A cloud software HR startup Zenefits has raised a whopping $500 million in Series C investment led by Investment firms Fidelity Management and TPG. It raised the amount after an overt valuation of $4.5 billion.
The startup Zenefits assist small companies manage and organize health insurance, compensation and other documents relating to their employees with the help of the free software-as-a-service (SaaS). It takes care of onboarding, payroll, benefits and vacation tracking to businesses that has less than 1000 employees. It generates its revenue as a commission for instance, charging a fee from the users who register new services through Zenefits.
It is not an easy deal for any startup to raise fund but a new comer raising such a huge amount makes us pinch ourselves. When asked about it to CEO and founder of Parker Conrad, he says, “This round is actually the largest SaaS fundraising, public or private, since Workday’s IPO in 2012.” He also adds, “It is the second largest private financing for a cloud company ever, after Cloudera. With the additional contribution to this round by powerful VC Andreesen Horowitz, Zenefits has become the firm’s ‘single largest investment ever.”
However, such drastic growth is not free of challenges. Sources suggest the company is expected to lose more than $100 million in 2015 which adds up to the money it spent last year. Raising funds from venture capitalists is a good way to pay up the losses and maintain its fast growth like that of Zenefits.
The company has announced that it is already on the path to achieve the recurring revenue of $100 million by January next year. Since its inception in April 2013, the company has reached a valuation of $4.5 billion in short span of two years. In the mid-last year, the company was valued at $500 million during the series B funding round. The company claims to have closed more number of new businesses this March than it did in the past 15 months. More than 40% of the 10,000 small business clients does not belong to tech industry.
Conrad says it is much easier to approach smaller companies than companies with more than 1000 employees which would take weeks and months to get a decision approved. He is already working on to reach the 5 million small businesses in the US with less than 1000 employees to make them his customers.
Conrad concludes, “If we want to grow that quickly it requires a lot of capital to do the plan that we want to go out and do. Obviously we can grow less quickly and do it on a lot less capital, but we are in this fortunate position where there are a lot of investors that see our SaaS metrics and say, holy crap this is going to be extremely profitable, all the numbers make a lot of sense.”
And..well of course, its investors which include Ashton Kutcher’s Sound Ventures, Insight Venture Partners, Founders Fund and Khosla Ventures, IVP, Andreessen Horowitz and Jared Leto are thrilled about the performance of the company.