Personal blog of Yzmir Ramirez

Factorial, a startup out of Barcelona that has built a platform that lets SMBs run human resources functions with the same kind of tools that typically are used by much bigger companies, is today announcing some funding to bulk up its own position: the company has raised $80 million, funding that it will be using to expand its operations geographically — specifically deeper into Latin American markets — and to continue to augment its product with more features.

CEO Jordi Romero, who co-founded the startup with Pau Ramon and Bernat Farrero — said in an interview that Factorial has seen a huge boom of growth in the last 18 months and counts more than anything 75,000 customers across 65 countries, with the average size of each customer in the range of 100 employees, although they can be significantly (single-digit) smaller or potentially up to 1,000 (the “M” of SMB, or SME as it’s often called in Europe).

“We have a generous definition of SME,” Romero said of how the company first started with a target of 10-15 employees but is now working in the size bracket that it is. “But that is the limit. This is the segment that needs the most help. We see other competitors of ours are trying to move into SME and they are screwing up their product by making it too complex. SMEs want solutions that have as much data as possible in one single place. That is unique to the SME.” Customers can include smaller franchises of much larger organizations, too: KFC, Booking.com, and Whisbi are among those that fall into this category for Factorial.

Factorial offers a one-stop shop to manage hiring, onboarding, payroll management, time off, performance management, internal communications and more. Other services such as the actual process of payroll or sourcing candidates, it partners and integrates closely with more localized third parties.

The Series B is being led by Tiger Global, and past investors CRV, Creandum, Point Nine and K Fund also participating, at a valuation we understand from sources close to the deal to be around $530 million post-money. Factorial has raised $100 million to date, including a $16 million Series A round in early 2020, just ahead of the Covid-19 pandemic really taking hold of the world.

That timing turned out to be significant: Factorial, as you might expect of an HR startup, was shaped by Covid-19 in a pretty powerful way.

The pandemic, as we have seen, massively changed how — and where — many of us work. In the world of desk jobs, offices largely disappeared overnight, with people shifting to working at home in compliance with shelter-in-place orders to curb the spread of the virus, and then in many cases staying there even after those were lifted as companies grappled both with balancing the best (and least infectious) way forward and their own employees’ demands for safety and productivity. Front-line workers, meanwhile, faced a completely new set of challenges in doing their jobs, whether it was to minimize exposure to the coronavirus, or dealing with giant volumes of demand for their services. Across both, organizations were facing economics-based contractions, furloughs, and in other cases, hiring pushes, despite being office-less to carry all that out.

All of this had an impact on HR. People who needed to manage others, and those working for organizations, suddenly needed — and were willing to pay for — new kinds of tools to carry out their roles.

But it wasn’t always like this. In the early days, Romero said the company had to quickly adjust to what the market was doing.

“We target HR leaders and they are currently very distracted with furloughs and layoffs right now, so we turned around and focused on how we could provide the best value to them,” Romero said to me during the Series A back in early 2020. Then, Factorial made its product free to use and found new interest from businesses that had never used cloud-based services before but needed to get something quickly up and running to use while working from home (and that cloud migration turned out to be a much bigger trend played out across a number of sectors). Those turning to Factorial had previously kept all their records in local files or at best a “Dropbox folder, but nothing else,” Romero said.

It also provided tools specifically to address the most pressing needs HR people had at the time, such as guidance on how to implement furloughs and layoffs, best practices for communication policies and more. “We had to get creative,” Romero said.

But it wasn’t all simple. “We did suffer at the beginning,” Romero now says. “People were doing furloughs and [frankly] less attention was being paid to software purchasing. People were just surviving. Then gradually, people realized they needed to improve their systems in the cloud, to manage remote people better, and so on.” So after a couple of very slow months, things started to take off, he said.

Factorial’s rise is part of a much, longer-term bigger trend in which the enterprise technology world has at long last started to turn its attention to how to take the tools that originally were built for larger organizations, and right size them for smaller customers.

