The total number of formal freelance workers is 77 million globally; U.S. freelancers account for 50.7%. In 2018, U.S. statistics showed that 57.6 million (more than 1 out of 3 – 35%) Americans freelanced, contributing $1 trillion annually to the economy. The freelance workforce has grown from 53 to 56.7 million (7%) in five years and outpaced the non-freelance US workforce which only grew 2% (103 million to 105.3) during that same time.
| Company | Toptal |
| Website | https://www.toptal.com |
| Headquarters | No Headquarters. Offices for registration purposes only in San Francisco (DE 548 Market Street Suite 36879 San Francisco, CA 94104), New York, NY and Wilmington, DE. |
| Leadership Team | Taso Du Val (CEO and Founder), Brenda Kurz (CAO), Ismael Peinado (CTO), Bill Tsingos (General Counsel) |
| Founded | 2010 |
| Disclosed Funding | $1.4 M (Seed Round) |
| Investors | Andreessen Horowitz, Compound, Quora founder Adam D’Angelo, Lucas Nealan, Ryan Rockefeller |
| Summary Perspective | A pioneer and disruptor in the high-skilled freelance marketplace space, Toptal provides focused set of expertise in software development, design and financial services.
Toptal’ platform facilitates project management and matchmaking services for highly vetted freelancers and over 10,000 companies. Toptal, a fully remote company, has hundreds of employees and not a single office space anywhere in the world. The company has experienced explosive growth reaching $200M in gross revenues in 2018, a 35% CAGR, since inception. At this revenue level, the company has reached Unicorn status and could be valued well over $1Bn by taking industry multiples. However, the company has gone through some controversy over business ethical issues. Co-founder Breanden Beneschott and other early employees who were demanding equity distributions were fired and there is on-going litigation. Scandals of this nature can be damaging to the company’s reputation and this should be considered as a major red flag. |
Perspectives
Business Overview
Toptal, founded in 2010, is a high-skilled freelance marketplace. The platform provides a matching service that links the demand for high-skilled labor with its supply by using and online infrastructure for discovery. Toptal connects over 10,000 companies ranging from startups to Fortune 500 companies (Airbnb, Motorola, Hewlett Packard) to highly vetted elite Silicon Valley – Ivy League caliber freelance tech talent for long and short term projects.
Toptal is a fully remote company with no headquarters and +500 employees worldwide.
Compared to Upwork or other platforms, Toptal business model provides more focused skill sets and sector expertise in software development, data science, web design, blockchain technology, automotive and financial services. As freelancers are highly qualified, also projects on Toptal tend to be complex and longer on average.
Toptal follows a 5-step strict vetting process accepting only 3% of all applicants. Therefore, they market higher quality than Upwork and their price range varies from 60$ to +150$ per hour. Only input-based contracts are available.
Similar to Upwork, Toptal also mediates remote work with most freelancers based in the Americas and Europe. Toptal applies a marketplace model, which gives responsibility to clients to choose suitable freelancers for their projects. In addition, freelancers are not promised any projects after the strict vetting process, and they have to apply for projects they find attractive.
Quick placement turnaround 24-hours. Toptal provides project management and matchmaking services for freelancers and clients, which facilitates successful outcomes and helps both participant sides to find each other faster
Problem/solution fit
On the demand side, 27% of employers say the main reason they can’t fill roles is because candidates lack the necessary hard/soft skills to quickly assemble teams for short/long term projects. On the supply side, high-skilled talent is choosing flexible work/life freelance options over full time roles, but find it painful to find clients and run their business. Therefore, the demand stems from both client and freelancer sides as high-skilled freelance platforms such as Toptal help bring them together.
Toptal is solving the extreme high-skilled talent gap by leveraging the “gig economy” to connect demand and supply. To companies, it offers an on-demand flexible access to Silicon Valley – Ivy League caliber talent without relocation/visas worries and business units dedicated to different industries.
Toptal’s 98% success match rate demonstrates that it offers a strong, desirable, viable, and feasible solution.
Market opportunity
Due to changes in labor markets there is a growing demand and supply in the freelance market.
The total number of formal freelance workers is 77 million globally; U.S. freelancers account for 50.7%. In 2018, U.S. statistics showed that 57.6 million (more than 1 out of 3 – 35%) Americans freelanced, contributing $1 trillion annually to the economy. The freelance workforce has grown from 53 to 56.7 million (7%) in five years and outpaced the non-freelance US workforce which only grew 2% (103 million to 105.3) during that same time.
Due to lack of regulation, these statistics underestimate the true market size as they don’t represent freelancers that are part of the informal sector of the economy. However, the estimated future market potential of high tech freelancers will become the majority of the workforce in 10 years as technical education also rises.
Why now
Recent studies indicate that freelance economy in high-skilled services, such as in software development and design is booming, which is increasing the demand for platforms that connect freelance workers with client companies.
Motivations for freelancing and utilizing freelance workforce are mainly two folded: better incomes and freedom of work, while companies benefit from the flexibility and innovation power freelancers provide.
However, especially highly skilled freelance software developers and designers are hard to find as companies compete for the best talent. Moreover, freelancers currently lack the means of establishing trusted relationships with client companies on their own. Therefore, freelancers and companies are increasingly relying on freelance platforms which create value through matchmaking, but also by facilitating trust building between them.
In addition, newer generations are choosing to freelance by choice because perceptions around freelancing are becoming more respected. Freelancing also offers freedom, flexibility, and the opportunity to earn additional income.
Business model & Defensibility:
[This section should be read jointly with “Business Overview” which also covers business model fundamentals]
Towards further segmentation
Toptal is expanding on new verticals by industry (automotive, mobility, blockchain) to facilitate discovery of relevant talent.
Proprietary, Modular, and Integrated Platform
Toptal has developed its own modular and integrated software with features that seamlessly integrate to their ecosystem and processes and allow them to scale efficiently by being able to control their own updates, and design the software to fit their needs.
Trust for Long-term Viability
Toptal is focused on building trust between the three parties: the platform, the companies, and the freelancers in a virtual environment through the implementation of different governance mechanisms and design choices that provide a sense of safety and protection.
HR Guidance
Toptal provides a blog with guidance for the two sides of the platform on topics like pricing, hiring, dispute mitigation, etc. As even the most seasoned participants are ill-informed and clueless on how to navigate the space which in turn affects the user experience.
Community
Toptal also focuses on community building which connects “Toptalers” through offline events worldwide.
Risks
Reputational Risk
CEO Taso Duval fired (co-founder/early employee) Breanden Beneschott and other employees as they demanded equity distributions. The company has gone through controversy over business ethical issues and there is on-going litigation. Scandals of this nature can be damaging to the company’s reputation and this should be considered a major red flag.
Barriers to Entry
Threat of new competitors in the high end executive search firms (ie. Russell Reynolds) who have already built brand names, verticals, and relationships are well positioned to enter this space by building a similar online platform.
Disintermediation
The LTV of the platform’s matching function depreciates over time for quality freelancers and clients as they could build their own direct relationships over time.
Potential Regulation
As the labor force in the space grows, the government could intervene and introduce new labor laws regarding minimum benefits and protection which could impact the cost structure of the platform.
Photo Credits: Unsplash