Zeal, an embedded fintech company, has secured $13 Million in Series A financing to help it continue developing its platform to build individualized payroll products.
Spark Capital was the lead investor in Series A. Commerce Ventures participated as well as a group of investors including Jason Gardner, Marqeta CEO and CRO Omri Danhan, Vlad Tenev founder of Robinhood, Bob Manne, Mitch Dauerman, and Bob Manne, and Matt Straz, founder and CEO of Namely. According to CEO Kirti Shenoy, the latest round gives the company $14.6million in total funding. This includes a $1.6million seed round in 2020.
The Bay Area company's origin was Puzzl, which was a payment processing startup for gig economy founded by Shenoy in 2018 and Pranab K Krishnan, CTO. It was part the 2019 Y Combinators cohort. After having to transfer some of the thousands of 1099 contractors to W2 status, the pair had to restructure the company.
They looked for payroll processors capable of handling large volumes of payroll automatically like ADP and Paycor. However, they couldn't match Shenoy or Krishnan's requirements, such as the ability to pay workers every day and tailor earning components.
They created a payroll API to make it easier for other companies to create their own payroll products. This allows them to pay their employees every day. Companies used to layer third-party tools that were outdated and then spend thousands of dollars on consultants fees. Shenoy explained that Zeals API helps modernize the payroll process, taking on payroll liability and managing back-end payments logistics.
Zeal is currently used by enterprises to pay large numbers of workers and to keep payment data on their native systems. Software platforms that sell business to business services, however, use Zeal for their payroll products to sell to customers.
Krishnan stated that our mission is to reach every American paycheck using our tax and payment technology. This will ensure that American employees receive the right and efficient wages.
This is a complicated goal. There are over 200 million Americans working, and over $8.8 trillion in payroll processing annually in the United States. Additionally, the 11,000 tax jurisdictions of the United States produce more than 25,000 income tax code modifications each year.
Shenoy also cited IRS data showing that more than 40% small and medium-sized businesses pay at most one payroll penalty each year. This was the driving force behind Zeals' latest product, Abacus gross to net calculator. Payroll companies can use it to make sure they are paying income taxes in compliance.
The co-founders plan to use the funding to expand their team and improve compliance measures in order to maintain a track record with businesses.
Shenoy stated that we are now able to get more enterprise deals and move millions of dollars every day. This is a space that has been around for so many years, so companies are looking to partner with a provider who can move quickly.
Shenoy predicts more companies will move to hyper-customized experiences over the next five to ten years. Companies will be able to manage their data and create products that allow their customers to do all things payroll-related from one platform, as opposed to ADP which was the default.
Spark Capitals partner Natalie Sandman joined Zeals' board of directors as part of the investment. She has previously invested in embedded fintech companies such as Marqeta and Affirm, and believes that there are new opportunities in this sector that APIs could unlock.
Sandman experienced the payroll-building pains when she was employed at Zenefits. The company tried to do the same thing at the time but didn't have any APIs. All these spreadsheets could transfer data but one mistake would cause tax penalties.
Shenoy said that Krishnan and Shenoy are both customer-focused and try to balance speed and thoughtfulness in understanding the needs of their customers when building payroll products.
She sees a macro shift towards audience-driven human resource where bringing in new employees online will result in embedding them into products with greater value than traditional spreadsheets.
Sandman stated that APIs allow for flexibility in how wages and deductions are calculated. It is possible to lose faith in your employer. Payroll is the most trusting area. You want transparency and a solid solution.