General Catalyst

ZenPayroll raises $20 million from Kleiner, General Catalyst

February 19, 2014: 9:00 AM ET

Can the startup reinvent payroll? Major investors think so.

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FORTUNE -- ZenPayroll, whose service helps small business run their payrolls over the web, is a tiny startup in a field dominated by giants like ADP (ADP), Paychex (PAYX), and Intuit (INTU).

Yet in the past five months alone, ZenPayroll has gone from processing paychecks at a rate of $100 million to $400 million annually. The staggering growth suggests there is plenty of demand among small businesses for its easy-to-use payroll services.

The growth is also a reason why investors like Kleiner Perkins Caufield & Byers and General Catalyst Partners are sinking $20 million into ZenPayroll.

"We're stepping on the gas pedal," says Joshua Reeves, the co-founder and CEO of ZenPayroll. Currently, the company operates in just seven states, and Reeves says it plans to expand aggressively.

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ZenPayroll has had what in Silicon Valley is considered as something of a charmed life. It was admitted to the Y Combinator program for the January 2012 session. Shortly after graduating in April of that year, it raised a seed round of $6.1 million, a full eight months before it even launched its product. At the time, Reeves and his co-founders insisted on getting financing only from entrepreneurs who had grown their companies from scratch. They put together a syndicate that included an enviable list of investors that included the CEOs of Yelp, Box, Dropbox, and Yammer, among others.

While its bigger competitors in the payroll world are mostly focused on large businesses, ZenPayroll has developed a simple web-based platform that has appealed to bakeries, law firms, flower shops, hotels, dentist offices, restaurants, and other small businesses. It charges those businesses a $25 flat fee, and an additional $4 per employee for the first 10 employees, and $2 per employee after that.

"Small businesses in particular have struggled with doing payroll manually or using overly complex, expensive software," Randy Komisar, a partner at Kleiner Perkins said in a statement. "ZenPayroll is transforming compensation from the unloved, bureaucratic process it is today, to an opportunity to improve the employer and employee relationship."

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As part of its effort to reimagine payroll, the company has focused as much on the employee as on the employer. An employee who joins a ZenPayroll customer will "on-board" themselves, entering their bank information and other credentials. The website will give them easy, graphical access to information like upcoming pay dates and payroll history. The user's account is meant to be for life, so when they switch employers, they will continue to have access to past records, and be able to see their earnings over the length of their career.

The company has also developed a set of programming interfaces that allow businesses to tie their payroll processing with their expense reporting or human resources management systems. "The broader message is that there is an ecosystem of modern companies that are trying to make it easier to run a small office," says Reeves, who is turning 31 on Wednesday.

Reeves' entrepreneurial career started at Stanford, during what came to be known as the "Facebook class," a fall 2007 course in which students were taught to build apps for Facebook's then-new platform. Several students in the class turned their apps, which in some cases made tens of thousands of dollars a month before the academic quarter was over, into companies. Reeves' own app earned him enough cash to quit his job in 2008 and develop Buzzeo, a content management system for Facebook (FB). Two years later, he sold the company to a firm called Context Optional. Since then, Context Optional has been acquired by Efficient Frontier, a digital marketing firm, which in turn was acquired by Adobe (ADBE).

Reeves now says he's done starting companies. "I want to spend the next few decades building this one," he says.

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