Andreessen Horowitz Increases Bet on Zenefits, a Human Resources Firm
Just months after investing in Zenefits, a human resources software company, Andreessen Horowitz has increased its investment.
Zenefits, which delivers its software to businesses over the cloud, has raised a $66.5 million financing round led by Andreessen Horowitz, with participation from another venture capital firm, Institutional Venture Partners, the company announced on Tuesday.
The Zenefits software - which is free for its customers - helps companies manage compliance and human resources-related tasks. Zenefits makes money by acting as an insurance broker, selling health insurance plans to businesses.
For Andreessen Horowitz, which led the company's previous $15 million financing round in January, such a pair of back-to-back deals is a rare move, amounting to a big bet by the venture capital firm.
'There's no situation like this right now that anybody knows of,' said Lars Dalgaard, an Andreessen Horowitz partner. 'We think it's the fastest-growing cloud company ever.'
Such superlatives should probably be taken with a grain of salt, but Andreessen Horowitz is putting its money where its mouth is. Zenefits was valued at $500 million in the financing round, according to a person briefed on the matter who was not authorized to speak publicly about it.
The deal was a hot one, according to Parker Conrad, the Zenefits chief executive. Investors told him that 'they didn't want to miss this one, even if it meant up paying up a little bit,' Mr. Conrad said.
In addition to venture capital firms, the investors included the actor Jared Leto, who sometimes makes angel investments.
It was Mr. Dalgaard who first proposed that Zenefits raise more money, he said. Mr. Dalgaard added, however, that he encouraged the company to shop around to make sure it got the best deal from investors.
The search ended where it began: Andreessen Horowitz. After Mr. Conrad made his pitch, Mr. Dalgaard pulled him aside.
'I said, 'I want to do this round,'' Mr. Dalgaard said. 'He said, 'Really?' I said, 'Yes, really.''
Underpinning Mr. Dalgaard's enthusiasm was a belief that Zenefits had reached some important metrics far earlier than expected. For one thing, it was growing quickly, at a clip of at least 30 percent each month since it opened its doors a year ago, according to the company.
In addition, more than half of the new customers it was signing up were outside the world of technology and outside of California, Mr. Conrad said. This was seen as an important sign of the company's maturity.
Mr. Conrad said the customers include school systems, architecture firms, heavy manufacturing facilities and a circus.
Mr. Conrad would not disclose the company's revenue, but he did say the company was not yet profitable.
'Like a lot of fast businesses, we're reinvesting everything in growth,' he said.
To describe this fantastic growth, Mr. Dalgaard used a metaphor from science.
'In a petri dish, this is a growth rate that none of us have ever seen before,' Mr. Dalgaard said. 'All these things that you don't expect to happen begin happening in front of your eyes.'
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