HR management platform Factorial has raised a $120m Series C round at a $1bn valuation, as it prepares to double down on strong growth in recent years, which the company says has seen revenues grow by 3.7x since 2019.
The round was led by new investors Atomico, with existing investors Tiger Global, CRV, K-Fund and Creandum all participating. New investor GIC — Singapore’s sovereign wealth fund — also joined the round.
The fresh capital will be used to further develop Factorial’s product as it aims to offer a fully comprehensive HR tool to businesses, and to help it scale internationally. The company will also be opening a new office in Miami and will be doubling its workforce from 800 to 1,600 in the coming year.
What does Factorial do?
Barcelona-based Factorial is a SaaS platform that allows businesses to manage their HR function in a single piece of software. It’s not the only startup working on HR software in Europe, but cofounder Jordi Romero says that it’s managed to carve a niche for itself by relentlessly focusing on one type of customer: small and medium enterprises (SMEs).
“SMEs have been, and basically still are, pretty much abandoned by all of the companies in our space,” he says. “We’re not planning to graduate from SMEs to mid-market and to enterprise — which was the traditional VC-backed company playbook — we're actually planning to stay on the SMEs to help these people with solutions that will keep working for them in the long term.”
Romero says that, while enterprise-level clients (corporations with thousands of employees) might have deeper pockets than SMEs, there’s a huge untapped goldmine of smaller businesses out there in need of digital solutions like Factorial’s.
“In the geographies where we're active today, which is in Europe and the Americas, we count over 10m SMEs that can use our software,” he explains. “We have 7,000 customers today. So from 7,000 to 10m — that’s the trajectory that we want to follow.”
SMEs, Romero argues, need bespoke tools that don’t over-complicate matters, as the kind of software that works for an organisation of thousands tends to be unnecessarily complicated for smaller businesses.
The typical Factorial customer, he explains, tends to be an organisation of around 100 people, which hasn’t yet built a big HR team and wants a solution that’s easy to use and implement.
And while Factorial says that its HR software is easy to use, it’s not the cheapest solution on the market. Its complete bundle starts at $6 per employee, while Berlin-based Personio’s professional package starts at €4.43 per employee per month.
Factorial certainly isn’t struggling for well-known VC firms on its cap table, and Romero tells Sifted that the company’s “been able to pick” its backers, despite a climate where later-stage scaleups are seen as riskier bets by investors.
This, he says, is partly due to the fact that Factorial isn’t selling software to venture-backed startups that are having to tighten their belts, but to what he calls (perhaps slightly provocatively) “real companies”.
“We have hospitality, manufacturing, retail, professional services, finance — we have companies all over the place,” says Romero. “We haven't seen any impact yet — at least in terms of growth, retention or price sensitivity — which I know other industries have suffered.”
The Factorial cofounder adds that the HR headaches caused by the shift to remote and hybrid work have led many more SMEs to use software to manage their teams.
This is further helped, he argues, by the fact that many of these businesses have seen a shift in their workforces in recent times, as technology and automation have replaced manual labour in traditional industries.
“People's jobs are shifting more into the ‘information’ or ‘knowledge worker’ type of job, versus manual labour,” says Romero, arguing that this next generation of workers expect to have easy-to-use digital tools in the workplace. “That shift brought a shift in employee expectation. Where companies used to dictate and control employees in the past, now it's more that companies are investing in and empowering employees to retain them.”
Factorial’s software is designed as much for employee use as it is for managers, allowing team members to easily check things like payroll, time off and expenses.
When asked whether we may have reached “peak software”, as investors continue to pump more and more money into SaaS, Romero shoots back with a quick “100% no”, saying that there is still a huge amount of work to be done to digitise traditional workplaces.
For software companies that can offer efficiency savings to clients outside of their immediate neighbours in the VC-backed space, Factorial’s new raise and valuation is proof SaaS is very much still alive and kicking.