Factorial raises $16M to take on the HR world with a platform for SMBs

A startup that’s hoping to be a contender in the very large and fragmented market of human resources software has captured the eye of a big investor out of the US and become its first investment in Spain.

Barcelona-based Factorial, which is building an all-in-one HR automation platform aimed at small and medium businesses that manages payroll, employee onboarding, time off and other human resource functions, has raised €15 ($16 million) in a Series A round of funding led by CRV, with participation also from existing investors Creandum, Point Nine and K Fund.

The money comes on the heels of Factorial — which has customers in 40 countries — seeing eightfold growth in revenues in 2019, with more than 60,000 customers now using its tools.

Jordi Romero, the CEO who co-founded the company with Pau Ramon (CTO) and Bernat Farrero (head of corporate), said in an interview that the investment will be used both to expand to new markets and add more customers, as well as to double down on tech development to bring on more features. These will include RPA integrations to further automate services, and to move into more back-office product areas such as handling expenses,

Factorial has now raised $18 million and is not disclosing its valuation, he added.

The funding is notable on a couple of levels that speak not just to the wider investing climate but also to the specific area of human resources.

In addition to being CRV’s first deal in Spain, the investment is being made at a time when the whole VC model is under a lot of pressure because of the global coronavirus pandemic — not least in Spain, which has a decent, fledgling technology scene but has been one of the hardest-hit countries in the world when it comes to COVID-19.

“It made the closing of the funding very, very stressful,” Romero said from Barcelona last week (via video conference). “We had a gentleman’s agreement [so to speak] before the virus broke out, but the money was still to be wired. Seeing the world collapse around you, with some accounts closing, and with the bigger business world in a very fragile state, was very nerve wracking.”

Ironically, it’s that fragile state that proved to be a saviour of sorts for Factorial.

“We target HR leaders and they are currently very distracted with furloughs and layoffs right now, so we turned around and focused on how we could provide the best value to them,” Romero said.

The company made its product free to use until lockdowns are eased up, and Factorial has found a new interest from businesses that had never used cloud-based services before but needed to get something quickly up and running to use while working from home. He noted that among new companies signing up to Factorial, most either previously kept all their records in local files or at best a “Dropbox folder, but nothing else.”

The company also put in place more materials and other tools specifically to address the most pressing needs those HR people might have right now, such as guidance on how to implement furloughs and layoffs, best practices for communication policies and more. “We had to get creative,” Romero said.

At $16 million, this is at the larger end of Series A rounds as of January 2020, and while it’s definitely not as big as some of the outsized deals we’ve seen out of the US, it happens to be the biggest funding round so far this year in Spain.

Its rise feels unlikely for another reason, too: it comes at a time when we already have dozens (maybe even hundreds) of human resources software businesses, with many an established name — they include PeopleHR, Workday, Infor, ADP, Zenefits, Gusto, IBM, Oracle, SAP, Rippling, and many others — in a market that analysts project will be worth $38.17 billion by 2027 growing at a CAGR of over 11%.

But as is often the case in tech, status quo breeds disruption, and that’s the case here. Factorial’s approach has been to build HR tools specifically for people who are not HR professionals per se: companies that are small enough not to have specialists, or if they do, they share a lot of the tasks and work with other managers who are not in HR first and foremost.

It’s a formula that Romero said could potentially see the company taking on bigger customers, but for now, investors like it for having built a platform approach for the huge but often under-served SME market.

“Factorial was built for the users, designed for the modern web and workplace,” said Reid Christian, General Partner at CRV, in a statement. “Historically the HR software market has been one of the most lucrative categories for enterprise tech companies, and today, the HR stack looks much different. As we enter the third generation of cloud HR products, with countless point solutions, there’s a strong need for an underlying platform to integrate work across these.”