In a strategic move to bolster its operations, Factorial, the Barcelona-based HR tech startup, has successfully raised a non-dilutive loan of $120 million from General Catalyst. This funding is designated specifically for enhancing the company’s sales and marketing efforts.

Impact of the Pandemic on Factorial’s Growth

Factorial emerged as a key player in the HR services sector during the COVID-19 pandemic, offering a complimentary version of its platform that attracted over 60,000 users. After transitioning to a paid model, the company experienced remarkable growth, with CEO and co-founder Jordi Romero reporting a sixfold increase in both customer base and revenue within a year, reaching 13,000 paying businesses.

Context of Industry Competition

The funding arrives at a time when competition in the HR SaaS space is intensifying, particularly between prominent players Deel and Rippling. The two companies are currently embroiled in legal disputes over alleged unethical practices related to customer intelligence gathering, creating a complex environment for other HR tech firms.

Ensuring Ethical Operations

In light of the unfolding legal drama, Factorial is conducting an internal audit to ensure compliance with its confidentiality policies and ethical standards, emphasizing its commitment to maintaining integrity in its operations.

Details of the Funding Structure

This $120 million funding is not a traditional equity investment or venture debt. Instead, it is sourced from the General Catalyst’s Customer Value fund, which focuses on providing non-dilutive loans that companies can repay from cash flow generated by new customers acquired through the fund.

Factorial’s earlier equity raise, which valued the company at $1 billion in 2022, remains unaffected by this loan. While General Catalyst does not receive immediate equity, this relationship may pave the way for future investments.

Future Funding Plans

Factorial does not currently plan for a major equity round, but there might be secondary funding opportunities for early investors seeking liquidity.

Understanding General Catalyst’s Approach

Jordi Romero described General Catalyst’s Customer Value strategy as a hybrid model resembling equity funding, without the typical risks associated with debt. The fund takes calculated risks by investing in late-stage companies with proven sales success, allowing for a more manageable growth strategy.

Pranav Singhvi, Managing Director at General Catalyst, noted that this innovative approach to financing growth aligns with the evolving trends in startup funding, emphasizing that their portfolio companies vary in performance—some thriving, while others may falter.

Conclusion

With a total of $200 million borrowed from the Customer Value initiative, Factorial is positioned to utilize its resources to expand its market footprint and accelerate revenue generation in an increasingly competitive environment. This funding could serve as a template for future growth financing strategies within the SaaS industry.