Factorial, a Barcelona-based HR startup, has secured a massive $120 million non-dilutive funding from General Catalyst to invest in its go-to-market (GTM) strategy. This investment comes at a time when the HR industry is under scrutiny over aggressive sales and marketing tactics, with Deel and Rippling embroiled in a legal battle over alleged illegal sales and marketing practices.

Factorial, which provides an all-in-one HR platform in the cloud for small and medium businesses, has seen significant growth since its inception. The company initially gained traction during the Covid-19 pandemic with a free version of its product, which went viral and attracted over 60,000 users. After transitioning to a paid-only model, Factorial has seen its customer base and revenue grow sixfold in the last year, with over 13,000 paying businesses on board.

The $120 million funding from General Catalyst's Customer Value fund will be used to turbocharge Factorial's sales and marketing efforts, allowing the company to take advantage of its current momentum. Notably, this investment is not an equity investment, nor is it a traditional venture debt. Instead, it's a non-dilutive loan that Factorial will repay from its cash flow, specifically gross profit from customers acquired with the help of General Catalyst's funding.

Factorial's CEO and co-founder, Jordi Romero, highlighted the significance of this investment, stating that the company will use the funds to position itself away from the drama surrounding Deel and Rippling's legal battle. This investment provides Factorial with a unique opportunity to differentiate itself in the market and attract new customers.

General Catalyst's Customer Value fund operates similarly to an equity fund, but without taking an equity stake in the companies it invests in. The fund tracks performance across its portfolio, and companies that receive funding are not required to provide collateral. Pranav Singhvi, the MD at General Catalyst who conceived the Customer Value strategy, emphasized that the fund bears the downside risk if the go-to-market investment does not perform.

Singhvi also noted that the typical company that receives funding from the Customer Value fund is late-stage or public, with a demonstrated consistency in sales and marketing. Factorial has now borrowed a total of $200 million from General Catalyst under these terms, following an initial $80 million investment in April 2024.

The Customer Value fund has been operational for four years, with assets under management in the range of billions. General Catalyst typically deploys hundreds of millions of dollars into SaaS, direct-to-consumer, fintech, gaming, and other companies each month. Singhvi believes that this funding model will play a key role in how companies finance their growth in the future.

In the midst of the controversy surrounding Deel and Rippling, Factorial's investment provides a refreshing contrast, highlighting the importance of ethical sales and marketing practices in the HR industry. As the company looks to expand its operations and attract new customers, it remains to be seen how this investment will impact the competitive landscape of the HR startup space.