Approximately 60% of Main Street businesses are owned by individuals over the age of 50. Small businesses employ around 50%+ of the U.S. workforce, but many of these businesses don’t have proper succession plans as baby boomers reach their retirement age. While private equity firms have been looking to roll up these businesses for a number of years, I personally believe there is a larger technology play to consider in this space!

Why are legacy business owners not adopting technology?

Instead of speaking about this clinically by looking at statistics, I think it’s better to understand the mindset of business owners in these highly fragmented spaces. Based on my own experience with Camphor selling an AI concierge service to real estate agents and brokers, I can definitively say the hardest problem with technology adoption is education. When speaking to VC-backed founders selling to accounting, legal, real estate (like me), mortgage, and home services, the biggest learnings I have seen are the following:

Majority of business owners treat their business as a lifestyle business - meaning they are not looking to grow beyond a certain point. Even if you explain to them how they can make more money through a revenue generation improvement with your product, they simply don’t care enough since their primary goal is to use their business to put food on the table and send their kids to college.
Some business owners who are looking to grow DO NOT understand software - let alone AI. These business owners typically have a professional background with some business, legal, or engineering training and have started to run this business as a second or third career. While it is possible to sell to this group of individuals, the inherent problem with AI tools is that the cost of building has gone down, but the cost of GTM, especially for these businesses is incredibly high and primarily driven through event-based marketing, which doesn’t create the right conditions for a high growth business.
Simply put, a lot of business owners are just cheap. They view even the simplest technology like a CRM as an added cost because they are not equipped to succeed in using it. I’ve seen plenty of small business owners expect their technology partners to act as their internal IT consultants, even though it is beyond their mandate. While agentic tools in AI are easy to build, maintaining server costs and requests to your favorite LLM is not something a nontechnical business founder is particularly interested.

Why consider an AI rollup strategy?

First of all, it’s worth mentioning that private equity firms such as Alpine Investors and Genstar Capital have made plenty of mid-market investments into legacy businesses across insurance, healthcare, and home services. Most of these businesses have been bootstrapped and rolled up by these PE firms with the intent of cutting operating expenses by reducing headcount and making simple changes such as improving marketing SEO to grow top line revenue, with the intent of exiting the business to a larger PE shop. Canonically, many recent MBA graduates and professional searchers have also been rolling up traditional businesses in this manner. A great example of a search fund that eventually led to an IPO is Lineage, which was a business rolling up and building services for cold-storage warehouses as a REIT play.

Secondly, the concept of AI rollup strategies is not new. In fact, many VC firms, including Bessemer, have made investments into accounting firms in an effort to support their portfolio companies both for accounting services as well as encouraging B2B fintech innovation to automate accounting. General Catalyst also manages the Creation Fund which deploys capital to support EIRs looking to innovate via a mixture of SaaS and targeted acquisitions of legacy businesses.

With all this in mind, what makes an AI-forward strategy different? Instead of looking to just simply roll up businesses, an AI-focused approach would be looking at strategic acquisitions across a specific vertical and then leverage building vertical AI agents across sales, customer support, marketing, and operations WITHOUT needing to grow headcount. There would generally be three reasons for acquisitions in this approach:

To acquire initial distribution to build a platform to scale operations for existing customers.
To secure any required licensing to grow the business across state lines.
To cross-pollinate customer bases across different business lines across a core thesis.

What industries are ripe for disruption?

Staffing and Recruiting

Staffing firms primarily operate through high-volume outreach and manual relationship-building, making them ideal candidates for AI-driven automation. AI-powered tools can streamline candidate sourcing, automate initial screenings, and improve retention through predictive analytics. Rollups in this space could focus on niche recruiting firms (e.g., healthcare, tech, finance) and implement AI to increase placements while reducing the need for large recruiting teams.

Insurance Brokerages

Many independent insurance agencies are small and fragmented, relying on legacy CRM systems and manual underwriting processes. AI-powered automation can streamline quoting, underwriting, and customer service. Acquiring independent agencies and implementing AI to improve client acquisition and retention reduces cost per policy and increases revenue per agent.

Loan Origination

Mortgage and small business lending remain paper-heavy and relationship-driven industries. AI-powered underwriting and document processing can speed up approvals, reduce compliance risks, and improve borrower experiences. An AI rollup strategy would focus on acquiring local and regional lenders and automating back-office processes to drive efficiency while maintaining regulatory compliance.