Running payroll like it’s 2021
Our investment in Pento.
Yesterday our portfolio company Pento announced that they’ve raised a $15.6 million Series A led by our friends at General Catalyst. We’ve gotten to know General Catalyst as a great partner at our portfolio company Brainly, and Trevor and Christoph have worked together on the Board of Clio (when Trevor was at Bessemer), as well as Loom, and we’re thrilled to get GC’s support for Pento
As is customary at Point Nine, we doubled down in this round as we continue supporting Jonas, Emil, and the incredible Pento team on their journey. Ola, Christoph, and I have been working very closely with Pento over the past two years and now is a great time to share more about our investment and our thesis for Pento.
Payroll — a problem we’ve been wanting to solve for a while
Payroll, the process of compensating your employees for their work, continues to be a complex and convoluted process for companies of all sizes. The experience of compensating your employees, something so core to every business out there, is still manual and opaque and hasn’t seen breakthrough innovation so far.
In fact, the way most companies in Europe deal with payroll is through outsourcing to specialized agencies, their accountants, or tax advisors. Larger organizations sometimes use outdated software providers that sometimes are nothing more than a UI layer that leverages similar outsourced service providers (btw — there’s an $80Bn giant elephant in this room and it’s called ADP).
However, even if you’re working with outsourcing services, HR and Finance teams still have to juggle multiple spreadsheets where they reconcile data from various systems (HR, accounting, ERP, etc..), do several manual checks with their external providers, and execute manual bank transfers within tight and inflexible end-of-month deadlines.
This process happens every month, and seems to be the reason why companies have to “run payroll” as opposed to simply executing it :)
We’ve been looking into the space for several years and before Pento we had been a seed investor in Rollbox, an API-based payroll solution that was acquired by Personio in early 2019.
Enter Pento…
Beautiful software + end to end automation = Pento ❤
Payroll is a mission-critical process inside organizations but at its core, it’s essentially a data problem. From employee master data, tax and benefits calculations, reporting, payslip generation, and payments, companies can now gather all the relevant data and teams can easily review everything before executing payroll in a single click using Pento’s beautiful UI.
With Pento, companies have a fit-for-purpose software solution that integrates with the business's existing toolset from HRIS to accounting/ERP as well as open banking. Pento enables end-to-end automation of the payroll process, giving teams full ownership and real-time access.
What’s more, now that the infrastructure that Pento built for their product has been bulletproofed with hundreds of customers, Pento’s payroll engine is now ready to be exposed to partners, developers, and customers to build on top of their API.
Since our investment, the company has built and launched their product in the UK market and reached significant product/market fit with customers of all sizes (literally from mice to elephants) and from a variety of industries. We’re also thrilled to see how Jonas and Emil have built the organization and the team bringing top talent to complement them and rooting the organization with strong values and culture.
Our investment thesis
Bringing payroll in-house is actually the best way to reduce complexity and empower internal teams to own such a critical process. Relying on external providers creates massive headaches and requires complex orchestration at the end of every month.
Unbundling payroll from other solutions would enable the team to focus 100% of their time and energy on making the payroll experience 10x better. It would also enable the company’s go-to-market strategy to be much more streamlined as getting started with Pento won’t require a company to move from their existing HRIS/accounting systems. We’ve believed a better payroll product would win and the early signs have already been visible and validating this thesis.
A beautiful UI would enable teams to own this process end-to-end and ultimately provide a much better experience to their employees, whilst reducing the end-of-month complexity HR and finance teams face to execute payroll. We’ve also been fans of SaaS companies with Danish roots building beautiful software (hello Zendesk and Chainalysis :)).
Infrastructure — by stress-testing the infrastructure they’ve built for the Pento SaaS product, they’d be able to offer this to the market for others to build on top of.
Internationalization — when we invested in Pento the company was live in Denmark and had just started building out its product offering in the UK. Our bet was that Pento would be able to build a scalable payroll product that would be generalizable across geographies. Much like Stripe abstracts the complexity from dealing with local specificities when it comes to payments, Pento customers experience a similar experience as they aren’t exposed to the complexities of payroll.
Like almost all seed investments, Pento was far from an obvious “bet”
There were many reasons not to invest in Pento in 2019:
- Payroll is a tough nut to crack. Lots of companies have tried and failed.
- Payroll will be a part of broader HR solutions that will dominate this market.
- There are too many well-funded competitors out there.
- Who would want to bring payroll in-house anyway?
This wasn’t a “love at first sight” investment. It took us time and effort to better understand the market and compare Pento with existing competing products. But as we talked to a number of companies and learned about their payroll pains, and listened to Jonas talking about his vision for the future of payroll, we ultimately got incredibly bullish.
A final learning on our side is to always check in with our Operating Partner Ola who brought so much insight throughout the DD process. She’s usually on the skeptical side when it comes to tooling for finance teams but as we re-read the memo, we saw again how bullish she was.
In fact, for Ola it WAS love at first sight ;)
Join Pento
Pento is hiring remotely across all teams, you can check out their jobs page here and learn more about life at Pento here.
If you’re looking for your next adventure we can’t recommend Pento enough.
Ola, Christoph, Ricardo
