Hot cloud startup Gusto raised a monster $200 million round, doubling its valuation to $3.8 billion - and the CEO says that an IPO is a matter of 'not if, but when'

Hot cloud startup Gusto raised a monster $200 million round, doubling its valuation to $3.8 billion - and the CEO says that an IPO is a matter of 'not if, but when'

Josh Reeves Gusto


Gusto CEO Josh Reeves

  • Gusto, the hot cloud startup, said it raised another $200 million in a funding round led by Fidelity and Generation, the firm co-founded by Al Gore.
  • With the Series D funding, Gusto's valuation has doubled to $3.8 billion.
  • Gusto CEO Josh Reeves said going public is just a matter of time, and selling the company is out of the question.
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Gusto, the hot cloud startup that helps small businesses with their human resources needs, just got hotter.

Gusto said Tuesday that it has raised another $200 million from investors led by Fidelity and Generation Management, the investment management firm co-founded by former Vice President Al Gore. The Series D round boosts Gusto's valuation to $3.8 billion from $1.9 billion.

There has been speculation that Gusto is poised to go public, given the San Francisco-based company's momentum.

CEO and co-founder Josh Reeves said it's just a matter of time. "It's not if, but when," he told Business Insider.


'A well-run larger company'

Reeves would not offer a timeline for going public, saying, "I can't answer when, but I can tell you a lot of the stuff we're doing is really more about how we can be a well-run larger company."

Gusto is trying to grow at a time when the cloud software industry is maturing, dominated by such giants as Salesforce, Workday, and Oracle. Oracle CEO Mark Hurd predicted recently many of the smaller players in the space "will go away" as the industry consolidates.

But asked if selling Gusto is an option in the future, Reeves was quick to respond: "We would never sell Gusto. There's been plenty of interest in the past. It's not a topic that we've had any interest in exploring."

Gusto's platform offers small businesses, including a mom-and-pop shops, tools to manage their employee-related needs, including on-boarding, payroll, health benefits and retirement accounts.

Founded in 2011, Gusto emerged as one of the most successful cloud startups geared to small businesses. It is a huge market that has largely been ignored by a tech industry that's been focused on the more lucrative enterprise market.


Targeting a huge market

There are 30 million small businesses in the US, employing 59 million people, nearly half of the country's private workforce, according to the Small Business Administration.

Many of these businesses are still unfamiliar with or reluctant to embrace cloud platforms or even traditional business software applications.

"Right now, there's still lots of stuff done by hand," Reeves said. "Almost 40% of companies in the US still do things like payroll by hand."

Gusto now has more than 100,000 customers, and has 1,000 employees in San Francisco and Denver, Reeves says.

Reeves said the company will use the new funding to ramp up research and development and for expansion. Gusto said it is opening an R&D office in New York.


"Were still very early in the journey," Reeves said.

A history lesson

It's been one of the most engaging startup journeys in recent years. Today, Gusto is known for its offbeat and generous startup culture where employees enjoy such benefits as a round trip ticket anywhere in the world and money to go skydiving or to go to a spa. Employees and visitors to the company's San Francisco headquarters are required to take off their shoes and wear socks while in the office.

Gusto also went through a period of uncertainty when it was defined not so much by what it is and what it offers, but how different its compared to a hot new rival. Gusto, which began its existence as Zenpayroll - focusing explicitly on payroll management - was on its second year when Zenefits entered the small business market offering cloud software for insurance.

The competition heated up as Zenefits expanded to payroll, and Gusto moved into insurance. But about five years ago, in the early years of that rivalry, it was Zenefits that stole the spotlight, quickly becoming a darling of the startup world as a fast-growing company with over 1,500 employees.

But then the company stumbled as Zenefits got embroiled in a series of scandals. Its CEO and co-founder Parker Conrad suddenly resigned after Gusto was accused of violating California insurance regulations. Then there were stories of excessive partying at Zenefits, including office sex, that got national attention.


Today, Gusto and Zenefits are still competitors. Gusto seen as better suited to smaller businesses with less than 100 employees, and Zenefits more ideal for bigger companies, according to FitSmallBusiness.

In a recent interview with the San Francisco Chronicle, Zenefits' current CEO Jay Fulcher looked back on the company's troubled early years, saying "it's really important to recognize that growth at all cost or at any cost is not a good idea."

Reeves echoed that view as he reflected on Gusto's own journey and where he hopes it will lead. "There are no shortcuts in the space we are in," he said. "We will be a multi-decade independent business."

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