later stage, when the time comes to scale up mechanisms that have already been discovered and proven at a smaller scale.
Indeed the Safety Net of the Fordist Age (which I call the “Great Safety Net 1.0”) was not invented by Western governments. Rather, it was discovered all along the 19th century by players as diverse as co-ops, private ventures, trade unions, and mutual organizations in fields as diverse as education, housing, banking and insurance.
It’s only because those efforts failed to provide economic security beyond a certain scale that the state had to intervene by designing new regulations and building state-owned or state-sponsored organizations. In the US, this took the form of FDR’s Second New Deal, with the model then being extended all over Western Europe through the Marshall Plan.
Second, entrepreneurs can now harness technology to operate at a much larger scale. If history repeats itself, the “Great Safety Net 2.0” will be discovered by entrepreneurs and will only then be expanded and operated primarily by the state. But I think the situation will play out differently this time. The nature of today’s technology, based in ubiquitous computing and networks, makes it possible to deliver high quality at scale — a foundational feature of the Entrepreneurial Age as defined by Babak Nivi.
Many are already busy designing products to deliver prosperity and economic security to individuals. But contrary to their predecessors in the Fordist Age, increasing returns to scale will make it possible for those entrepreneurs to operate at a larger scale without the need for the state to take over. This isn’t to say that governments don’t have a role to play. It is a statement that (1) entrepreneurial ventures are now able to deploy their version of the Safety Net much further than in the past and (2) the state will need to focus on providing the direction and facilitating the emergence of these new models.
The task will be difficult, especially in developed countries where legacy organizations and institutions make it particularly hard to discover new things and scale them up. In fact, social policy will be more and more about making room for the new Safety Net to emerge, even if it means weakening legacy mechanisms. Developing countries, on the other hand, will have an easier time leapfrogging into the future, as they’ll prove to be giant markets for those innovative ventures in the ‘Safety Net industry’.
Part 4 of Hedge is dedicated to discussing many ideas as to what this new, entrepreneur-driven Safety Net would look like in sectors as diverse as education, consumer finance, insurance, health care, housing, and supporting workers. What the book doesn’t mention, however, is the names of the many startups that, in my view, are already busy making this happen. And so below is a (non-exhaustive) list of 10 startups that I think vindicate this rather iconoclastic idea: the Safety Net for the Entrepreneurial Age will be discovered, scaled up, and operated by tech entrepreneurs.
(If Andreessen Horowitz is well-represented here, that’s because I find them the most engaged venture capital firm on the front of building a new Safety Net. Led on that front by the power duo of General Partners Angela Strange and Alex Rampell, they’ve been expressing a clear and compelling thesis and translating it into actual investments in ambitious startups. Kudos to them, and may many other venture capitalists follow in their footsteps.)
1/ Lambda School is an education startup that’s innovating in terms of income-sharing agreements. I think the most enlightening source is this article by Bedrock Capital, the firm leading their recent Series B round: “Lambda is building something new entirely: An income accelerator for people, powered by both a unique network effect and a relentlessly ambitious vision… Instead of investing in overlooked and underestimated companies, Lambda invests in overlooked and underestimated people.”
2/ Safety Wing is a US-Norwegian insurance startup that covers people from all over the world while they’re outside their home country. Their target is not tourists, for which there are already a wide range of travel insurance products, but the so-called “digital nomads”, people who travel all year long. Their long-term goal is to deploy a Stripe-like infrastructure to make insurance borderless and frictionless, ultimately redesigning the entire industry for the needs of what I call “hunters”, who represent the most productive part of today’s workforce. By the way, here’s an article I wrote on that idea: The Future Of Work Is About Hunting, Not Settling.
3/ Earnin is a startup that makes it possible for wage earners “to get paid the minute [they] leave work with no loans, fees, or hidden costs”. It’s one example among many (see also UK-based Wagestream) of startups focused on making households’ income steadier in an Entrepreneurial Age when employment conditions and contracts are undergoing substantial change. The idea is still somewhat controversial, but it’s a playing field that’s very welcoming for tech-driven innovation. Check out this conference by Angela Strange on business opportunities in financial services for low-income populations: The Next 3 Billion in Financial Services.
