It's getting hot in here

SMBs continue to gain financing and attention. Let's dig into what this means for the industry both from a high level and directly from founders!

Happy Black History Month, everyone!

The Nuts and Bolts

Over the past several months, so much has happened in the SMB space that we're going to break it down into three categories: Government, Venture and Big Tech.

Government

Arguably, the most important thing that happened for small businesses in the last two months is the PPP loan refresh. So many small businesses have been waiting for this extra support from the government - especially over the holidays as many companies and families were still adjusting to the impacts that COVID has had on their businesses and lives. According to Axios, only 60% of small businesses expected to survive without this support.

Venture

One of the many trends we identified last year was investors' interest in the fintech stack for small businesses. It is a surprise to see such white space here given market excitement about fintech products in most other verticals. We're excited to see this gap begin to close with a few recent financings. Oxygen closed a $17M Series A to continue their journey banking small businesses. We are excited to track their progress as they grow. Squire closed a $59M Series B round, tripling its valuation to $250M. The startup plans to use these funds to increase its sales and marketing teams as well as expand its barbershop booking and payments platform to overseas markets.

Big Tech

With the 2020 holiday season came millions more in consumer spending. Given the national sentiment for shopping small, multiple big tech companies hoped to gain positive public opinion by increasing their efforts to support SMBs. Amazon mentioned in its end of year press release that it had invested over $18B in small businesses in 2020. Additionally, Facebook shared a "Speak Up for Small Businesses" campaign that slammed Apple’s recent feature update, which requires customers to opt into sharing their data with companies. Facebook's argument is that this will hurt small businesses most because consumers most often opt out of sharing their data with lesser-known companies.

However, there is no such thing as free lunch and many have pushed back against both Amazon’s and Facebook's initiatives. Some re-sellers on Amazon point to the fact that Amazon is still taking a 50% cut from their sales, which significantly impacts their bottom line. And for Facebook, some of its own employees argue that the company is using small businesses as a shield to protect the company’s own interests around sharing consumer data continue propelling its ad network (aka its business model).

As big tech continues to spar over aesthetics, founders are taking advantage of the current macro climate to provide small businesses with the technological infrastructure they need to grow and scale. One such example is April Underwood, founder of Nearby (fka Local Laboratory). Nearby uses a marketplace model that allows local businesses to sell online to customers in their communities without having to deal with the headaches of marketing and logistics. Check out their first spinoff: Keep Oakland Alive. The company is growing quickly and just closed a Seed Round led by Obvious Ventures and GV.

The Deep Dive

In this section of the newsletter, we dig into a specific operational pain point in the SMB space that a new company aims to alleviate. This time we’ll focus on the perils of managing cash flow.

As we continue to track and invest in e-commerce as a rapidly growing SMB vertical, it is important to highlight its unique challenges. One of the biggest ones is the management of cash flow and working capital. Though, to be clear, this is not an "e-commerce only" issue. Even the savviest entrepreneurs across different industries struggle to manage cash efficiently. As outlined by Forbes, this comes in the form of not thinking through invoicing and cash cycles, failing to consider payment timing, and relying on bank balances for cash flow insight. Tools that are meant for this function are expensive (think NetSuite), manual (Excel) and require heavy engineering resources that e-commerce companies typically do not have. Introduce Brightflow.ai - a fintech company that's building self driving finance, which allows e-commerce operators to have visibility into their current & future states, actively monitor their most important metrics and eventually provide recommendations for working capital optimization. They are truly democratizing finance for the everyday owner.

We connected with Brightflow.ai's CEO & co-founder, Robbie Bhathal, about some of the recent trends in e-commerce. At the time of our conversation, the big Stripe Treasury announcement had just been released. For those who aren't familiar this move allows Stripe platform users to embed financial services, allowing their customers to easily send, receive & store funds. Operators using platforms such as Shopify now have the ability to almost instantly access revenue earned via Stripe (Shopify's native payment processor) and spend it externally without having to wait for an intermediary bank deposit. Here were Robbie's thoughts on the news:

It's great as it allows for more access to financial data, which tends to be siloed. Tracking money is a huge pain point but again, the need for cross-platform visibility is even more important. I am bullish on the market expanding through companies like Stripe as there needs to be a lot of capital to drive change in banking.

It will be interesting to see how this move impacts the industry, especially as it allows operators the ability to more accurately manage their finances. We will also continue to follow companies like Brightflow.ai that support these businesses in running more efficiently.

See you next month,

Sydney, Jen & Austin

Have ideas, feedback or questions about what we wrote? Drop a comment below.