A San Francisco startup that's building software to support employee benefits programs has raised $40 million in new funding.
Finch announced the Series B round led by General Catalyst and Menlo Ventures on Wednesday. Other investors included QED Investors, Altman Capital and PruVen Capital.
It raised a $15 million Series A round in June 2022, and the new funding brings Finch's total funding to more than $58 million.
The company was founded by CEO Jeremy Zhang and Ansel Parikh in 2020. They wanted to build software infrastructure to facilitate benefits, but before jumping into human resources-related tech, they were actually building embeddable lending services.
When Covid-19 hit, most of their fintech customers left them, Zhang told me, but the ones that remained started asking for help with Paycheck Protection Program loan distribution.
"Our expertise prior to building Finch was really this middle layer connecting to underlying fragmented systems," Zhang said. "The underlying industry is definitely very, very different but in terms of the potential for the product, the go-to-market, how to think about actually building the product, is very, very similar."
Finch works by connecting an HR department's employee data with its benefits providers via application programming interfaces, or APIs.
It cuts down on the need to manually check and submit documentation about earnings, wages, tips, deductions, benefits and taxes.
The company currently supports three main HR-related sectors: employee directory data for software-as-a-subscription services; payments and lending from fintech providers; and other employee benefits like retirement, health insurance and savings.
"Our mission is enabling more innovators to be able to access the underlying employment ecosystem," Zhang said. "This ecosystem and the data within the sector is completely blocked in terms of data access, and that can come in the form of maybe pay transparency, maybe employee engagement. … We're seeing this opening of data information and payments within the sector. We believe that there's a lot of innovation that's already happened, and will continue to happen, as innovators, entrepreneurs, companies have access to the underlying infrastructure."
Finch says it has more than 1.8 million employees connected through its system and supports more than 200 types of integrations through its APIs.
It charges employers monthly recurring fees. Zhang said the company became cash-flow positive "several months prior to the Series B raise" and he's now targeting reaching profitability by mid-2024.
The company also currently has about 60 employees and Zhang wants to increase that to at least 100 people by the end of the year.
They primarily serve smaller companies the U.S. market at the moment but Zhang wants to expand into larger employers next and is also eyeing an international expansion into markets like Canada or the European Union later this year.
