SMB Tech is Key to Economic Inclusion

Slauson & Co.
Slauson & Co.
Published in
4 min readJun 8, 2022

At Slauson & Co., we believe that entrepreneurship is the most powerful vehicle to close the wealth gap in the United States. It’s a belief that’s supported by facts. The median net worth for Black business owners was 12 times higher than for Black non-business owners. Latinx entrepreneurs, a demographic that has become the fastest growing segment of small businesses in the U.S., have a median net worth five times that of the overall Latinx population.

Small business ownership continues to diversify, with 9.2 million minority-owned small businesses and 11.7 million women-owned small businesses across the United States and counting. Each new business represents someone’s idea to better serve a customer need, coupled with the ambition to bring that idea to fruition.

Last month we outlined our Investment Philosophy, which described our areas of focus as a venture capital firm. The first category we identified is technologies that support small and medium businesses. SMB tech has the potential to transform the economic landscape in this country, yet it remains a drastically underfunded category.

This gives us the opportunity to back founders building platforms that support the next generation of small business owners. We invest in the tools and services that equip small business owners with what they need to compete and capture the full value of their talent.

The Untapped Opportunity

For decades, venture capital firms have shied away from tech that targets small businesses, even as enterprise SaaS has become commonplace in most venture portfolios. VCs imagined the economics for targeting SMBs to be upside down — long sales cycles combined with low contract values. The established playbook for enterprise SaaS simply wouldn’t work for SMBs.

On that last point we agree. We’ve found that SMB Tech has more in common with consumer investing than enterprise. The purchase decisions are made by the primary user, so a strong brand and elevated user experience plays a more influential role. This one insight alone would help most investors view these opportunities through a more appropriate lens. But there are also a few other traits we look for in an SMB tech investment:

  1. Product led growth instead of an inside sales team
  2. Short sales cycles through higher volume acquisition channels
  3. Smaller contracts (if any contract at all) or low entry price
  4. Self-serve onboarding
  5. High retention / low churn
  6. Happy customers who become evangelists

Successful tech companies targeted to small business owners, like Shopify, MindBody, Xero, Square and ServiceTitan, show that SMB tech is a ripe investment opportunity with huge potential.

The Slauson & Co. Approach to SMB Tech

At Slauson, we’re not really interested in platforms that service large enterprises. SMB tech has been our core B2B focus since the beginning. As a result of this, we’ve developed a portfolio of founders that support one another and find brilliant ways to collaborate to better serve their small business customers and even each other.

For example, our portfolio company, Penelope, a streamlined retirement savings platform for small businesses, has recently brought on another portfolio company Finli as an anchor client. Finli is a payment management system for small businesses, so these two companies also work together on strategic partnerships.

Some Slauson & Co. investments in SMB tech focuses on a specific vertical, like Prado, an e-commerce and logistics platform for food and beverage entrepreneurs, or Ease, an all-in-one operations platform for medical professionals to build and grow their private practice.

Other portcos are building tools that apply across various industries, like Subcity, an online platform that identifies and secures tax-credit and incentives for small businesses. There’s also BAGS, a platform that helps small businesses secure alternative financing. Their products impact all types of entrepreneurs.

Gaining Momentum

We’ve talked about the wealth of opportunities behind SMB tech for years, but we aren’t the only ones taking notice. GGV Capital produces the annual SMB Tech Summit as well as the SMBTech Index, while Lightspeed Venture Partners offers a SMB Software Benchmarking Guide. There’s also the SMB Syndicate newsletter written by Jennifer Richard, Sydney Thomas, and Tessa Flippin. We hope to work with more investors with their eye on the category.

The way we see it, when it comes to the future of small businesses, there are two potential paths which lead to two very different outcomes for our country: one where we as consumers end up getting all of our services and products from just a handful of massive corporations and the other outcome, where small and medium size businesses are able to compete and serve the nuances of the communities they are targeting.

Let’s take the latter path.

When we invest in SMB Tech, we give small businesses the opportunity to create and deliver more nuanced products and services that support the communities they know best. We know there are founders out there passionate about creating paths to entrepreneurship for those historically left out of the game. And we want to hear from you.

Submit here

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Slauson & Co.
Slauson & Co.

Published in Slauson & Co.

Slauson & Co. is a Los Angeles based VC firm focused on early stage technology investments led by investors Austin Clements and Ajay Relan. The firm is driven by its mission of economic inclusion and democratizing access to entrepreneurship for underrepresented founders.

Slauson & Co.
Slauson & Co.

Written by Slauson & Co.

Slauson & Co. is a Los Angeles based venture capital firm focused on early stage technology investment driven by its mission of economic inclusion.

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