In the latest sign of the explosive growth of sole proprietorships, Collective, an AI-powered back-office platform for solopreneurs, has just raised $50 million in funding.
The San Francisco startup offers company formation, S-election, payroll, tax and accounting services for sole proprietorships and a personal dashboard to manage their finances.
Since its foundation in 2020, the company has built up a waiting list of almost 100,000 companies.
“We must continue to build the platform and scale our operations to meet demand,” said CEO and co-founder Hooman Radfar. “Space is growing quite dramatically.”
Investors in Collective include Gradient Ventures, Google’s AI fund, Innovius Capital, The General Partnership, General Catalyst, QED, Expa and Better Tomorrow Ventures, as well as Ashton Kutcher.
The company has raised a total of $82 million and says it has increased sales by a factor of 10 since its Series A round in 2021.
CEO and co-founder Hooman Radfar says Collective will use the investment to accelerate the use of AI in its operations.
Collective uses technologies such as Large Language Models (LLMs) to build AI “copilots” to support its team of tax experts, accountants, bookkeepers and relationship managers. The professionals can use these co-pilots to reduce the time they spend on tasks such as bank reconciliation and expense categorization, freeing up time for other business activities. The cost reconciliation tool cuts down time by 90%, says Radfar. For reconciliation, the time spent decreases by 70%.
According to Radfar, there are collective plans to create additional AI tools as it grows. “It’s unbelievable how good some things are,” says Radfar. “It’s going to change the game for us and our members.”
The US Census Bureau found the number new business applications has remained high since the pandemic, with 436,048 applications filed in May 2023 in the US alone
For Collective, investing its funding in AI and other new technologies will provide a glimpse into the future of the sole proprietorship – a future driven by rapidly increasing individual productivity, Radfar said.
“This not only helps us make our platform better at serving our members, but also gives us a lens to look at in the future to see how our members themselves can create value for their customers,” he says.
Radfar believes that, thanks to new technologies such as AI, the day will come when a sole proprietorship or very small business will reach $1 billion in value.
“It may seem like science fiction, but a savvy entrepreneur could rely on a workforce consisting mostly of several AI-driven applications and maybe a few contractors — and create tremendous value,” says Radfar. James Taylor, a global speaker on creativity, has described the trend towards this kind of human-machine collaboration as “super-creativity” and predicted that it will transform the world of work in the future.
Ultimately, Collective aims to expand its services through partnerships to help the self-employed by providing access to benefits such as healthcare and financial services that the self-employed have difficulty accessing.
The thought, says Radfar, is, “We have thousands of members, so how can we turn that ‘collective’, if you will, into a resource for the individual who is a member of us?”