The metrics are completely different: large enterprises are harder to win as customers, but represent a giant payoff when they do sign up; smaller enterprises represent genuine scale since there are so many of them globally — 400 million, accounting for 95% of all firms worldwide. But so are the product demands, as Romero pointed out previously: SMBs also want powerful tools, but they need to work in a more efficient, and out-of-the-box way.

Factorial is not the only HR startup that has been honing in on this, of course. Among the wider field are PeopleHR, Workday, Infor, ADP, Zenefits, Gusto, IBM, Oracle, SAP and Rippling; and a very close competitor out of Europe, Germany’s Personio, raised $125 million on a $1.7 billion valuation earlier this year, speaking not just to the opportunity but the success it is seeing in it.

But the major fragmentation in the market, the fact that there are so many potential customers, and Factorial’s own rapid traction are three reasons why investors approached the startup, which was not proactively seeking funding when it decided to go ahead with this Series B.

“The HR software market opportunity is very large in Europe, and Factorial is incredibly well positioned to capitalize on it,” said John Curtius, Partner at Tiger Global, in a statement. “Our diligence found a product that delighted customers and a world-class team well-positioned to achieve Factorial’s potential.”

“It is now clear that labor markets around the world have shifted over the past 18 months,” added Reid Christian, general partner at CRV, which led its previous round, which had been CRV’s first investment in Spain. “This has strained employers who need to manage their HR processes and properly serve their employees. Factorial was always architected to support employers across geographies with their HR and payroll needs, and this has only accelerated the demand for their platform. We are excited to continue to support the company through this funding round and the next phase of growth for the business.”

Notably, Romero told me that the fundraising process really evolved between the two rounds, with the first needing him flying around the world to meet people, and the second happening over video links, while he was recovering himself from Covid-19. Given that it was not too long ago that the most ambitious startups in Europe were encouraged to relocate to the U.S. if they wanted to succeed, it seems that it’s not just the world of HR that is rapidly shifting in line with new global conditions.

Customer engagement company Freshworks today announced that it has acquired Flint, an IT orchestration and cloud management platform based in India. The acquisition will help Freshworks strengthen its Freshservice IT support service by bringing a number of new automation tools to it. Maybe just as importantly, though, it will also bolster Freshworks’ ambitions around cloud management.

Freshworks CPO Prakash Ramamurthy, who joined the company last October, told me that while the company was already looking at expanding its IT services (ITSM) and operations management (ITOM) capabilities before the COVID-19 pandemic hit, having those capabilities has now become even more important, given that a lot of these teams are now working remotely.

“If you take ITSM, we allow for customers to create their own workflow for service catalog items and so on and so forth, but we found that there’s a lot of things which were repetitive tasks,” Ramamurthy said. “For example, I lost my password or new employee onboarding, where you need to auto-provision them in the same set of accounts. Flint had integrated with Freshservice to help automate and orchestrate some of these routine tasks and a lot of customers were using it and there’s a lot of interest in it.”

He noted that while the company was already seeing increased demand for these tools earlier in the year, the pandemic made that need even more obvious. And given that pressing need, Freshworks decided that it would be far easier to acquire an existing company than to build its own solution.

“Even in early January, we felt this was a space where we had to have a time-to-market advantage,” he said. “So acquiring and aggressively integrating it into our product lines seemed to be the most optimal thing to do than take our time to build it — and we are super fortunate that we placed the right bet because of what has happened since then.”

The acquisition helps Freshworks build out some of its existing services, but Ramamurthy also stressed that it will really help the company build out its operations management capabilities to go from alert management to also automatically solving common IT issues. “We feel there’s natural synergy and [Flint’s] orchestration solution and their connectors come in super handy because they have connectors to all the modern SaaS applications and the top five cloud providers and so on.”

