Zenefits is growing so fast
that it has to onboard new employees in bulk: 150 at a time, once per month.
Since the San Francisco software startup’s mission is to simplify the busy work
of human resources tasks like payroll and benefits, it has avoided hiring its
own head of HR, relying on its own software to get workers up and running. But
earlier this year, Zenefits outgrew its own software, which is designed for
companies with fewer than 1,000 employees. At just two years old, Zenefits now
has has just over 1,000 employees. (It hired a head of HR when it hit 800.) The
hypergrowth is particularly notable for a startup in a category that even CEO
Partner Conrad admits is “tremendously unsexy.”
Today, Zenefits takes a big step
to continue its hypergrowth. Zenefits has raised $500 million in Series C
funding, valuing it at $4.5 billion. That valuation represents a 9x jump over
its last round of funding, which happened just one year ago. Fidelity
Management and TPG led the funding round, with participation from Founders
Fund, Khosla Ventures, Insight Venture Partners, and Sound Ventures, the
investment firm of Ashton Kutcher. Existing investors Andreessen Horowitz,
Institutional Venture Partners, and actor Jared Leto participated. Zenefits
noted that this round represents Andreessen Horowitz’s largest ever deal.
Zenefits has amassed 10,000
customers, who use its human resources software for free. Zenefits acts as a
middle man, taking a commission when it connects companies with third party
vendors like health insurance providers or payroll services companies. In
March, the company closed more new business than it had in the entire existence
of the company, Conrad says. The company expects to book an annual recurring
revenue, an accounting term used by software companies like Zenefits, of $100
million this year, up from $20 million last year.
The company plans to use the new
capital to hire even more employees to help Zenefits acquire new customers and
provide support to them. Zenefits believes it can serve many of the five
million American businesses which have fewer than 1000 employees.
Zenefits’ early growth has
ruffled some feathers along the way. Last year, the state of Utah banned the
company from operating in its state, on the grounds that giving away software
for free acted as an illegal rebate. (Zenefits itself is a licensed insurance
broker.) At the time, Zenefits CEO Parker Conrad said the ban was “kind of
bullshit,” and “blatant overreaching where the regulator is trying to protect
brokers from competition.”
Last month, Utah reversed
that ban. Since then, Zenefits has taken a softer approach toward entering new
states, Conrad says. His team has been proactively reaching out to Departments
of Insurance in states across the U.S. to show them the value Zenefits’
software brings to small businesses. Further, Conrad believes the small business owners that use Zenefits
have enough lobbying power to help the company avoid future regulatory fights.
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