Business Startups Venture

ScaleFactor Raises Third Round ($60M) In 13 Months After 700% ARR Growth In 2018

Austin-based fintech startup ScaleFactor has raised a $60 million Series C just seven months after closing its $30 million Series B, and just over a year after closing its $10 million Series A. In total, the company has raised $100 million since last July.

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The company forwent Texas-based investors, turning to mostly West Coast-based money for its Series C. Coatue Management led this latest round (its exits include Uber, Lending Club, Reddit and Lyft).  (Its venture arm is based in San Francisco) Returning investors Bessemer Venture Partners, Canaan Partners, and Broadhaven Ventures also participated in the financing, in addition to new backers such as Vulcan, Stripes Group, and NextPlay Capital, and some angel investors. Kansas City-based Firebrand Ventures, which recently opened an office in Austin, put money in the round as well after having invested as far back as ScaleFactor’s seed raise in 2017. (The funding though, overall, bucks a trend we often see of Texas-based startups mostly raising capital from Texas-based VC firms. Specifically, 83 percent (or ten) of the top 12 active investors in Texas in H1 of this year were actually based in Texas).

ScaleFactor’s online financial SaaS platform is focused on building a back office for SMBs (small-to-medium sized business). The back office, as defined by Investopedia, “can be thought of as the part of a company responsible for providing all business functions related to its operations.”

The six-year-old company is growing rapidly and says it needs the capital to keep up with demand. Evidence of that growth can be seen in ScaleFactor’s surging annual recurring revenue (ARR), a metric that modern software companies use to track growth in their subscription income, and headcount. CEO and founder Kurt Rathmann told me that his company’s ARR grew by 700 percent in 2018 compared to the year prior (although from what he admittedly described as a relatively “smaller” base it’s still on the very high-end of the growth curve). He projects ScaleFactor’s ARR will grow by 300 percent this year as the firm approaches the 1,000-customer mark after adding “hundreds of new customers a month.”

The company started the year with 107 employees and recently crossed the 200 headcount mark. Notably, besides Rathmann, it has 30 CPAs on its team. Below is a look at its fundraising history.

The Future

With the new capital, Rathmann said ScaleFactor will focus on adding depth to its features and building out additional products and services so that it can serve as “a one-stop shop” back office for smaller companies. That will include “scaling its national presence” and building out its product and engineering team, Rathmann said. (Most startups boost hiring after raising new capital.)

The company wants to go beyond offering payroll services or helping with corporate cards for SMBs, which Rathmann believes are increasingly “really savvy buyers.”

“There’s a lot of them, and they need a lot of help,” he told Crunchbase News. “And they don’t traditionally have access to resources that bigger companies do. Ultimately, we want to provide more than just accounting and finance assistance. We want to help our customers with what’s happening tomorrow, or next week.” For example, ScaleFactor claims its “intelligent finance” offering takes data on a businesses’ patterns to predict things like being short on cash flow before payroll day, rather than the day of, to better assist its customers with controlling their financial operations.

Kurt Rathmann, Founder of ScaleFactor

“In time, we want to be known as the news feed for a business,” Rathmann said. “We alert our customers to what needs attention and make proactive suggestions with their bottom line in mind.” Looking ahead, the company is also eyeing the lending space.

Its headquarters are spread out over three offices in Austin, but the company will consolidate into a 50,000-square-foot new space in the hip, gentrifying eastside of the city, which is growing in popularity among startups. It also has offices in Denver and in Vancouver.

What They’re Saying

The company’s investors had laudatory things to say about the company’s product, and its resulting growth:

To Coatue Senior Managing Director Thomas Laffont, ScaleFactor “is building the most comprehensive financial SaaS platform on the market for SMBs.”

Byron Deeter, a partner at Bessemer Venture Partners, in a press release described ScaleFactor as “a rocket ship of growth.”

Meanwhile, Canaan partner Michael Gilroy notes that “SaaS is creating a level playing field for SMBs which previously had to resort to manual tasks via redundant hires.”

Fintech itself is having a moment. In recent weeks, we’ve reported on a number of notable fundings in the space, including Stackin’ raising over $4 million and MoneyLion’s $100 million Series C haul. Another SaaS company in the financial technology space, Gusto, also recently raised a $200 million Series D for its self-described “people platform,” which addresses a number of HR-related functions. Like ScaleFactor, it too is aimed at the small business market.

Illustration: Li-Anne Dias