The thought of managing HR, benefits and payroll is enough to make most entrepreneurs grimace. However, time consuming and frustrating as it may be, it’s a part of the job description and something every startup and small business has to address sooner or later.
Having dealt with the paperwork and administrative headaches at startups before, Parker Conrad and Laks Srini launched Zenefits last year to take the pain of HR management out of the hands of founders and move it to the cloud. Beginning with a service that sought to automate the process of setting up and managing group health coverage and payroll, Zenefits enabled small businesses to transfer administration online, for free, and removed the need to dip into hiring budgets to hire a dedicated HR person.
However, the team quickly found that the opportunity extended beyond health coverage and payroll, as many of its early customers used Zenefits not just for its initial functionality, but as a full-on replacement for traditional HRIS or Human Resources Information Systems. As Zenefits looks to expand its coverage and help startups and larger businesses manage all HR-affiliated tasks, the company is taking on $15 million in Series A financing from Andreessen Horowitz, Maverick and Venrock to go after larger, enterprise customers and to begin tackling international markets.
The round, which brings the startup’s total funding to $17.1 million, also brings the addition of some key strategic guidance in the form of Andreessen Horowitz General Partner Lars Dalgaard — the former CEO and founder of SuccessFactors — who joins the company’s board of directors. SuccessFactors remains one of the largest SaaS providers of HR services in the world and was acquired by SAP in 2011 for a hefty $3.4 billion. As such, there are few entrepreneurs out there with a better perspective on the market that Zenefits is beginning to tackle.
Dalgaard joins the board at a time when Zenefits has begun to increase its focus on developing the kind of core HRIS features that are in such high demand at small and medium-sized businesses. Over the last six months, the company has added features like the ability to automate the hiring and firing of employees, while auto-generating the required documentation, add and remove staff from payroll and sending automatic alerts to employees and admins of these changes via email.
In addition, managers can use Zenefits’ cloud-based HR management system to track paid off time, for example, so that employees can apply for time off online, while simultaneously allowing admins to view balances, liabilities and calendars of their teams’ schedules. While these kinds of features can be big time savers for founders, last month Zenefits moved deeper into the realm of enterprise HR and the Workdays and SuccessFactors of the world by adding support for a wider range of HR services.
For example, beginning earlier this month, the company began offering coverage for commuter benefits, HRA and flexible spending accounts, while allowing each of these benefits to be integrated directly into a startup’s HRIS and payroll systems. As we wrote at the time, “these types of plans, which are all pre-tax, allowing employees to save 40 percent on commuting costs, medical costs, childcare costs and, in the case of the HRA, let employers pay deductibles with those pre-tax dollars.”
In terms of the value proposition here, as any manager or founder will tell you, everyone would like to add these kind of options for small businesses, but traditionally the admin and HR work required for both configuration and administration means that most would rather not deal with the headache. On top of that, the platform also now offers an affordable 401(k) plan, which allows companies to pay a $495 one-time setup fee and $105/month in account fees, while “employees pay $4/month + 7bps annually.”
With the addition of support for these types of services, Zenefits has begun to more clearly delineate its differences from the laundry list of potential competitors across HR, payroll and health coverage categories, as well as its potential value proposition. Earlier this month, Conrad told us that the company believes itself to be the first HR automation platform to “provide all-in-one debit cards that integrate with HR systems and payroll right out of the box.”
The company’s transition to a full-service platform remains a work in progress as it broadens its scope to address the whole HR management pipeline, but, a year from launch, it’s already begun to pay off. Over the last twelve months, more than 500 companies have adopted Zenefits HR management tools, meaning that the company now manages payroll, benefits and HR (or some combination thereof) for over 5,000 employees.
At the time, the Zenefits CEO told us that the company’s growth rate has been doubling every six weeks and quadrupling quarter-over-quarter. Revenue growth has been strong enough that the co-founder tells us that the company still has half of the capital raised during its seed round still in the bank. However, with a fresh $15 million in the bank, Zenefits can now significantly ramp up its investment in hiring and in the kind of marketing and sales collateral that will help spread the word among not only startups but among potential enterprise customers as well.