Photo Credit: Stephen Harlan/Flickr.com

According to an IBISWorld report, the HR & Payroll software market in the US has grown 6% over the year to $7 billion in 2016. Analysts are hopeful Billion Dollar Unicorn club member Gusto will go public this year.

Gusto’s Offerings

Gusto was founded in 2011 by Stanford alumni Joshua Reeves, Edward Kim, and Tomer London. The company was initially set up as ZenPayroll with a mission to create a world “where work empowers a better life”. It began with a payroll tool to simplify the process for small organizations. The application allows organizations to process payroll, file taxes, integrate with financial software such as Quickbooks, Xero and Freshbooks and even provide some employee self-help assistance. The product was well received and soon ZenPayroll expanded beyond payroll services. It started selling other related services such as employee benefits, 401(k) retirement plans, 529 College Savings plans, and workers’ comp insurance for small organizations. It also renamed itself Gusto.

Today, its services are available in 50 states and the service is used by over 40,000 small business customers and their employees. It has offices in San Francisco and Denver.

Gusto’s Financials

Gusto is a subscription-based service. It allows customers to test their service for free for one month and then charges a base price of $39 per month and an additional fee of $6 per employee per month. Gusto does not disclose any financial performance details.

It is venture funded so far with $170 million raised from investors including Aaron Levie, AFSquare, Altimeter Capital, Benjamin Ling, Bobby Yazdani, Dan Rose, Data Collective, David Sacks, Designer Fund, Drew Houston, Elad Gil, Emergence Capital Partners, General Catalyst Partners, Glynn Capital Management, and Google Capital. Its last round of funding was held in June 2016 when it raised $25 million at a valuation of close to $1 billion. An earlier round held in December 2015 had valued it at $1 billion as well.

Gusto’s big competitor in the space is another Billion Dollar Unicorn Zenefits. But Zenefits’s valuation and market performance have taken quite a beating during the past two years. Unlike Gusto, Zenefits began as an insurance and benefits seller before diversifying into payroll services and other HR tools. Zenefits was rumored to be clocking $100 million in revenues each year, but it violated regulatory processes to sell insurance. Additionally, its growth rate slowed and valuation for the company fell from $4.5 billion in May 2015 to $2.3 billion before the end of the year.

Gusto is not worried about Zenefiits. Gusto has managed to stay lean despite the growth. Before its layoffs in early 2016, Zenefits had peaked to an employee strength of 1,400 employees while Gusto had plans to reach only 350 employees by 2016. Gusto also claims that it has managed to win customers who have had terrible experiences with Zenefits.

Gusto has not confirmed any plans of going public. But it is confident that it can stay independent and avoid being sold off. It believes an IPO will happen “at some point in the future”. Investors, most likely, would like that future to be relatively soon.