Y Combinator company ZenPayroll launched its cloud-based payroll service today with $6.1 million in seed funding from Google Ventures and investments from the CEOs at Yammer, Box, Yelp and Dropbox. It is the largest seed round ever for a YC company, topping Funders Club, which raised $6 million in October.
ZenPayroll executives did not disclose the lead investors. A spokesperson wrote in an email that there were several who have been actively involved with the company, so it didn’t make sense to call out a specific one. When the company does its next round of financing, it will be a traditional venture capital lead round.
Here’s a partial list of investors:
Reeves said ZenPayroll will offer a service that is easier to use than what is offered by ADP and Paychex, the two heavyweights in the payroll market that have a combined market value of $38 billion.
The payroll market is prime for disruption. ADP and Paychex serve large companies but the smaller ones are still managing payroll like they did 50 years ago. Reeves says the service is designed for small businesses that increasingly do not have a corporate office and still, for the most part, manually do their own payroll. He says about 6 million businesses do their own payroll, with half managing it on paper and spreadsheets. The company will operate under a SaaS model. The cost is $25 per month and $4 per month for each employee. When a company grows to ten employees, the cost drops to $1 per employee per month.
He said it takes about 10 minutes for a customer to sign up on ZenPayroll and gain access to the dashboard. In contrast, ADP requires technical knowledge that calls for a level of training that is not uncommon with legacy solutions.
Once signed up, the customer decides the payment schedule. Benefits can be added along with bonuses and reimbursements. Payroll taxes are automatically calculated and paid. Government payroll reports and documents are filled out and made ready to approve.
ZenPayroll now supports full- and part-time employees. Contractors will be supported early next year.
ZenPayroll raised its seed round in April and has taken the time since then to develop the technology, fill out the team — which includes engineers from Stanford and veterans of the payroll industry — and to start building a customer base. It has about 50 customers and processes several million dollars in payroll.
In an email interview, Box’s Aaron Levie compared ZenPayroll to the powerhouse SaaS players that have generated billions in value over the past 10 years:
Here’s why I’m so excited about ZenPayroll… First off, they’ve already assembled an amazing team: the caliber of people attacking this problem is unprecedented for the space. Second, it’s rare that you find a $10B+ category with this level of opportunity — it’s a market led by incumbents who have been around for decades that generally lack modern user experiences and business models. ZenPayroll is positioned to do for payroll what Salesforce did for CRM and Workday did for HCM. Furthermore, thanks to their delivery model and focus on simplicity, they’ll make payroll technology accessible to smaller businesses that still run off manual processes, expanding the market dramatically.
ZenPayroll comes at a time when the infrastructure of the modern back office is becoming an ecosystem of its own. Electronic signatures and digital fax services are replacing the manual processes of the back office. Tablets and smartphones give small business people flexibility without needing to have an office. The cloud makes it possible to rapidly update services with no applications to download and launch.
Startups like ZenPayroll have tremendous potential, but the challenge will come with the fragmented small business market. Most small businesses have little knowledge or the time to think about new systems for conducting their business. Education is still critical. Reeves said that partnerships with accountants will be one strategy to reach the small business market. But that may be tough, as well. Accountants are small business people, too, with their own old-fashioned ways.