French startup PayFit just announced it has closed another $289 million (€254 million) Series E round before the holidays. After this round, the startup has reached a post-money valuation of $2.1 billion (€1.82 billion).
The company is building a payroll and HR software-as-a-service platform for small and medium-sized businesses. It operates in a handful of European countries – about 150,000 people are currently paid through PayFit.
General Atlantic leads the round, while some of PayFit’s existing investors rejoin, such as Eurazeo, Bpifrance’s Large Venture fund and Accel.
The startup has been on a roll as it delivered a Series D round in March 2021. I asked about PayFit’s valuation and how it has changed since the Series D.
“It is true that we had never communicated our appreciation before. We only shared the size of our funding rounds,” co-founder and CEO Firmin Zocchetto told me. “I can only tell you that our appreciation has increased enormously.”
He mentioned two reasons why PayFit has had few problems with a higher valuation. First, the company is doing well when it comes to revenue. The startup’s annual recurring revenue increased by 70% in 2021.
Second, there is a lot of money floating around for the best performing tech companies. He said the current climate is “extremely favorable”. And I bet a lot of people would recommend taking advantage of the situation.
The market opportunity
But let’s try to dissect PayFit’s business a little more to find out how the company got here. PayFit allows you to manage your payroll from a web browser and automate as many steps as possible.
PayFit has a product advantage over other solutions because you don’t have to be an expert and work for an accounting firm to generate payroll. The startup keeps you compliant and hides the complexity. For example, if there are regulatory changes, PayFit will update the logic of its application.
The company also has a high market opportunity. Every business needs a payroll solution and it’s incredibly difficult to switch from one solution to another – it’s the perfect Venn diagram for a software-as-a-service product.
There are currently 6,000 companies using PayFit. About 80% of them are located in France. Other customers are located in Spain, Germany or the UK. Most importantly, when someone starts a business from scratch, many of them choose PayFit and stick to it.
If you think about it, 150,000 employees getting paid through PayFit isn’t that much. There are tens of millions of employees in France, the UK, Spain and Germany. Before PayFit opens a branch in new countries, PayFit wants to gain more market share in these four markets.
Labor laws differ from country to country, meaning there can be different geographic leaders because there is a natural barrier to entry. Gusto and Justworks, for example, are doing well in the US, but are not active in other markets. It will be important to see if PayFit has what it takes to become the clear market leader in France, UK, Germany and Spain.
Finally, once PayFit owns the relationship with the HR or admin specialist in the client company, it can provide additional services. “We started with payroll, but what we really care about is the employer-employee relationship,” Zocchetto said.
PayFit offers several tools to manage vacations, facilitate onboarding, manage timesheets, and track employee expenses. Soon, the company will also provide a way to handle annual performance reviews in PayFit.
Essentially, PayFit is part of a cohort of startups that are reinventing the admin stack. The PayFit founder lists Qonto and Alan as two companies that are also working on overhauling back-end tools. Qonto offers bank accounts for SMEs, while Alan offers health insurance for companies.
With 700 employees in Paris, Berlin, Barcelona and London, PayFit now aims to diversify its product offering, integrate with more third-party products and improve its customer service. The company wants to “offer small businesses the same benefits you would get from working for large companies,” Zocchetto said.