Cloud HR Startup Zenefits Is Looking To Raise A Giant New Round Of Funding

Fast-moving HR and benefits startup Zenefits is looking to accelerate adoption even further. According to sources the company, which was founded just two years ago, is about to join the club of companies worth more than a billion dollars.

Zenefits allows small- and medium-sized businesses to manage human resources services in a much simpler fashion. Like many other modern enterprise services, Zenefits aims to have a much easier onboarding process for payroll and benefits for employees. The company offers its HR services dashboard to employers for free, and makes money by receiving commissions from insurers. We’ve also heard Fidelity and Andreessen-Horowitz is participating in the round.

According to sources, Zenefits could raise somewhere between $300 million and $500 million at a valuation north of $3 billion. We’ve heard the company is talking to the “usual suspects” of late-round investors (growth funds, hedge funds, strategics, etc.) and that the valuation could go as high as $4 billion.

We’ve also heard that at least a portion of this round will be sourced from a special purpose vehicle — i.e. a pool of capital usually made up of fund of funds, family offices and pension funds that is pulled together by an insider or existing investor.

Earlier, sources pegged the valuation somewhere between $2 billion and $3 billion (The Information at the beginning of April reported it could reach $3 billion or more), but it’s clear interest has grown dramatically over the past few weeks. That’s probably not surprising given the monster round Slack announced last week, in which it raised $160 million at a $2.8 billion valuation.

This all means that Zenefits’ valuation will have grown anywhere from 6 to 8 times, depending on the final valuation, in less than a year. Those numbers become all the more incredible when its current valuation is placed in context of Zenefits’ funding round prior to its most-recent one, where it raised $15 million at what was likely a sub-$100 million price tag.

Investors are no doubt attracted by what is one of the fastest-growing SaaS businesses ever. Previously, Zenefits said it would hit a $100 million annual recurring revenue by 2015, only three years after launch. Sources say the company expects GAAP revenues for 2015 to top $50 million, compared to about $8 million in 2014.

While Zenefits is quickly growing revenues, sources say the company is also expected to burn a tremendous amount of cash over the course of the next few years as it ramps up headcount. The company expects to lose more more than $100 million in 2015, according to our sources — a loss that dwarfs the amount of money it burned through in 2014.

By the end of 2014, Zenefits had around 500 employees, according to sources, but that number is expected to quadruple by the end of 2015. Last year, the company said it wanted to hire around 1,300 employees over the next 3 years.

Most of that personnel growth will be in sales and marketing, where headcount is expected to grow by 5x in 2015. And while Zenefits expects to roughly quadruple its R&D investment this year, that number still represents a relatively small portion of the company’s overall spend.

While that amount of funding is a huge number, sources say it probably won’t get Zenefits to profitability. Based on the company’s current burn rate, it might have to raise funding again in the not-too distant future.

A Zenefits spokesperson said, “we do not comment on rumors.”

Additional reporting by Danny Crichton and Sarah Buhr.