Introduction to Factorial’s Funding

As Rippling and Deel engage in a heated battle over alleged illegal sales and marketing tactics, another strategy for boosting business growth has emerged: securing a substantial amount of funding to expand operations. This approach is exemplified by Factorial, a Barcelona-based startup, which has obtained a non-dilutive $120 million from General Catalyst to invest in “go-to-market” (GTM) efforts, encompassing sales and marketing activities.

Factorial’s Background and Funding

Factorial, a cloud-based HR platform for small and medium businesses, has received this funding to enhance its GTM strategy. Initially, the company gained traction during the Covid-19 pandemic with a free version of its product, which attracted over 60,000 users. After transitioning to a paid-only model, Factorial has seen significant growth, with customers and revenues increasing sixfold in the last year, reaching 13,000 paying businesses. This funding will enable the company to capitalize on its momentum.

Current Market Landscape

The announcement of Factorial’s funding coincides with a time when HR sales and marketing activities are under scrutiny, especially with the ongoing legal dispute between Deel and Rippling. These two larger HR startups have a history of intense competition, and their current legal showdown has brought attention to the aggressive tactics employed in the industry. Factorial, however, is focusing on using its funding to drive growth and position itself away from the drama surrounding its competitors.

Factorial’s Growth Strategy

Factorial’s decision to invest in GTM efforts is a strategic move to expand its customer base and increase revenue. The company is committed to ensuring that its internal practices align with its code of conduct and is conducting an audit to guarantee compliance. By leveraging the $120 million funding, Factorial aims to accelerate its growth and establish itself as a leader in the HR industry.

Details of the Funding

The funding provided by General Catalyst is a non-dilutive loan, which means that Factorial will not have to relinquish equity in exchange for the investment. Instead, the company will repay the loan from its cash flow, specifically from the gross profit generated by customers acquired through the funding. This unique funding model, part of General Catalyst’s “Customer Value” fund, allows Factorial to maintain its existing equity structure while still benefiting from the investment.

General Catalyst’s Customer Value Fund

General Catalyst’s Customer Value fund operates similarly to an equity fund, but without taking an equity stake in the companies it invests in. The fund provides money to startups looking to enhance their GTM efforts and tracks performance across its portfolio. This approach allows General Catalyst to support companies like Factorial in their growth initiatives while also creating a potential pathway for future equity investments.

Factorial’s Future Plans

According to Jordi Romero, Factorial’s co-founder and CEO, the company is not currently seeking to raise a significant primary equity round. Instead, it may pursue a secondary round to provide liquidity for earlier investors and employees. With the $120 million funding, Factorial is well-positioned to drive growth and expand its operations, setting itself up for long-term success in the competitive HR industry.

General Catalyst’s Investment Strategy

Pranav Singhvi, the MD at General Catalyst who manages the Customer Value fund, explained that the fund’s approach is designed to support late-stage or public companies that have demonstrated consistency in sales and marketing. By providing non-dilutive funding, General Catalyst enables these companies to accelerate their growth without having to sacrifice equity. Singhvi has discussed the Customer Value strategy in more detail in a podcast.

Factorial’s Existing Relationship with General Catalyst

Factorial has previously received $80 million in funding from General Catalyst under the same terms in April 2024. With the latest investment, the company has now borrowed a total of $200 million from General Catalyst. This ongoing relationship demonstrates the confidence General Catalyst has in Factorial’s growth potential and its ability to execute its GTM strategy effectively.