Factorial Secures $120M Funding to Expand Sales & Marketing

Factorial Secures $120 Million for Sales and Marketing Expansion

Factorial, a Barcelona-based HR technology startup valued as a “unicorn,” has obtained $120 million in non-dilutive funding from General Catalyst. This capital injection is specifically earmarked for bolstering its go-to-market (GTM) strategy – encompassing all sales and marketing expenditures.

Initial Growth and Current Momentum

The company initially gained traction during the surge in demand for HR solutions prompted by the COVID-19 pandemic. A freely available product version proved highly popular, attracting over 60,000 users.

Subsequently transitioning to a paid-only model, Factorial has experienced substantial growth. CEO and co-founder Jordi Romero revealed to TechCrunch that both customer numbers and revenue have increased sixfold in the past year, now serving 13,000 paying businesses. This latest funding will be leveraged to capitalize on this existing momentum.

HR Tech Landscape and Recent Legal Disputes

Factorial’s funding announcement arrives amidst heightened scrutiny of HR sales and marketing practices. A significant legal dispute has emerged between two prominent HR startups, Deel and Rippling, known for their competitive rivalry.

Rippling has filed a lawsuit against Deel, alleging the acquisition of confidential information regarding customers and sales strategies through illicit means. Deel has refuted these accusations.

Internal Review and Proactive Measures

Factorial is currently conducting an internal investigation to ensure its operations remain compliant and free from any practices mirroring the allegations in the Deel-Rippling lawsuit. The aim is to safeguard the integrity of its business.

Funding Strategy and Alternatives to Traditional Venture Debt

The $120 million received is not a traditional equity investment, nor is it conventional venture debt. It originates from General Catalyst’s “Customer Value” fund.

This represents a non-dilutive loan, meaning no equity is relinquished. Factorial will repay the loan from its cash flow, specifically from the gross profit generated by customers acquired through the use of General Catalyst’s funds.

Preservation of Existing Equity and Future Funding Possibilities

The funds raised in previous equity rounds – including a $120 million round at a $1 billion valuation in 2022 – remain untouched. While General Catalyst does not gain equity in this investment, it establishes a foundation for potential future equity funding opportunities.

Currently, Factorial does not have immediate plans for a large-scale primary equity raise. A secondary round, offering liquidity to early investors and employees, is considered more likely.

General Catalyst’s Customer Value Fund Explained

General Catalyst’s Customer Value strategy functions similarly to an equity fund, but without the equity component. Funds are allocated to startups seeking to enhance their GTM efforts, with performance tracked across the portfolio.

This approach differs from traditional debt, as there is no collateral requirement. The fund operates on the principle that some investments may not succeed, while others will, and General Catalyst assumes the risk of underperformance.

Risk Mitigation and Investment Criteria

“Unlike debt, the company does not have any downside risk as GC bears the downside risk if the go-to-market investment does not perform,” explained Pranav Singhvi, Managing Director at General Catalyst and the architect of the fund, in an email to TechCrunch. He further noted that companies receiving funding through this model are typically late-stage or publicly traded, demonstrating consistent sales and marketing performance.

Cumulative Funding and Future Outlook

Factorial has now secured a total of $200 million from General Catalyst under these terms, following an initial $80 million investment in April 2024.

General Catalyst’s Customer Value fund currently manages assets totaling “10 figures” (billions of dollars) and has been operational for four years. The fund typically deploys hundreds of millions of dollars monthly into SaaS, direct-to-consumer, fintech, gaming, and other sectors. Singhvi believes this funding model will become increasingly prevalent in the future.

• Key Takeaway: Factorial’s non-dilutive funding allows for aggressive GTM expansion without sacrificing equity.
• Competitive Context: The HR tech space is facing increased scrutiny with ongoing legal battles between major players.
• Innovative Funding Model: General Catalyst’s Customer Value fund offers a unique alternative to traditional financing.