Austin’s ScaleFactor Shuts Down After Raising $103 Million

ScaleFactor Team Photo, courtesy of ScaleFactor

Last year, ScaleFactor made the Greater Austin Chamber of Commerce’s A-List of Hottest Startups in the mid-sized category.

On Tuesday, ScaleFactor announced plans to shut down after raising $103 million from investors – including $90 million in 2019. Its investors included Coatue Management, Bessemer Venture Partners, Canaan, Broadhaven Ventures, Firebrand Ventures, Vulcan, Stripes Group, and NextPlay Capital.

The company, founded by Kurt Rathmann, CEO and founder, and Corey Bach, CFO and founder, graduated from the Techstars Austin incubator in 2017.

It’s the biggest shut down of an Austin-based startup that has raised more than $100 million since Calxeda, an Austin Technology Incubator company, shut down in December of 2013. Calxeda, with 125 employees, had raised more than $100 million since its inception in 2008. The company ran out of money while trying to create a new type of low-power computer chip.

ScaleFactor, founded in 2014, made business management software that automates bookkeeping for small to mid-sized businesses in the U.S.

Rathmann made the announcement to the company’s employees Tuesday afternoon, according to a post on the company’s website. ScaleFactor had 100 employees, after laying off 40 employees in February, according to a story in Forbes.

“Today, we announced that ScaleFactor is suspending a majority of its operations on August 28th,” Rathmann said.“To that end, we will be saying goodbye to half of our team members today and asking the remainder of the team to help us in finding our current customers a good home.”

Employees will be offered a minimum of 12 weeks of severance pay and ScaleFactor will pay for COBRA health insurance payments through the end of the year. The company also plans to provide recruiting support and outplacement services to laid-off employees. It is also letting employees keep their computers and equipment.

ScaleFactor plans to continue to support its customers and then transition them to other services in July and August.

“Rathmann says the pandemic wiped out almost half of ScaleFactor’s sales; the startup had reached $7 million in annual recurring revenue at the end of 2019,” according to the Forbes story. But the story also says the company may have been in trouble before the Pandemic struck when it changed its business model and laid off 40 employees in February.