Payroll Startup Gusto Raises $140 Million in Funding

(Bloomberg) -- Payroll and benefits startup Gusto is raising $140 million from investors in a round that nearly doubles its previous funding total. The new investment values the company at about $2 billion, twice its valuation from three years ago.
The funding round was led by T. Rowe Price Associates Inc., Y Combinator Continuity Fund and General Catalyst. The company, founded in 2011, offers payroll and benefit services to small- and medium-sized businesses in the U.S. The last time it raised money was in 2015, when it brought its total funding to $176 million.
Josh Reeves, Gusto co-founder and chief executive officer, said the company was preparing for an eventual public market debut. “Our timing to IPO is probably in the three- to five-year time horizon,’’ Reeves said. “We want to have a clear pathway to going public.’’

Gusto currently targets businesses with fewer than 200 employees, offering payroll services as well as additional features like health insurance and 401(k) retirement plans. The company currently counts more than 60,000 companies as customers, and believes it has room to grow among the more than 30 million small businesses in the U.S., which employ about 48 percent of American workers, according to the U.S. Small Business Administration.

“We’ve had lots of momentum in the business, in particular in flexible pay,’’ Reeves said. Gusto’s flexible pay feature, its most recent product launch, allows employees to choose their pay frequency -- if their company opts into the program -- rather than having payroll departments simply issue monthly or biweekly checks. “We’ve reached some nice milestones, but the business still has room to grow,’’ Reeves added.
The company’s newest investors were particularly interested in the company’s long-term prospects, Reeves said. “We know we have a tremendous opportunity to gain market share,’’ he said, adding that the company plans to expand internationally in the future.

Willett Advisors, the investment arm for the personal and philanthropic assets of Michael Bloomberg, the founder and majority owner of Bloomberg LP, is an investor in Y Combinator startups.

Gusto declined to comment on its finances, but Reeves did say the company is much closer to profitability than it was in its previous funding round.

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