Gusto, the company formerly known as ZenPayroll, raised $50 million more in venture-capital funding, according to an SEC filing.
The new funding values the company at $1 billion, allowing it to join a fast-growing group of more than 140 companies with similar valuations.
Gusto CEO Josh Reeves’ company completed a $60 million Series B round earlier this year, with Google Capital as the lead investor. That funding valued Gusto (which was still known as ZenPayroll at the time) at $560 million.
“When we did that round it was very over-subscribed,” Reeves tells Business Insider. “We asked a lot of our existing investors, ‘How much more would you want to contribute?’ And the amount they wanted to contribute versus the amount of space we had to give them was much smaller. It was 4x-5x more than we had space to give them.”
Fast-forward to November, and Reeves had been working closely with some of his investors from the Series B round. Gusto decided to use the over-subscribed Series B as a means to raise a bit more capital for the company. Reeves describes the round of funding as an “opportunistic insider round.”
“We said, ‘Let’s do it. We’ll do it fast, simply,'” he tells Business Insider. “It was just me for a week or two weeks, looping in a few folks who had previously voiced interest, giving them a chance to contribute. We had initially planned to do around $20 million, but there was a lot of interest, so that’s how we got up to the $50 million.”
Most of that new capital, Reeves says, is just going to sit in Gusto’s bank account, though the the company will also be hiring on its engineering, product, and design teams.
Gusto, which offers a cloud-based system to automate tax calculations and payroll payments and recently expanded into offering benefits, now has 25,000 customers — or 0.5% of all US employers. Considering that Gusto’s up against payroll giants like Paychex and ADP, that’s not a bad slice of the small-to-medium-sized business sector.
“The business has grown significantly, so we chose a valuation that we thought was fair,” Reeves told Business Insider. “We could have raised on a much higher valuation. But I think it’s important not to get ahead of yourself. In this case 2x over our last round — our business has grown much more than 2x. We felt it was fair to everyone involved.”
Gusto started the year with about 60 employees. Now, the company has expanded from one office in San Francisco to a second office in Denver, and has more than 300 employees.
In September, the company announced that it would provide health benefits and workers’ compensation to these businesses as well, so employers and employees can use Gusto’s system as a one-stop shop for all their compensation-based needs.
With the announcement, it seemed that Gusto and Zenefits, the $4.5 billion company that lets employers manage their benefits, were squaring up to become rivals, though the two companies have worked closely in the past. Zenefits is working on a system to process payroll, according to a BuzzFeed report earlier this year, and Gusto is breaking into handling benefits.
But Reeves seems unphased by the competition.
“No one else is taking our approach. It’s a very technology-centric approach where we do a lot of the scalability through software,” Reeves tells Business Insider.
“Other companies in our space have hired 1000+ people to do something we believe can be done much more accurately through technology. It’s not just about growth; it’s about doing it in a way we’re proud of. The things I measure a lot are NPS score, growth margins, cost-effectiveness of our business model, churn rate, employee morale.”
(The NPS, or “net promoter score,” is used by businesses to measure how happy their customers are.)
And even though Gusto has expanded into providing benefits, he says that payroll is still the core.
“It took us two years to build that product, to get nationwide. We have a huge advantage in how we built that system; it’s not something you can replicate in months,” he says.
“It takes years to build it right. You can licence some software, you can use something else on the backend. That doesn’t mean it’s scalable. For us it’s about being scalable and sustainable.”