4/ Trupo is a startup that provides short-term disability insurance to freelancers. It was launched by Sara Horowitz, the former CEO of the US-based Freelancers Union, which she founded back in 1995 to provide freelancers with the support they need through the ups and downs of their life as self-employed workers. It’s part of a growing population of companies that are focused on supporting workers that embrace more entrepreneurial careers, either as high-skilled freelancers or low-skilled gig workers on platforms. Other examples are UK-based Trezeo and Oval Money and Paris-based Wemind, which pioneered providing freelancers with rent payment insurance (the latter two are in my firm The Family’s portfolio). In my view, those startups are recreating the community-driven, cooperative safety nets that existed in the past under the form of co-ops or the now-defunct US political machines. Here’s a 2015 e-book by USV’s Nick Grossman and Elizabeth Woyke on Serving Workers in the Gig Economy.
5/ Point is a real-estate startup that’s pioneering the idea of shared home equity. The simple question they ask is: Why do we have to own either 0% of our home (if we’re a tenant) or 100% (if we’re a owner)? The product they’ve been developing makes it possible for anyone to share their home as an asset with third-party investors. It makes it easier to buy for those who can’t tie up their entire wealth in that single asset that is a home. And for those who already own their home, it makes it possible to divest part of it to allocate capital to other things. You can read more in this article by Alex Rampell.
6/ Divvy is another startup focused on financial engineering in real estate, with the ultimate goal of making housing more affordable. Their value proposition is to “turn a monthly rent into a down payment”. The idea is to help those without savings start their path to homeownership without waiting, rather than constantly burning what they earn on ever-higher payments on the rental market. It’s another, promising way of blurring the line between renting and owning: “Take a house that’s currently for sale, and turn it into a rental — to you”.
7/ Watsi is a California-based non-profit that’s building technology to finance universal healthcare by crowdfunding surgeries and administering health insurance systems. They’ve been developing Meso, a “modern technology platform for health insurance administration” that’s currently deployed in several developing countries, notably in Africa. Their long-term vision is what inspired most of the discussions on the future of social insurance in my book. You can read more in the section of Chapter 11 titled “Dealing a new hand in insurance”.
8/ HealthIQ is an example of a startup that’s trying to bring health insurance premiums down by encouraging a healthy lifestyle among its members. Among their customers are obvious targets, such as those who exercise a lot, as well as people who have long had a hard time finding affordable insurance, such as well-managed diabetics. At first, it looks like it simply contributes to unpooling risk and pushing premiums higher for all the others. But once it reaches a certain scale, such a model has the potential to radically upgrade how the entire health industry works, thus redistributing opportunities and imposing a new balance between cure (which costs a lot) and prevention (which can provide high returns).
9/ Oscar Health is one of the many health insurance startups born in the aftermath of implementing the Affordable Care Act in the US. It’s also the most visible, having raised hundreds of millions of dollars from the likes of Alphabet and Founders Fund, and being valued north of $3B as of 2018. The bet of Oscar’s founders is that technology makes it possible to provide a lower-cost service to a larger base of insurees by supporting them through a networked infrastructure that provides a frictionless experience and access to online medicine. It also looks to rebalance the health care system by promoting prevention rather than cure. You can read more about what’s coming in tech-driven health care in this February 2018 issue of my weekly newsletter: The Future of Healthcare.
10/ Q is a startup that wants to make it easier to identify signs of disease at the earliest stages, before symptoms arise, when intervention produces the best outcomes. It’s an example of how computing and networks unleash innovation in both diagnosis and treatments for a wider range of diseases. Such products can then be used by full-stack health organizations such as Kaiser Permanente. You could be interested in this conversation between investor Ben Horowitz and Kaiser’s CEO Bernard J. Tyson (podcast): The Infrastructure of Total Health.
Here’s more about me and my book Hedge: A Greater Safety Net for the Entrepreneurial Age:
- An overview of the book’s argument: “Hedge: Inventing a New Safety Net”.
- An article by Tom Cassauwers in Ozy: “Amid Upheaval in the West, He’s Sketching a Social Safety Net 2.0”.
- An article by Sarah J. Robbins in Hacking Finance: “Forward to the Past: Jazz is discipline, food is dignity, and content is king”.
