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Behind the Term Sheet: How ZenBusiness is the Operating System for Small Business — Making Entrepreneurship Accessible for All

November 20, 2020
North America

Entrepreneurship is the bedrock of the United States economy, with new small businesses responsible for all net new job creation in this country — a vital component that has proved more resilient in recessions and as we navigate the COVID-19 crisis. Entrepreneurship is also becoming a more popular career option. Consider these findings from Upwork’s 2020 study — over two million Americans have started freelancing in the last year and over 60% say that no amount of money would convince them to take a traditional job again.

While many small and medium sized businesses (“SMB”s) stay small, some do experience significant scale — companies that were once small businesses or startups, are responsible for over 40% of the US public traded companies, 60% of marketcap and remarkably 80% of R&D. Yet, it’s incredibly challenging for aspiring business owners to turn their freelance work, side-hustles or informal employment into full fledged businesses.

As a global venture capital firm, we are deeply familiar with the obstacles in launching and building companies but we truly believe that innovation and entrepreneurship can (and should) come from anywhere. Thus, it’s with great pleasure that we can announce our latest investment in Austin-based ZenBusiness, leading its $55M series B funding round to accelerate the micro business renaissance in the US and beyond.

ZenBusiness is a one-stop-shop for budding entrepreneurs to start, run, and grow successful micro businesses. Think of them as the operating system for SMBs. During this critical time of economic uncertainty, we see ZenBusiness as a critical platform that will unite the fragmented market for SMB solutions and power a global movement by making entrepreneurship more accessible for everyone.

“The team at Cathay Innovation has been a tremendous partner to have with us on this journey. We share a collective passion for small business and are extremely proud of the role that we can play to make a difference in so many people’s lives as they step out, hang their shingle, and take the leap towards becoming entrepreneurs.”

– Ross Buhrdorf, CEO & Co-Founder, ZenBusiness

There are 30M SMBs in the US, accounting for 99% of US businesses, and growing. The largest percentage of SMBs are also solopreneurs, or micro-businesses. Now add to this the rapidly increasing number of freelancers — and its clear that we’re dealing with a big market and significant economic driver. However, the SMB market is largely underserved with aspiring entrepreneurs struggling with a process that is expensive, complicated and confusing.

Why is it so hard to launch and build a company? To illustrate the complexity, consider the myriad of questions new business owners must contend with:

  • What should the legal structure be? Should it be an LLC vs benefit corp vs C corp vs partnership? What state should it be set up in? My current state or Delaware?
  • Why do most people have registered agents?
  • What should I do if I want to hire someone? Where do I get an EIN? What is an EIN?
  • What is an operating agreement and why do I need one to get a bank account? Why is it so hard to register for a corporate card? How do I send an invoice?
  • Businesses have credit scores even without having taken any credit. How do I build my business credit?
  • How do I build an online presence including a website and affiliate channels? Affiliate channels?

To complicate things further, the small business software market — meant to help those run a business once you get established — is crowded and convoluted with individual point solutions. Just look at one of the verticals alone — SMB marketing for a glimpse of the issue. In short, there is no unified single source to support small businesses.

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SMB services ecosystem is convoluted, just look at the marketing ecosystem

Just as Shopify created an operating system for ecommerce merchants, ZenBusiness is just that but for everyone else — particularly in the service-based industry (e.g., consultants or skilled trades like plumbers or electricians). ZenBusiness is the one-stop digital platform with the mission of making starting, running and growing a new business simple and accessible. They will become the single pane of glass for small businesses everywhere.

The product starts with legal formation. ZenBusiness is already one of the top legal formation companies in the US, helping create over 80,000 new businesses — but that is just the entry point. Once the company is formed, ZenBusiness can leverage its relationship with the customer, and knowledge about their business, to seamlessly provide a range of other products and services:

  • Need to get your first order, claim an internet domain and build a website? No problem. ZenBusiness helps with domain name registration and website development, even pre-filling a customized website.
  • Need to send an invoice and link to a bank account? No problem. ZenBusiness has all the information it needs to help open a merchant account and make your first dollar of revenue.
  • Need an employer identification number (EIN) to hire your first employee? No problem. They can walk you through it.

Over time, ZenBusiness will be able to provide the gamut of products, services and educational resources to the market. Embedded fintech is a core part of the work — because of its unique relationship with customers, ZenBusiness will be able to offer a range of financial products including credit, accounting and asset building among others.

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Importantly, the ZenBusiness founders have done this before. ZenBusiness CEO & Co-Founder Ross Buhrdorf was the founding CTO at HomeAway, helping to grow the company from startup to a $3B global leader in the travel industry. In addition, the founding and leadership team features a powerful lineup of serial entrepreneurs and executives from the likes of HomeAway, Facebook, Joust (acquired by ZenBusiness in 2020) among others including COO & Co-Founder Shanaz Hemmati, CMO & Co-Founder Ryan Pitylak, Director of Product Marketing & Co-Founder James Glancy, Director of Product & Co-Founder Rafael Lopez, CTO Alex Victoria, Head of Product (and Co-Founder of Joust) Lamine Zarrad.

ZenBusiness is at the confluence of many trends we care about at Cathay Innovation. Supporting small businesses is at our core, as seen from our investments in companies such as Peek for small businesses in Travel, Sidecar Health for affordable healthplans and Iziwork or Terminal for staffing. Embedded fintech is a key strategy as well, notably with Fundbox’s lending product built into accounting platforms like Intuit. And of course ecommerce, with our investment in Pinduoduo and other enablers like JD Logistics, OnTruck and others.

With this latest financing, we’re excited to bring together a syndicate of complementary voices. This includes Breyer Capital (Jim Breyer was the lead investor in Facebook while at Accel), Great Point Ventures (co-founded by Andrew Perlman, who shares our commitment to small business investments including a co-investment in Sidecar), Omega Venture Partners, Greycroft Ventures, Lerer Hippeau Ventures, Adam Zeplain’s mark vc and Interlock Partners.

Perhaps most importantly, ZenBusiness is an impactful enterprise, supporting the next generation of entrepreneurs, wherever they come from. They’ve also elected to be a “Public Benefit Corporation”, awarding over $100,000 in grants to small businesses in 2020 alone. We strongly believe that their solution will be critical to a successful and thriving society and we’re honored to support the next leg of their journey. The problem ZenBusiness is solving is of course not germane to solely the US. ZenBusiness is already fielding many queries internationally, and is on track to become a global enterprise — powering the micro business renaissance and entrepreneurial movement around the world.

Article source: https://medium.com/cathay-innovation/behind-the-term-sheet-how-zenbusiness-is-the-operating-system-for-small-business-making-2272133fd168