But Flint’s technology will also help Freshworks build out its ability to help its users manage workloads across multiple clouds, an area where it is going to compete with a number of startups and incumbents. Since the company decided that it wants to play in this field, an acquisition also made a lot of sense given how long it would take to build out expertise in this area, too.

“Cloud management is a natural progression for our product line,” Ramamurthy noted. “As more and more customers have a multi-cloud strategy, we want to give them a single pane of glass for all the work workloads they’re running. And if they wanted to do cost optimization, if you want to build on top of that, we need the basic plumbing to be able to do discovery, which is kind of foundational for that.”

Freshworks will integrate Flint’s tools into Freshservice and likely offer it as part of its existing tiered pricing structure, with service orchestration likely being the first new capability it will offer.

Remember when Zenefits imploded, and kicked out CEO Parker Conrad. Well, Conrad launched a new employee onboarding startup called Rippling, and now he’s going after another HR company called Gusto with a new billboard, “Outgrowing Gusto? Presto change-o.”

The problem is, Gusto got it taken down by issuing a cease & desist order to Rippling and the billboard operator Clear Channel Outdoor. That’s despite the law typically allowing comparative advertising as long as it’s accurate. Gusto sells HR, benefits and payroll software, while Rippling does the same but adds in IT management to tie together an employee identity platform.

Rippling tells me that outgrowing Gusto is the top reasons customers say they’re switching to Rippling. Gusto’s customer stories page lists no customers larger than 61 customers, and Enlyft research says the company is most often used by 10 to 50-person staffs. “We were one of Gusto’s largest customers when we left the platform last year. They were very open about the fact that the product didn’t work for businesses of our size. We moved to Rippling last fall and have been extremely happy with it,” says Compass Coffee co-founder Michael Haft.

That all suggests the Rippling ad’s claim is reasonable. But the C&D claims that “Gusto counts as customers multiple companies with 100 or more employees and does not state the businesses will ‘outgrow’ their platfrom at a certain size.”

In an email to staff provided to TechCrunch, Rippling CMO Matt Epstein wrote, “We take legal claims seriously, but this one doesn’t pass the laugh test. As Gusto says all over their website, they focus on small businesses.”

So rather than taking Gusto to court or trying to change Clear Channel’s mind, Conrad and Rippling did something cheeky. They responded to the cease & desist order in Shakespeare-style iambic pentameter.

Our billboard struck a nerve, it seems. And so you phoned your legal teams,
who started shouting, “Cease!” “Desist!” and other threats too long to list.

Your brand is known for being chill. So this just seems like overkill.
But since you think we’ve been unfair, we’d really like to clear the air.

Rippling’s general counsel Vanessa Wu wrote the letter, which goes on to claim that “When Gusto tried to scale itself, we saw what you took off the shelf. Your software fell a little short. You needed Workday for support,” asserting that Gusto’s own HR tool couldn’t handle its 1,000-plus employees and needed to turn to a bigger enterprise vendor. The letter concludes with the implication that Gusto should drop the cease-and-desist, and instead compete on merit:

So Gusto, do not fear our sign. Our mission and our goals align.
Let’s keep this conflict dignified—and let the customers decide.

Atlassian today announced a set of new templates and workflows for Jira Service Desk that were purpose-built for HR, legal and facilities teams. Service Desk started six years ago as a version of Jira that was mostly meant for IT departments. Atlassian, however, found that other teams inside the companies that adopted it started to use it as well, including various teams at Twitter and Airbnb, for example. With today’s update, it’s now making it easier for these teams, at least in legal, HR and facilities, to get started with Jira Service Desk without having to customize the product themselves.

“Over the last six years, one of the observations that we’ve made was that we need to provide really good services — the idea that we can provide great services to employees is really something that is really on the rise,” said Edwin Wong, the head of the company’s IT products. “I think in the past, maybe we were a bit more forgiving in terms of what employees expected from services departments. But today you’re just so used to great experiences in your consumer life and when you come to work, you expect the same.”

