A recent study on the Freelance industry in the US estimates that nearly 36% of the US workforce, or 57.3 million Americans, are freelancing. The research estimates that these freelance workers contribute approximately $1.4 trillion annually to the economy, an increase of almost 30% since last year. By 2027, researchers believe, that freelancers will account for majority of the US workforce. Growth like that should have been promising for freelance services provider Upwork. But the former Billion Dollar Unicorn club member is struggling to take advantage of these trends.

Upwork’s Offerings

Mountain View-based Upwork was founded after the merger of two freelance platforms Elance and oDesk. Elance was set up in 1998 by IIT Bombay alumni Srinivas Anumolu, Sanjay Noronha, and Beerud Sheth who wanted to create a marketplace for services. The Wall Street traders came together to build a platform that would allow talented people worldwide to connect with businesses who could leverage their experience. The first prototype of Elance was released in 1999.

oDesk, on the other hand, was founded much later, in 2005, by two close friends from Greece – Odysseas Tsatalos and Stratis Karamanlakis. Serial entrepreneur Odysseas was on his third strartup in Silicon Valley when he realized that he wanted to work with his closest friend Stratis, who was in Athens. Odysseas’s coworkers were agreeable to working with Stratis, but to instill confidence in remote working, the two friends developed the Odesk platform. Soon the two realized that they had invented a service that could help several other talented workers work from wherever they liked on projects that interested them.

In December 2013, these two freelance platforms merged to become Elance-oDesk. Together, the two accumulated a community of over 3.7 million businesses and connected them with more than 9.3 million freelance workers. Today, Upwork boasts of millions of jobs posted annually, helping freelancers earn more than $1 billion and providing companies with over 3,500 skills.

Upwork’s Financials

Upwork earns revenues by charging a commission on work awarded through its site. Organizations have three tiers of services available to them. The basic one is free to join and lets organizations post jobs, hire, and utilize the collaboration tools available on Upwork. The Pro service charges clients a flat fee of $500 per hire plus an additional 10% of the invoice. The Pro service also provides hiring assistance and provides access to a pre-vetted pool of freelancers. Additionally, there is an enterprise level of service that includes additional features such as customized billing, reporting, and account management services.

Upwork also earns revenues from freelancers by charging a sliding fee based on the freelancer’s lifetime billings with a specific client. It charges the freelancer a fee of 20% for the first $500 billed with the client, 10% for lifetime billings with the client between $500.01 and $10,000 and 5% for lifetime billings with the client that exceed $10,000.The fee is in addition to the 2.75% per payment transaction processing fee that is levied on payments serviced through Upwork.

Upwork is privately held and its financials are not known. Analysts estimated $70.3 million in revenues in 2013 on billings of nearly $750 million. More recent revenues are not known, but keeping the $1 billion billing run rate, Upwork is likely earning nearly $100 million in revenues annually.

Upwork has been venture funded so far and has raised $170 million from investors including Kleiner Perkins Caufield & Byers, New Enterprise Associates, Stripes Group, Pequot Capital, Citigroup, Focus Ventures, T. Rowe Price, Sigma Partners, Benchmark, Globespan Capital Partners, DAG Ventures, and SV Angel. Its last round of funding was held in November 2014 when it raised $30 million in a round led by Benchmark Capital at an undisclosed valuation. Analysts estimated that the company had earned a Unicorn status back in 2014. But things appear to have taken a negative turn in the past few years. In 2016, T Rowe Price revalued its investment in Upwork and slashed it by half, suggesting an end to Upwork’s Unicorn membership for the moment.

Questions for Upwork’s Board

Despite the boom that the market expects for American freelance workers, Upwork is struggling to drive growth. It has tried to improve its revenue model by changing the fee it charged its providers from a flat 10% to the current tier-based model. The move geared to promote bigger client engagements, did not go down too well with smaller freelance providers, many of whom decided to exit the service. But Upwork’s bigger problem lies in the fact that remote vendors are largely offshore and can offer services for a lot cheaper than U.S. based freelance workers. Upwork does not publish detailed statistics about its vendor database. I would like to know what is the mix that Upwork has between projects and vendors that are delivered out of locations like India and Philippines, compared with those delivered out of the U.S. Additionally, what is Upwork doing to engage the US freelance population, and drive work towards them? Finally, what is it doing to help its investors find an exit, considering that an IPO does not seem a viable exit right now. How long will the investors be willing to wait?