Gusto, the payroll and benefits service provider formerly known as ZenPayroll, has raised over $50 million for in what its chief executive calls an “opportunistic insider round” and the amount could go up to $50 million. The company also disclosed that it now counts more than 25,000 businesses in the United States as customers, which makes up 0.5 percent of all employers.
A filing found on the U.S. Security and Exchange Commission website revealed that Gusto was in the process of bringing in upwards of $50 million more in funding. Chief executive Joshua Reeves told VentureBeat that this wasn’t a new round, rather that it was categorized as part of Gusto’s Series B round that it announced in April. “Last month we knew that there was a lot of interest from existing investors to put in more capital,” he said. “We decided to take in more capital because we wanted to give investors a chance to increase their position. They’ve been incredibly supportive and helpful.”
Reeves cautioned that this wasn’t a down round. When asked about Gusto’s valuation, he declined to cite specifics, initially saying that it was “significantly higher” before telling us that it was “hundreds of millions of dollars higher.” To put it into context, during its Series B round, its valuation was reported at $560 million.
Many of the company’s existing investors joined in, specifically people who wanted to put more money in during the last round but weren’t able to due to allocation constraints, Some new ones may also join in the future, but Reeves wasn’t forthcoming. However, he did disclose that the company raised the new funds in a week and a half before going back to building a business.
“We set out to do $20 million, but were oversubscribed, and so we raised more than that,” Reeves said. We’re told that the money isn’t going to really be used for anything, just as a “buffer.” It doesn’t need any money, but it’s using it as a position of power, something that other companies have done before, like Docker. “We always wanted the ability to control our destiny,” he remarked. To date, the company has raised over $116 million in funding.
Right now Gusto seems to have a stockpile of funding that it hasn’t used, but the Reeves isn’t worried about the money. For him it’s about the customer: the company is in the business of helping to solve this pain point that every small- to medium-sized business (less than 100 employees) has to deal with. And Gusto is starting from the ground up and that seems to be working because of its growth across the U.S., the only market in which it operates .
Most of its customers are within the tech sector (15 percent), but Gusto has its arms in a multitude of industries, including media (14 percent), consulting (10 percent), healthcare (9 percent), legal (8 percent), and others. Reeves revealed that his company is now processing several billion dollars in payroll annually.
Many of the customers are in the small business space, which makes sense, as Gusto is looking to solve a major pain point that companies have: all the paperwork and needless effort to do taxes, process payroll, handle health insurance, and more. It’s relying on modern technology to change the way business is being done. Small businesses, as Reeves described, were “previously inaccessible” and couldn’t be reached in a cost-effective way.
Targeting small businesses also gives Gusto some discipline, which is different from other services like ADP. “When you start with enterprises, you have to create custom features, one-off tools, and functionality.” Reeves explained. “When you serve small businesses, you have to build a product that works from the first day. Expansion is dictated by one thing: are they able to give an exceptional experience.”
“We wanted to solve a real problem, something that affected mainstream businesses.” Reeves said that the company is interested in building a meaningful service, especially from a trust standpoint, something that the company takes very seriously because what they’re providing is mission critical to the employers. “We strive to build a 50-year business,” he remarked.
Because Gusto offers not only payroll processing, but also healthcare and workers compensation insurance, we inquired whether Reeves was worried if the company would face regulatory issues similar to Zenefits. He said he wasn’t concerned and that his company works very closely with the government: “We absolutely respect the law and are following the correct protocols to best serve our customers that’s best for them. We’re going to get it right.”
Update: Gusto has informed us that the company has secured $50 million in funding, up from the $30 million we initially reported. This post has been updated to reflect that change.
ZenPayroll is Delightful, Modern Payroll. Their comprehensive payroll service enables businesses to set up and run payroll in minutes, from any web enabled device. All government payroll taxes and reporting are taken care of automatica… read more »
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