The announcement was expected for today, but El Confidencial was ahead of Factorial’s plans. The company, based in Barcelona and owner of an employee management platform, had a big announcement to make in the midst of a wave of bad news due to the coronavirus health crisis.
The startup had managed to close a round of financing of 15 million euros, one of the biggest operations of the year and precisely at a time when investment in technology companies is experiencing its worst moments due to the general slowdown in the economy.
Led by the Silicon Valley fund, CRV – the one that also entered the capital of Twitter or Dropbox at the time – the operation also has the collaboration of those who already entered the capital of the same in the round of 2, 8 million euros in 2018: Creandum, Point Nine and K Fund.
The reality is that, under other circumstances, the news of the round would have gone in other directions, but the global situation in which the planet finds itself focuses precisely on the timing of the round. In this sense, Hipertextual was able to speak with one of its founders, Jordi Romero, to find out the details of the operation that has put them on the international front line.
Question: How are 15 million euros raised in the situation in which we find ourselves?
Answer: The round was held a month and a half ago, that is, before the health crisis exploded. The legal closure did catch us with this situation and the time was upon us.
The reality is that I could not have closed this round if I could not have traveled. In the end investing so much money in people that you only see through the screen is complicated, there is a part of human trust in which the face to face gives a lot of weight. I spent three days in London, at the end of January, and then San Francisco and New York. In between in Barcelona, because some interested investors wanted to come to the offices. With the paperwork part there was no problem because we had the pre-agreement, but then the crisis came in Spain and in the United States. Going to the notary was more complicated, and there was fear that the movement of capital would be limited due to the continuous changes in government decisions.
Until the money arrives at the bank you don’t breathe easy and the last few weeks were complex.
Q: That is, the important work was just before the pandemic and the announcement has only coincided with something we did not expect. Likewise, how was this entire operation managed?
A: We, at the end of the year, looked back at the year and realized that we had grown a lot and that we had an engine of unlimited growth. We saw that we had growth power in new countries and that we were closing with increasingly larger clients. It gave us the feeling that we had hit the good key.
Although we had more than a million euros in the bank, and the company in a fairly healthy state despite burning more than what we entered, we saw that we had the opportunity to lift an important round. We decided to go for it and already at the end of the year we had conversations with some investors who found out that we wanted to close a round and offered us to close the deal right away. What some funds want is to catch you a little to get ahead of the rest. The advantage for entrepreneurs is that this takes up a lot of search work.
We raised it among founders and investors that we already had and said no to prepare for a calmer round. We wait until after Christmas and there we begin a process in which we control the times.
“We started with the European funds that we already knew, because we decided that at least they had to be European from the main technological hubs
We started with the European funds that we already knew, because we decided that at least they had to be European from the main technological hubs. Seeing that we made a lot of progress with the London funds, we kept making progress in Europe, and we liked them, but we couldn’t miss the opportunity to see if we could go to the first division: Silicon Valley. It wasn’t late, but we had to move super fast.
In three or four days we contacted investors, some with a cold door and others through contacts. We organized a lot of first contact meetings and after a week in San Francisco I already had the meetings with the entire team of fund partners. On our way back from the United States, passing through New York where we also closed meetings, we already had great offers of funds from Silicon Valley.
We began to discuss negotiation issues and nuances with them before closing the agreement, and after a week we already closed the pre-agreement with CRV; We have already informed the rest that we have closed the investment proposal. Especially those in London, who by culture take longer to make that decision and go at their own pace. In the end there is more competition in Silicon Valley and they have to be faster.
The active part ended there and then the contracts part and the small print came, which is when the whole issue of coronavirus caught us. And the uncertainty of whether the money would come, because we have never seen this before and you don’t know what will happen. We did not have 100% confidence that it would not affect us.
In 2020, what little we have been this year in terms of investments, large operations still have a lot to say. Adding the panorama of the uncertainty created by the coronavirus crisis that could delay or cancel operations planned for the end of the year. And although European funds are focused on investing in finding startups to fight the current pandemic, public funds in Spain through Enisa and the ICO have turned off the tap until further notice.
Equally, it has given time for the great rounds. Flywire just at the beginning of the year aimed at 113 million euros, setting a pattern that was already leaving the margins even before the course began. Now Factorial occupies its second place with 15 million euros, followed by Enertika, ByHours and Kantox.
