Deal Radar 2008: PayCycle

PayCycle provides online payroll services for small businesses and for the accounting professionals who serve them. Their mission is to make paper-based payroll obsolete. Using a unique Do-It-With-You model, they guide users through the entire payroll procedure online – from paychecks to W-2s. The company has highly experienced professionals who have previously developed products like QuickBooks, Quicken and QuickPayroll among others.

The company was founded in 1999 by Rene Lacerte and Martin Gates who were previously co-workers at Intuit. It is headquartered in Palo Alto, California with a second location in Schaumburg, Illinois. In April 2005, in its most recent round of financing, PayCycle raised $8.5 million in a series D round led by DCM-Doll Capital Management, new CEO Jim Heeger and previous investors. In December 2002, PayCycle received $11.5 million in Series C funding in a round led by Conning Capital and Total Technology Ventures as well as existing investors. In January 2001 the company raised $8 million in its Series B round led by August Capital, joined by Irwin Ventures, Crescent Ventures, Draper Richards and Argus Capital.

PayCycle is very popular with users because it can be run and used from anywhere an internet connection is available. User interviews on WebCPA describe the convenience of SaaS and e-filing and maintaining a paperless payroll process. It has won several honors like the CPA Technology Advisor 2007, PC Magazine Editor’s Choice in 2006 and more.

Last October in a 12-part series of interviews I did with PayCycle CEO Jim Heeger we discussed several aspects of the company right from sales and revenues to distribution channels. The company had just reached the 50,000 mark in terms of customers and when I asked about revenues Jim had said, “it puts us in the mid teens. That is up from $4 million when I got here in 2005.” In terms of profitability, the company had just turned profitable with additional funds in the bank. We also discussed how approximately only 16% of the 5.2 million small businesses use a software service for payroll, leaving a very large portion of the market untapped. It uses only direct marketing to sell its products.

With several awards under their belt, a huge potential market, money still in the bank and profitability achieved, PayCycle is likely to go public in about 3-4 years once its revenues near $70 million. It is a company to watch, under the able leadership of Jim Heeger.

This segment is a part in the series : Deal Radar 2008