ZenPayroll wins $20 million in first round of venture funding-Reuters

(Reuters) – ZenPayroll, which provides cloud-based payroll services to small- and medium-sized businesses, said Wednesday it had secured $20 million in its first round of venture funding from General Catalyst Partners and Kleiner Perkins Caufield & Byers.

The deal, one of the larger Series A investments to close in recent months in the Internet industry, comes about two years after ZenPayroll raised a hefty $6.1 million in seed funding from individuals such as Drew Houston and Aaron Levie, chief executives of cloud-storage and file-sharing service provider Dropbox and cloud-content storage and management service Box, respectively. Series A investments may be provided in the form of preferred stock.

Cloud-based Internet companies such as ZenPayroll will be firmly in the spotlight in 2014, with anticipation swirling on Wall Street around potential public market debuts for Dropbox and Box.

These companies represent a new wave of Internet firms that have risen in recent years to move large swathes of business computing – file storage, human resources, payroll – to the cloud. Although less glitzy than the wave of social media that came to age in recent years, their business models have more predictable revenue streams.

ZenPayroll Chief Executive Joshua Reeves said his company employs fewer than 30 people but is on track to process $400 million in annual payroll for businesses ranging from bakeries to law firms.

Although large enterprises turn to established payroll software like ADP, many small companies still use pen-and-paper to keep track of payroll, Reeves said.

“Our belief that we could do it all in software,” he said. “Software is more accurate than humans.”

With the paperwork for payroll varying in every state and municipality, the company has expanded slowly to only seven states, including California, New York and Texas.

Reeves said ZenPayroll would use its new capital to expand its geographic reach and woo small business accountants.

Hemant Taneja, a partner at General Catalyst, will join the ZenPayroll board as part of the deal.

Salesforce.com Inc, one of the first firms that established the software-as-a-service business model, is an existing investor in ZenPayroll, along with Facebook business development chief Dan Rose, and David Sacks, founder of Yammer.

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