SAN FRANCISCO – Gusto, a leading partner for small businesses, released its sixth annual New Business Formation Report, revealing a historic milestone in American entrepreneurship: For the first time, Gen Z has surpassed baby boomers in new business starts. 

Based on a survey of 1,051 founders who launched businesses in 2025, the report paints a portrait of an entrepreneurial generation that is younger, more diverse and more AI-native than any cohort before it.

Gen Z accounted for 9% of new businesses started in 2025, compared with just 5% started by baby boomers – a generational crossing that marks a fundamental transformation in who is building the American economy.

“For years, the barriers to starting a business – capital, expertise, time – kept countless aspiring entrepreneurs on the sidelines,” said Nich Tremper, senior economist at Gusto. “AI is removing those barriers. What we’re measuring in this report isn’t just a technology trend. It’s a structural shift in who gets to participate in the small business economy.”

The 2026 report reveals that artificial intelligence has become a foundational tool for new business creation. Sixty percent of 2025 founders used AI to help launch their businesses – up from just 21% in 2023 – and AI adoption in day-to-day operations has more than doubled across every major sector, rising from 21% to 44%.

Gen Z entrepreneurs are leading the AI charge: 71% of Gen Z founders used AI to launch their business, compared with 42% of baby boomers. Gen Z entrepreneurs were five times more likely than baby boomers to say they likely would not have started their business without AI.

The report reveals that American entrepreneurship is growing more diverse:

  • More than 1 in 3 new founders (37%) are first- or second-generation immigrants, including 12% who are first-generation and 24% who are second-generation.
  • Women led 69% of new Black-owned businesses started in 2025 – the third consecutive year that Black women have outnumbered Black men in new business formation.
  • Asian American and Pacific Islander women started 51% of new AAPI-owned businesses in 2025.
  • Gen Z women made up 47% of Gen Z-owned businesses in 2025, up from 38% in 2024 – even as baby boomer women’s share fell sharply.
  • Nearly half of AAPI Gen Z entrepreneurs (46%) received venture capital or angel funding – six times the rate of White Gen Z founders.

“Be my own boss” is fading as a primary motivation. In 2025, 51% of new founders cited financial stability and building a future asset as a key driver – up sharply from 42% in 2024. The desire for autonomy (“be my own boss”) was cited by 46%, down from 48%.

This shift signals a more economically purposeful class of entrepreneurs. Gen Z founders are notably motivated by community impact (40%) and seizing a business opportunity (32%), while baby boomers continue to lean on autonomy (52%) and income growth (21%).

Seventy-eight percent of new business owners required some form of startup financing. Personal savings and assets remained the most common source, used by 58% of entrepreneurs. The landscape of external financing is shifting rapidly: The share of new businesses receiving venture capital or angel funding has grown from 8% in 2023 to 13% in 2025, while reliance on family and friends loans has fallen from 15% to 8%.

The full report can be viewed HERE.