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Zenefits Rival Gusto Adds More Capital

Back in late December, three-year-old Gusto, formerly known as ZenPayroll, disclosed a $50 million Series B round from several existing backers. On Wednesday, the Zenefits rival reported a $25 million addition to that amount at the same valuation of close to $1 billion, according to Gusto CEO Josh Reeves.

The capital comes mainly from insiders. “Others wanted to become more significant owners,” Reeves told Fortune.

The infusion, disclosed in an SEC filing, brings the software company’s total backing to $161.1 million.

Gusto sells payroll and employee benefits services to approximately 30,000 small businesses, up from the 20,000 it reported last September, Reeves said.

Last fall, the company branched out into health insurance, which has made it more directly competitive with Zenefits. It now sells those services in five states—California, Colorado, Illinois, New York, and Texas. The new funding will be used to support ongoing geographic expansion and to add support for more employee benefits, such as 401K retirement plans.

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“We believe there needs to be one centralized system that includes the technology and services—everything from worker’s comp plans to benefits to insurance,” Reeves said.

Gusto is hiring quickly to keep up with its expansion ambitions, but it is prioritizing compliance with the various state regulations that cover insurance and employee benefits coverage. It currently employs 300 people, but plans call for it to add another 1,000 at its Denver office alone over the next several years. “There are definitely no shortcuts in this business,” Reeves said.

Zenefits, the most highly visible and valuable startup in this market with a valuation of $4.5 billion, is experiencing serious growing pains this year. Several weeks ago, it laid off 250 people (about 17% of its workforce) in order to refocus and enforce stricter training standards and operational processes.