Likewise, just as happened to Bnext at the end of 2019 with its financing round of 13 million euros planned, which ended up being 22, Factorial has also been overwhelmed by the forecasts and offers of investors. With another coincidence: the participation of very attentive United States funds, for a long time, in operations in Spain.
Q: Has the closing on those 15 million euros come from you, from investors or from a mutual agreement?
A: We start with a much smaller round size. Between 8 and 10 million. It was what our business plan needed for our growth scenario. To which we begin to generate a little competition to invest in the company there are many axes of negotiation and what you want to dilute in the company. In the end, if they give me more for the same reason that I dilute myself, then you decide for them. This is what happened in this round, and last year’s round.
Now we are very happy to have raised more than less, because of course, with everything that is falling, having money in the company’s box and if the crisis gets ugly it gives you a lot of lungs.
Q: How do you appear before these funds in the United States?
A: Well, I worked three years in Silicon Valley. In my previous company we also raised funds in the United States and they already strongly recommended that we go there and we did so. This time it was not.
The bad thing is that we have had to go to the United States for money, and the good thing is that they already dare to invest in Barcelona, something that 10 years ago did not happen. Some have told us that they invest if we go there, but the vast majority no longer.
Q: The trend of the last big startup operations seems to show the opposite, but do you have any qualms about investing in Spain?
A: Barcelona is beginning to be seen as a hub of important technological entrepreneurship, and they realize that much value is generated outside the United States.
The example we always give is that of Spotify, which has become a giant without going to the United States. Investors are beginning to understand that success is not just there, and they are open to working elsewhere.
Q: Likewise, are you interested in the companies you invest in operating in the United States?
In fact, our expansion objective goes to America, which implies north and south, and Europe. We have a lot of traction in Latin America for the simple fact of being in Spanish and having a lot of content in Spanish. We attract a lot of organic users there, but we also have the platform and the content in English, which already gave us a lot of traction in North America.
Q: Perhaps it is early to ask, but are there already plans for new rounds of financing on the horizon?
No, we do not have a future operation in mind. We have many things in mind and we are hiring many people. We are already 80 in the company and we were 35 at the beginning of the year. With which we do not have more rounds on the horizon.
In our 8 million plan we needed that money to grow and be profitable, the millions of others pursue the same goal which is to remain profitable. That objective is neither for this year nor for next year, and more considering the uncertainty, but we want to achieve it.
The latest accounts available in the Mercantile Registry point to a loss of just over 500,000 euros in 2018. According to their data, in 2019 they still continue to spend more than they enter, but in a controlled way. With a paying customer-centric revenue system, achieving new accounts is in Factorial’s DNA. With 60,000 companies in 100 countries, and some large clients, this is the task on the horizon for the company.
Q: How are those important paying customers achieved?
A: In the end you have to do a little bit of everything to get customers, there is no magic recipe. It depends on the size of the company, but typically the company reaches us through digital marketing.
In the history of the company, in addition to its rounds of financing, there are some moments that are remembered with special interest. Not surprisingly, situations like the current one put certain tools on the map that at other times would not be of interest to many groups.
Another moment to remember was the announcement in force since May 12, 2019, by the Government, of the obligation to sign. At that time, the lack of employee management systems was seen as a peak of users on platforms like Factorial.
Q: Will the job situation created by the coronavirus have any reflection for Factorial?
A: In the short term, our interlocutor, who is the head of human resources, has been very distracted doing ERTES, moving the template to teleworking, restructuring the template … They are very burdened by the management of this sudden change. In the long term, what is clear is that this accelerates digitization, process automation …
In the short there is so much mess and so much uncertainty that people are doing what they can. That is why, during confinement, we lifted the restriction of our free trial and now it has no limit, so any company that does not have human resources software can have a tool without having the budget conversation. If companies are cutting back, this is not the time to spend the money. Later we will have that conversation.
Q: How did the decision of May 2019 influence?
This last year gave a good push. We are all quite clear where the world is going, which is the digitization of business, but there are small accelerations.
The signing law forced companies to look for solutions like ours, and now the situation with teleworking will also accelerate this transition that was already inevitable.