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Zenefits Lands $66.5 Million Series B From Andreessen and IVP

Taking the paper out of HR paperwork.

3D Pictures/Shutterstock

Zenefits, a year-old company that offers businesses a free method for filling out human resources paperwork in the cloud, has landed its second round of venture capital funding, a $66.5 million Series B led by Andreessen Horowitz with participation from Institutional Venture Partners.

Zenefits has now raised a combined $84 million since it launched 12 months ago. Andreessen Horowitz also led its first round.

Zenefits has created a cloud-based software platform that companies can use to automate the processes associated with hiring new employees, processes that more often than not are still done with paper forms: Benefits, tax forms, payrolls. “We allow companies to focus less on the process and more on people,” CEO Parker Conrad said.

It’s also free. Here’s how that part works: Zenefits acts as a middleman between its customers and the third-party providers of insurance and payroll and benefits services. “There are a lot of disconnected services for your 401k custodian and your health insurance carrier and the dental insurance carrier,” Conrad said. “But when you’re hiring a new employee, you need access to all of those things at once, and every time someone leaves you need to remove them from all those different systems, and every time there’s a change in their life you need to add that to all the different places.”

Zenefits makes money as an insurance broker. Every one of those new employees hired on by its customers brings in a commission from the insurance carriers. “We have relationships with practically everyone, and if we don’t, we can usually get it within a week,” Conrad said. “It’s like giving away candy to 7-year-olds.”

The company has been growing like crazy. He said it’s on a run rate to growth of 1,300 percent, and at a rate of 30 percent a month, though obviously that’s off a low base. It has grown from 15 employees to 120 since January.

Even so, it’s unusual for the same venture capital firm to lead both the A and B rounds. Zenefits raised its A round in January. Lars Dalgaard, a partner at Andreessen, did the deal. Zenefits is experiencing what he described as some of the fastest growth he’s ever seen. He should know a little something about that. He’s the former CEO of SuccessFactors, the cloud-based human resources software firm. In 2011 he sold that firm to the German software giant SAP for about $3.4 billion.

I asked him about taking the unusual step of leading a second round: His answer: “This was the hottest deal in Silicon Valley five months ago, and it still is today.”

Okay then. Conrad says he will use the money to build out Zenefits’ core technology, and to scale up its operations. Zenefits works with 2,000 companies. Until about three months ago, most of them were tech companies, and most of them were in California. Now it has branched out to include a church, a steel mill and even a circus. Sixty percent of its customers are now outside of California, and are also outside of the tech sector.

HR software has been a hot area in cloud software for years. Workday is the most prominent of the cloud-based vendors in this space. Oracle also made a big acquisition in 2012, paying $1.9 billion for Taleo; acquired the startup Rypple in 2011 and turned it into

Other Zenefits investors include SV Angel, Hydrazine Capital, Elad Gil (a former executive at Twitter and Google), and the actor Jared Leto.

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