Gusto Snags $200M Round, Tops 100K Customers

SMB SaaS player Gusto has snagged another $200 million in VC funding, with a pre-money valuation of $3.6 billion. Having now raised more than half a billion dollars, Gusto is positioned to reap considerable benefits from attacking the payroll and benefits processing market controlled by the quasi-duopoly ADP and Paychex, which have a combined market value of more than $100 billion.

Gusto’s success raising money is not surprising in light of overall investor interest in companies that can help SMBs run their businesses more effectively. See our post on SurePath’s Q2 report for evidence of this.

Gusto has now passed the 100,000 SMB customer threshold. That is quite a milestone in the U.S. SMB market, which measured about 30 million businesses, of which about 10 million are truly addressable for a company like Gusto. Obviously, Gusto has just scratched the surface of its opportunity.

Looking down the road, it’s clear is that Gusto is in an increasingly fervent race to acquire as many SMBs as possible and then layer on appropriate additional services. When you look around, there are few SMB SaaS companies that have been able to break the 100,000 customer count threshold in less than a decade.

Gusto’s channel strategy has been of the keys to its growth. It has very strategically reached into the accounting world and developed that segment into one of its largest channel partners.

One of our questions is whether companies that currently integrate with accounting platforms like Xero, QuickBooks, and Clover will at some point view Gusto as more competitor than partner. We also wonder if Gusto will evolve its model from monthly SaaS to a hybrid which collects a percentage of its customers’ monthly payroll.

Whatever the case, we believe Gusto is forcing ADP and Paychex to stop resting on their historical market dominance and push product development into a new gear.

Besides, the socks I got during a visit to Gusto’s offices a year ago are fantastic. I hope this new round of money means they will double down on the socks. Don’t forget what got you here Gusto.

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