By Ken Yeung for Venture Beat
Gusto, the payroll and benefits service provider formerly known as ZenPayroll, has raised over $50 million in what its CEO calls an “opportunistic insider round.” The company also disclosed that it now counts more than 25,000 businesses in the U.S as customers, or 0.5 percent of all U.S. 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. CEO Joshua Reeves told VentureBeat that this wasn’t a new round, that it was rather categorized as part of Gusto’s Series B round that was 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 the company’s Series B round, its valuation wasreported at $560 million.
Many of the company’s existing investors joined in, specifically those who had wanted to put in more money during the last round but hadn’t been able to, due to allocation constraints, Some new investors 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.
“We set out to do $20 million, but were oversubscribed, and so we raised more than that,” Reeves said. We’re told that there are no current plans to use the money, which will rather function as a buffer, putting the company in a position of power. This is something that other companies, like Docker, have done before. “We always wanted the ability to control our destiny,” Reeves remarked. To date, the company has raised over $116 million in funding.
The company is in the business of helping solve the payroll and benefits 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, which seems to be working, as evidenced by its growth across the U.S. (the only market in which it operates).
The largest number of its customers are within the tech sector (15 percent), but Gusto has its hands in a multitude of industries, including media (14 percent), consulting (10 percent), healthcare (9 percent), and legal (8 percent). 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 it can be difficult for small businesses to handle all of the paperwork involved in processing payroll, handling health insurance, making tax contributions, and more. Gusto is relying on modern technology to change the way business is done. Small businesses, as Reeves described, were “previously inaccessible” and couldn’t be reached in a cost-effective way.
Targeting small businesses also forces Gusto to be very disciplined. “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, adding that the company is interested in building a meaningful service, especially from the standpoint of trust. That’s something 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 that the company would face regulatory issues, like Zenefits has. 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.