There are a lot of big names on this year's list of hottest startups. But you've probably never heard of the #1 overall.
That's because Zenefits, the fastest growing startup of 2014 by valuation, is barely a year old -- and it's disrupting a stodgy industry most people know nothing about: small business human resources.
Zenefits, which raised its $17 million Series A round in January 2014, came back to the well again in August for a $61 million Series B round that valued the company at more than $650 million (according to private company research firm VC Experts). The company has been successful at least partially because of Obamacare's complex new health care rules.
Small businesses across America have to buy health insurance for their employees, and they typically use middlemen brokers for the service. But Zenefits gives away cloud-based human resources software for free and lets businesses purchase insurance through their platform. Again, Zenefits charges customers nothing for that service -- it instead charges a commission to the health insurance companies who sell the policies.
That model has worked beyond cofounder Parker Conrad's wildest dreams, gaining Zenefits more than 2,000 customers (with 50,000 employees in 47 states) in the first 18 months since official launch in May 2013. Zenefits boasts extreme revenue growth with that base. August was the company's best month in terms of net new revenue, and October saw 100% growth from there. Year-end revenue is projected to be up 20 times what it was at the beginning of 2014.
All this makes Zenefits one of the fastest growing software-as-a-service companies ever. Now the Andreessen Horowitz and Institutional Venture Parters-backed startup is using its new wealth to scale up and meet demand (a human resources challenge of its own). Starting with 15 employees at the beginning of 2014, it currently has 470, including 340 in San Francisco and 130 at new offices in Phoenix, Arizona. Zenefits made a deal with Arizona to hire 1,300 full-timers over the next three years. And Conrad just hired former Yammer founder David Sacks as his new COO.
While Zenefits is not yet at the scale of companies like Uber or Airbnb (who also make the 2014 Hottest Startups list), it is already confronting similar problems -- namely, regulation. Many states have regulation preventing brokers from providing rebate benefits to customers to protect against unfair competition, and Utah sees Zenefits' free software giveaway as a violation of that rule. The state is threatening to fine Zenefits up to $100,000 and wants the company to charge "fair market value" for its free human resources dashboard.
We'll see who comes out on top in the long run, but so far Zenefits has been a runaway success on par with any young Silicon Valley startup.
