Last week’s headlines boasted another record-breaking year for new business applications in the United States with 5.5 million new business applications filed in 2023 alone. The latest U.S. Census data is an exciting confirmation of a trend we highlighted in our 2022 outlook, specifically that small business growth would continue in a post-pandemic era where technology has lowered the barrier of entry to launching or scaling a business.
As investors in SMBTech, we know firsthand how valuable technology can be to small and medium-sized businesses (SMBs) that are seeking to find cost- and time-effective ways to manage their businesses. Against the backdrop of more than 16 million new business applications in the last three years—and notably, many of these businesses maturing from applications to fully formed entities, we predict 2024 will be the year that SMBTech companies experience meaningful growth.
SMBs fuel employment: It’s important to underscore that not only are small business applications increasing, but these applications are resulting in formed business establishments. In the same three year period (2021-2023), 2.8 million private-sector establishments were born and the U.S. economy added a net 7.2 million small business jobs. Given that we’re also seeing record low unemployment (3.7% as of Dec. 2023), we’re watching closely how SMBs will continue to serve as a source of employment in the U.S.
SMB-focused software solutions see renewed growth: We’re already seeing early evidence of the success that SMBTech companies can have when the number of SMBs skyrockets:
Equally as exciting are the hundreds of early-stage companies that are innovating on challenges that incumbents have tried to address. Traditional players like Intuit and Block (Square) have for many years provided financial, tax, and payment technologies and are now joined by startups—like Heard* (financial back-office tech for the mental wellness industry), Novo* (purpose-built banking for small business owners), and BLVD (software for self-care businesses)—that are making it easier than ever for small business entrepreneurs to manage the financial side of their operation.
Furthermore, we’re at an exciting moment with the advancements in artificial intelligence. At GGV Capital U.S., we've long recognized the transformative impact of software advancements on SMBs. The shift to mobile technology was a game changer for SMBs—literally bringing tens of millions of Main Street shop owners “online,” and we believe AI will do something similar and perhaps at 10X the speed and scale.
We’ve already begun to see incumbents like Adobe launch AI design tools like Firefly with massive success. We’re also tracking a new cohort of AI-native SMBTech companies (often vertical-specific) like Rilla that use AI to deliver actionable coaching for field sales workers and tools like Topline Pro use generative AI to equip home services businesses with high-quality websites and ultimately build valuable customer acquisition channels.
With lean teams and resources, SMBs are ripe to benefit from the huge productivity gains that AI can offer. An Oct. 2023 survey by the Small Business & Entrepreneurship Council found that an astounding 75% of small businesses are already harnessing AI in various capacities like financial management and marketing. These signals are a testament to the proactive approach small business owners have to integrating modern technology into their operations and should be seen as a major tailwind for AI-enabled or AI-native SMBTech companies.
As we move into 2024, we remain optimistic that not only will the trend toward entrepreneurship remain strong in the U.S., but we’ll continue to see thousands of new business applicants graduate to new business owners. These SMB owners will seek software solutions that will enable them to manage their end-to-end business operations from financial management to payments and marketing. AI will be additive to the SMBTech software stack and has the potential to unleash capabilities that were traditionally siloed to large enterprises. Our team looks forward to continuing to monitor the state of small businesses in the U.S. and the technologies that are built to service this important community.
*Represents a company in GGV Capital U.S.’s portfolio