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Zenefits join billion dollar club after $4.5bn valuation

HR software firm's business model means they give away software free.

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Zenefits has become the latest member of Silicon Valley’s "billion dollar club" following a $500m round of funding and $4.5bn valuation.

The HR cloud company was estimated to be worth a mere $500m after a $66.6m funding round only last year, but has seen growth almost unheard of in the Bay Area.

Parker Conrad, chief executive of Zenefits, said: "There are millions of small businesses in the country that have been wasting countless hours every year juggling multiple HR systems and outdated technology.

"We are not just eliminating the paperwork; we are eliminating the actual work – making it easier for small businesses to manage and grow."

Zenefits’ growth after just two years has made it one of the most hyped companies in Silicon Valley, but its use of the software-as-a-service (SaaS) model has led some to question when it will become profitable.

SaaS companies such as Salesforce and NetSuite spend huge amounts on sales and marketing with the hope of securing long-term revenues from subscribers, but tend to fail to turn a profit during the years of growth.

One thing that separates Zenefits from the competition is that it offers free software to companies that have fewer than 1,000 staff, instead making money by acting as a broker for them to buy HR services.

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"In my experience, the momentum that Zenefits has achieved in two years is unprecedented. Zenefits has brought the benefits of software to a massive industry that had yet to embrace technology at scale," said Lars Dalgaard, general partner at Andreessen Horowitz, which was involved in the funding.

"And their potential market includes tens of millions of employees, using multitudes of different business applications in companies of all sizes."

Analyst firm VC Experts said: "Late stage investing has been more prevalent in [billion dollar] companies, which makes Zenefits even more interesting.

"They have only been around for two years and this is only their third round of institutional financing."

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