Finch raises $3.5M to build out its HR and payroll-focused API business
The old saw about finding a place where companies still use spreadsheets, and then building a startup to solve the problem, was a good way to dream up new software as a service (SaaS) companies. But the next generation of that idea may be to instead find a place where data is locked, fragmented or both, and build an API to unleash the information.
That's the thesis behind companies that TechCrunch has covered like Noyo, which wants to free health insurance data and raised $12.5 million in September. And it's the apparent concept behind Finch, a recent Y Combinator graduate that is looking to liberate HR and payroll data.
General Catalyst led the round, which saw participation from a number of industry executives, including the founders from Ramp and Brex, two competing startups, and Digits. The company's round comes after the startup had targeted a smaller, $1.5 million sum but wound up taking more capital aboard.
Finch was founded by Jeremy Zhang and Ansel Parikh. Zhang moved from robot R&D for a big tech company to SmartCar, which is building an API for what it self-describes as mobility applications." Parikh, Zhang told TechCrunch, worked in venture on API-related deals. So, the pair had experience with startup products that were delivered through a developer endpoint, not by an application coupled to a contract.
Zhang and Parik initially worked on a product that would have allowed other companies to embed consumer lending into their own service. But, in Zhang's telling, the pair ran into the pandemic, the early period of which was anathema to interest in extending more credit to regular folks. (Notably Upstart, a fintech focused on facilitating consumer lending, is in the process of going public; how rapidly 2020 has spun industries around.)
However, a design partner wanted to offer PPP loans to SMBs on its platform, so the pair wound up looking into what was required for the project on the data side of the ask; Finch was born out of those learnings.
Finch connects customers to payroll and HR data via an API, offering both a free version of its product to entice developers, and a paid version of the product that is priced either as a pay-as-you-go service, or with a SaaS-like pricing provision.
Something notable about Finch is its age. Even for a startup, it's young. The founding group put up a landing page for the company in April, and wrote the first code for the project in July. That's rapid scaling from zero to in-market traction. Today Finch is growing 50% month-over-month in terms of both revenue and employers connected," giving it the sort of growth that investors flock to.
What might one be able to build with Finch's API? Past a few basic ideas, my brain was bereft, so I asked Zhang to dole out the future to me. In the co-founder's estimation, there are three core buckets where Finch can have a role: financial software, inside the lending and insurances spaces, and supporting the burgeoning HR and benefits software market.
In each area, having access to what Zhang called a source of truth," namely HR and payroll data about employees and their employment, would allow other companies to better make decisions; tenure at a job could help one determine creditworthiness, HR services need to know who works where, and in the realm of finance apps that are working to help or supplant CFOs need to understand current headcount.
Still, Finch's path won't be an easy one. Part of the problem that its founders discovered is that there are myriad payroll and HR systems. Building out an API to support as many as its market requires will take time and investment. Raising more capital than it initially intended will help, we're sure, but even with deeper coffers, the scale of the challenge in front of the young company will require yeoman's work.
The company told TechCrunch that it can support the systems of 1.4 million employers today, though it intends to 10x" that number in the next year. Finch's capital event is similar to the round raised recently by fellow YC graduate BuildBuddy, a SaaS play, in which both startups took aboard more than $3 million in funding after initially targeting a raise in the $1 million range.
The startup has six staff today, with Zhang expecting the the company to scale to 15 or 20 by the end of next year.