One of the big HR startup stories of the last year has been the trials and tribulations of Zenefits, but news coming out today from another company in the space shows that there is still a lot of opportunity in the industry with the right approach.
Namely, a New York-based SaaS HR firm that focuses on mid-sized (100 to 1,000 employees) companies offering an all-in-one human resources platform, payroll and benefits services, today announced that it has raised $50 million, closing out a Series D totalling $80 million, which Namely said was the biggest round for an HR startup in 2016 amid some $2.5 billion in funding in a very fragmented market.
This Series D — led by Altimeter Capital and Scale Venture Partners, with previous investors including Sequoia Capital, Matrix Partners, and True Ventures also participating — will be used not only to grow Namely’s existing business, but to expand it into new products, Matt Stratz, the CEO and founder of Namely, told TechCrunch in an interview.
Namely has been one of the trailblazers in bringing HR into the cloud, applying data science to its aggregation algorithms, and offering its tools in a software-as-a-service model, but interestingly its newest product will take it back to more old-school parts of the HR world: timekeeping, and a new (its first) piece of hardware for businesses that employ hourly workers and use punchcards to mark the time.
Straz said that this move was made in part to address a geographic area where Namely is growing fastest right now: the central and southern U.S., where there are more businesses based on the hourly working model who may be less interested (at least for now) in apps and SaaS to do the job.
The Series D was made at an upround compared to its previous valuation, but Straz wouldn’t comment on what its valuation is. Sources say it’s not yet hitting “unicorn” levels of $1 billion although one investor hinted that it’s close. Straz — a repeat entrepreneur whose other exits have included selling Pictela to AOL in 2010 — said he believes this will be the last round Namely raises before it goes for an IPO “as a billion-dollar company.”
Namely’s ambitions to stay independent and go public are notable because the company has been an M&A target for several companies. They include Google, which we’ve been able to confirm with a source close to the company did indeed try to buy the Namely last year, as part of a bigger push into cloud-based enterprise services and products that target mid-sized companies.
(While Namely has so far rejected acquisition offers from “the usual suspects” and others, in a way, it would be a perfect match for Google because of its application of search technology to finding appropriate benefits programs and other services for employees and employers.)
While Zenefits more than halved its valuation in 2016, lost its CEO, faced numerous regulatory issues and had to lay off a large number of staff, Namely — which also competes against the biggies like ADP as well as other startups like Gusto — paints a different picture of the world of HR startups.
Namely today has 650 companies as customers globally, totalling some 120,000 employees and $4 billion in processed payrolls. It’s not yet profitable, Straz told me, but “that is on our roadmap in the next couple of years,” and in the meantime, the focus is on “sustainable growth.”
“We are growing fast, but not at an unsustainable rate. We’ve always had a different path,” he said when describing why Namely is different from Zenefits. Part of that has included “always focusing on compliance,” and employees that are experienced in HR. “Our staff is not populated by kids right out of college,” as Straz bluntly put it. Recent exec hires include a new VP of product who is an alum of TurboTax and Quickbooks and a VP of compliance who came from MetLife.
And Zenefits’ loss has been Namely’s gain in its target market of mid-sized companies. “We’ve had no negative impact from Zenefits — in fact we’ve absorbed dozens of their customers,” he said. “The funniest thing that’s happened is that a year and a half ago, investors asked us, ‘Why aren’t you more like Zenefits?’ Now they are asking, ‘So how are you different?'”
“Namely is truly the leading HR platform for mid-sized companies everywhere,” adds Stacey Bishop, partner at Scale Venture Partners, in a statement. “They’ve made HR a differentiator for their clients— providing the best possible experience for employers and employees alike. We are thrilled to partner with Namely as they continue to transform the industry.”