But lots of service teams, he argues, didn’t have the tools to provide this experience, yet they were looking for tools to streamline their workflows (think onboarding for HR teams, for example) and to move from manual processes to something more automated and modern. Jira was already flexible enough to allow them to do this, but the new set of templates now codifies these processes for them.

Wong stressed this isn’t just about tracking but also managing work across teams and providing them a more centralized hub for information. “One of the big challenges that we’ve seen from many of the customers that we’ve spoken to is the challenge of just figuring out where to go when you want something,” he said. “When I have a new employee, where do I go to ask for a new laptop? Is that the same process as telling my facilities teams that perhaps there is an issue with a bathroom?”

Atlassian is starting with these three templates because that’s where it saw the most immediate need. Over time, I’m sure we’ll see the company get into other verticals as well.

Gusto, formerly ZenPayroll, is the rare startup unicorn that has stayed relatively mum on its product and growth — its last press release, for instance, was more than a year ago. The company’s core offering remains payroll for small businesses, and it has been working to expand its customer base across the nation, including having its CEO, Joshua Reeves, go on a tour of the country to visit SMBs in an RV.

Now the company is opening up a bit on its recent progress. Gusto has just hit 60,000 customers nationwide, or roughly 1% of all employers in the United States, according to the company.

The company is also working on new products. One challenge small businesses face is getting access to high-quality, yet affordable, software, particularly in HR. “Small businesses actually get that people are the core more than large companies,” Reeves explained to me. “In a 10-person company, you know everyone, your customers are your neighbors, but they never really had access to high-quality software.”

Gusto is hoping to fill that gap, announcing the beta launch of a new product it’s calling HR Basics. The product offers a suite of tools for small businesses to handle the quotidian tasks of HR, including managing vacation time, compiling employee directories and improving the onboarding of new hires. Most importantly, the product is free, and doesn’t require a credit card or a bank account to sign up.

Reeves believes that Gusto has two purposes: to offer “peace of mind” to small business owners around areas like compliance that can lead to negative enforcement actions, and to provide software that can help companies become “great places to work” that are more focused on community. Reeves is particularly passionate about the latter point. “Even the terminology ‘human capital management’ — humans are not capital, humans are not resources, they are people, thank you very much.”

One particular area of focus for HR Basics is around onboarding. Gusto is hoping it can move all HR paperwork online, so that everything required to officially onboard an employee can be done even before the employee walks into work the first day. With that out of the way, Gusto can then focus on helping companies create the right corporate culture. For instance, the product offers a “Welcome Wall” where other employees can write cheerful and encouraging notes for a new employee to make them feel like they belong at the company from day one.

The Welcome Wall is designed to encourage new employees joining a company

This new product is free for businesses, and Gusto obviously hopes that it creates a funnel of potential customers who will eventually sign up for its payroll service and full HR platform, which charge around $6-12 a month per employee based on the specific plan that a business chooses.

One interesting commitment Gusto is making according to Reeves is that an employee’s profile on the platform will be a lifetime account. If an employee moves from one company to the next and both use Gusto, all of the preferences and other data required to administer HR should work immediately.

That portability mattered less in a world where employees spent decades at a single company, but now that employees often switch employers as often as every year, the repeated savings of time in the transition can be quite significant. Longer term, Gusto sees that sort of portability as critical for facilitating the changing nature of work in the 21st century.

Gusto, which was founded in 2011, is now entering middle age, and the company has 530 employees across its San Francisco and Denver offices, according to Reeves.

Update: Added the number of customers Gusto currently has.

 Workramp, a startup that wants to change the way companies onboard and train their employees, announced a $1.8 million seed round today. Investors include Susa Ventures, Initialized Capital, Haystack, Liquid 2, Wei Fund, Elad Gil, Adrian Aoun, Charlie Songhurst, and Y Combinator. The company is a graduate of the Y Combinator Summer 2016 class and previously raised $120,000. Workramp… Read More