By the top of final yr, software program startup ScaleFactor had emerged as a buzzy monetary providers firm, elevating $100 million in 12 months from big-name buyers together with Bessemer Enterprise Companions and Coatue Administration.
However in March, that upward trajectory was reduce brief because the Covid-19 pandemic arrived in the USA, wiping out demand for its software program from its core clients of small and medium sized companies. Now, the corporate is shutting down, its CEO and founder Kurt Rathmann tells Forbes. “It’s not the outcome we wanted,” Rathmann says. “But it’s the fiscally responsible CEO thing to do.”
ScaleFactor’s 100 workers have been instructed throughout a city corridor Tuesday that half of them could be laid off instantly, and that by the top of August there shall be about 10 workers to assist wind down the corporate. Departing workers will obtain 12 weeks severance and healthcare till the top of 2020.
The announcement stands in distinction to the corporate’s place till current days: simply final week ScaleFactor had issued a publish on LinkedIn that mentioned it was hiring; one new worker, a senior consumer expertise designer, posted final week on LinkedIn that he was “stoked” to be becoming a member of the corporate.
The Austin, Texas-based firm had most just lately raised a $60 million sequence C led by Coatue in August 2019, which had given the corporate a $360 million post-money valuation. Different buyers included Canaan Companions and Bessemer Enterprise Companions; these buyers declined to remark or didn’t reply to requests for remark. The corporate mentioned it could redistribute a portion of its capital again to buyers, however declined to say how a lot.
Rathmann says the pandemic worn out virtually half of ScaleFactor’s gross sales; the startup had reached $7 million in annual recurring income on the finish of 2019. However the firm seems to have been on rocky floor even earlier than the pandemic. After elevating capital final yr, ScaleFactor employed dozens of customer support representatives to enhance buyer relations, solely to put off 40 of them in February as the corporate’s backside line suffered. Rathmann acknowledges the choice may have affected his enterprise as soon as the pandemic hit, as clients demanded extra human relationships, quite than automated providers.
Launched in 2014, ScaleFactor provided software program that automates back-office duties together with bookkeeping and payroll. The concept was to offer the automated bookkeeping instruments obtainable to bigger firms to small and medium sized companies, a device that complement different merchandise from Shopify and Sq. that allow small companies to function on-line. It charged its greater than 1,000 enterprise clients a flat payment for its software program, with packages beginning at round $6,000 and reaching as excessive as about $30,000 a yr — a income stream that has now dried up as small and medium-sized companies have needed to reduce their very own prices.
ScaleFactor’s closure is one more symptom of the pandemic’s various impact on venture-backed startups. Some expertise corporations that allow distant workforces to thrive — reminiscent of workflow software program startup Notion or cloud-based design firm Figma — have seen their valuations soar far north of $1 billion.
However these startups that depend on the success of industries like journey and actual property, which have been decimated by the pandemic as shoppers have stayed house, have been compelled to lift extra funding, layoff employees, or shut. In the actual property sector, enterprise backed office-space suppliers Convene and Knotel have laid off tons of of employees. In journey, TripActions, a company journey administration software program startup that misplaced 95% of its enterprise because of the pandemic, just lately secured $125 million to maintain the corporate afloat.
ScaleFactor’s destiny seems sealed by the very fact it was unable to persuade small and medium sized companies seeking to reduce prices that its accounting software program was one in all necessity. “Business owners went into fight or flight mode,” Rathmann says. “You don’t necessarily need all the planning tools, high end gadgets. You just get back to the simple ‘pen and paper.’”