Factorial adds $120M and doubles valuation to $1B to build enterprise-quality HR for SMBs

Small and medium businesses, long overlooked in the building of innovative technology, have lately become a key focus in the world of B2B software. Now, a startup called Factorial — one of the bigger players in the area of building HR technology for SMBs — is announcing a big fundraise at a “unicorn” valuation that underscores that trend.

The Barcelona startup has raised $120 million, a Series C that is not only one of the biggest for Spain, but one of the biggest currently coming out of Europe. Led by Atomico, the round also included GIC as well as past investors Tiger Global, CRV, K-Fund and Creandum. This all-equity round is notable not just for its size, but for the price tag it confers on the startup: Factorial is now valued at $1 billion, double its valuation a year ago when it raised $80 million.

The company will use the funding to continue building out more technology and product — expense cards is the next launch that is currently in a quiet beta mode — as well as for acquisitions and for deeper geographical expansion.

Factorial to date has picked up some 7,000 customers across Europe in countries like the U.K. and Germany (corresponding to hundreds of thousands of users, with the average size of its customers between 50 and 250 employees), but its biggest segment has been the Latino (Spanish and Portuguese) world, which includes not only Spain and Portugal but a number of developing markets (together numbering almost 30 countries, plus countless others where it’s a common if not an official language).

This latter group also represents Factorial’s biggest engine for growth. While developed markets like the U.S., U.K. and Western Europe are full of competition for SMB-focused startups building productivity and operational apps for SMBs, in developing countries Factorial has been a trailblazer in connecting with the small business segment to sell them products to handle human resources like their larger counterparts.

Pooling those Latino markets, “We can together potentially sell to 10 million customers,” Romero said. “But but we only have 7,000 customers. Our market share is ridiculously small and it’s mostly greenfield.”

The company says that since 2019, it’s been growing at over 200% annually with no sign of that rate slowing down with the hit, or in the slow aftermath, of the COVID-19 pandemic. Customers include divisions of Booking.com, Freshly, Vicio and more.

Factorial’s rise is coming at an inflection point in the macroeconomic sphere.

All eyes are on the job market these days, with rises and falls of unemployment not just a bellwether of the wider economy, but for many of us one of the more direct hits — compared to more abstract indicators like interest and exchange rates — when it comes to how we feel the pinch. But ironically, the world of employment has had another focus — as a problem for tech startups to tackle.

Factorial’s raise, and rise, thus seems to indicate that at least for itself, that focus appears to be resistant to those ups and downs and if anything it’s building tools that businesses are finding are essential to running their HR operations efficiently, regardless of the economic climate.

CEO Jordi Romero, along with CRO Bernat Farrero and CTO Pau Ramon, built out the business with the larger aim of creating, essentially, a “Workday” for the kinds of companies that typically are too small to buy, implement and use enterprise tools. The key to doing that has to keep barriers to adoption and use very low, Romero said in an interview.

“Everything we do is about user experience and making things simple for employees,” he said. “You should be able to just onboard a customer or employee and run reports.”

The company’s product, meanwhile, has been slowly expanding into an all-in-one productivity platform for all things employee-related. That includes shift and holiday management; on-boarding and off-boarding of workers; performance management; payroll; expenses; organization charts; and even internal workplace communications — all bundled under very straightforward pricing (and no freemium tier).

Notably, a lot of that to date has been built in-house, a route Factorial plans to continue traveling as it grows. “We have our own products because we want to use the same playbook for all of them, focused on what we believe has been the core of the problem for SMBs” — tools have been not fit for purpose essentially, being too expensive or too hard to adopt, he said. “That is our DNA, and that is why we need to keep building the product from he ground up.”

(There are exceptions to this, Romero noted, due to localized needs: Payroll, for example, is available in nine markets and in each of those Factorial integrates with local companies that actually run the process.)

The tech investment market, and the tech market overall, has undoubtedly been contracting this year. That has meant that investors definitely have the upper hand when it comes to term sheets, but it’s also spelled out other kinds of dynamics: VCs are often coalescing around safer bets rather than moonshots. Put these two together and there remain examples of startups still seeing strong valuations and competition when it comes to letting people into their rounds.

The metrics Factorial’s been seeing, and that bigger market opportunity that it has found and is successfully targeting, have put the startup into that currently rare spot.

“We have been following Factorial for a long time,” Atomico partner Luca Eisenstecken told me in an interview. He said that the fact that Factorial’s managed to sustain strong growth through the rise and dip of the pandemic economy, “and to keep that growth up at scale,” were two important points. Atomico spoke with customers, too, and while he wouldn’t disclose retention numbers, he described them to me as “massive.”

“Those metrics, combined with customer satisfaction, we think there is something special going on. It became abundantly clear how big of a problem HR is for these small businesses, and how it has been overlooked by most,” he said. “In the end, they are offering a fully horizontal suite that in the past would have only been accessible to enterprises. No one had digitized that lower end of the SMB market, especially in some of these countries.” Eisenstecken is joining the board with this round.