Spain’s Factorial Secures $80M Funding - SMB Workforce Management

Factorial Secures $80 Million to Expand HR Platform for SMBs

Factorial, a Barcelona-based startup specializing in HR solutions for small and medium-sized businesses (SMBs), has announced a new funding round. The company successfully raised $80 million, which will be allocated to geographic expansion – with a focus on Latin American markets – and continued product development.

Growth and Customer Base

According to CEO Jordi Romero, who co-founded Factorial alongside Pau Ramon and Bernat Farrero, the company has experienced substantial growth over the past 18 months. Currently, Factorial serves over 75,000 customers across 65 countries.

The typical customer employs around 100 individuals, though the range extends from significantly smaller businesses to organizations with up to 1,000 employees. Romero clarified that Factorial deliberately focuses on this segment, believing it is where the greatest need for assistance lies.

Addressing the Needs of SMEs

Factorial distinguishes itself by providing comprehensive solutions tailored to the specific requirements of SMEs. Romero emphasized that many competitors attempt to extend their services to this market segment, often resulting in overly complex products. SMEs prioritize consolidated data management, a key strength of Factorial’s platform.

The company’s client base includes smaller franchises of larger organizations, such as KFC, Booking.com, and Whisbi.

A Comprehensive HR Solution

Factorial offers an all-in-one platform for managing various HR functions. These include recruitment, onboarding, payroll administration, time-off requests, performance evaluations, and internal communications.

For specialized services like payroll processing or candidate sourcing, Factorial collaborates with and integrates local third-party providers.

Series B Funding and Valuation

This Series B funding round was led by Tiger Global, with participation from existing investors CRV, Creandum, Point Nine, and K Fund. Sources indicate a post-money valuation of approximately $500 million.

To date, Factorial has raised a total of $100 million, including a $16 million Series A round completed in early 2020, just before the widespread impact of the COVID-19 pandemic.

The Impact of COVID-19

The timing of the Series A funding proved to be remarkably significant. The COVID-19 pandemic profoundly reshaped the work landscape, prompting a rapid shift to remote work for many office-based employees.

Organizations faced unprecedented challenges, including managing remote teams, ensuring worker safety, and adapting to economic fluctuations, furloughs, and hiring demands – all while lacking traditional office infrastructure.

Increased Demand for HR Tools

These changes created a surge in demand for new HR tools and solutions. Businesses and HR professionals alike were willing to invest in technologies that could help them navigate the evolving work environment.

Adapting to Market Changes

In the early stages of the pandemic, Romero explained that Factorial quickly adjusted its focus to address the most pressing needs of its customers. The company offered its product for free and attracted new users who had not previously utilized cloud-based services.

These new customers needed a rapid solution for managing their workforce remotely, driving a broader trend of cloud migration across various sectors. Many had previously relied on local files or basic storage solutions like Dropbox.

Providing Essential Resources

Factorial also provided guidance and resources to help HR professionals navigate challenges such as implementing furloughs, developing communication policies, and addressing other pandemic-related concerns.

Initially, the pandemic caused a slowdown in software purchasing as businesses focused on survival. However, as the situation stabilized, organizations recognized the need to improve their systems for managing remote work and enhancing overall efficiency.

A Broader Trend in Enterprise Technology

Factorial’s success is part of a larger trend in enterprise technology: adapting solutions originally designed for large organizations to meet the needs of smaller customers.

While large enterprises offer significant revenue potential, SMBs represent a vast market opportunity with 400 million firms globally, accounting for 95% of all businesses. However, product demands differ, with SMBs requiring powerful yet user-friendly and readily deployable tools.

Competitive Landscape

Factorial is not alone in targeting the SMB HR market. Other players include PeopleHR, Workday, Infor, ADP, Zenefits, Gusto, IBM, Oracle, SAP, and Rippling. A notable competitor in Europe is Germany’s Personio, which recently raised $125 million at a $1.7 billion valuation.

Investment Rationale

The significant market fragmentation, the large potential customer base, and Factorial’s rapid growth were key factors that attracted investors. The company was not actively seeking funding when it decided to pursue this Series B round.

John Curtius, partner at Tiger Global, stated, “The HR software market opportunity is very large in Europe, and Factorial is incredibly well positioned to capitalize on it. Our diligence found a product that delighted customers and a world-class team well positioned to achieve Factorial’s potential.”

Continued Support from Existing Investors

Reid Christian, general partner at CRV, added, “It is now clear that labor markets around the world have shifted over the past 18 months. This has strained employers who need to manage their HR processes and properly serve their employees. Factorial was always architected to support employers across geographies with their HR and payroll needs, and this has only accelerated the demand for their platform. We are excited to continue to support the company through this funding round and the next phase of growth for the business.”

Romero noted that the fundraising process had evolved significantly between the Series A and Series B rounds, shifting from in-person meetings to virtual interactions while he recovered from COVID-19. This reflects a broader trend of European startups achieving success without necessarily relocating to the U.S.