French startup PayFit has just announced that it closed a new series of E-rounds of $ 289 million (€ 254 million) before the holidays. Following this round, the startup has reached a post-money valuation of $ 2.1 billion (€ 1.82 billion).
The company has built a payroll and HR software-as-a-service platform for small and medium-sized businesses. It operates in a handful of European countries – around 150,000 people are currently paid through PayFit.
General Atlantic is leading the round, while some of PayFit’s existing investors are participating again, such as Eurazeo, Bpifrances Large Venture Fund and Accel.
The startup has been underway since it launched a Series D round in March 2021. I asked about PayFit’s valuation and how it has changed since Series D.
“It’s true that we had never communicated about our valuation 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 valuation has increased significantly. “
He mentioned two reasons why PayFit has had little trouble traveling to a higher valuation. First, the company is doing well when it comes to revenue. The startup’s annual recurring revenue has increased by 70% in 2021.
Second, a lot of money is flowing around for the best performing technology companies. He said the current climate is “extremely favorable.” And I would bet that many 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 ended up here. PayFit lets you manage your payroll from a web browser and automate as many steps as possible.
PayFit has a product advantage over other solutions, as you do not have to be an expert and work for an auditing firm to generate salary. The startup makes sure you stay compatible and hides the complexity. For example, if there are regulatory changes, PayFit will update the logic in its application.
The company also has a great 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 chart for a software-as-a-service product.
There are currently 6,000 companies using PayFit. About 80% of them are based 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.
When you think about it, 150,000 employees who get paid through PayFit is not that much. There are tens of thousands of employees in France, the UK, Spain and Germany. Before opening a branch in new countries, PayFit wants to capture more market share in these four markets.
Labor legislation varies from country to country, which means that there may be different geographical managers, as there is a natural barrier to entry. For example, Gusto and Justworks are doing well in the United States, but they do not operate in other markets. It will be important to see if PayFit has what it takes to become the clear market leader in France, the 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 pay, but what we really care about is the relationship between employer and employee,” Zocchetto said.
PayFit offers various tools for managing holidays, facilitating onboarding, managing timesheets and tracking employee expenses. Soon, the company will also offer a way to handle annual performance appraisals in PayFit.
Basically, PayFit is part of a cohort of startups that reinvent the admin stack. PayFit’s founder mentions Qonto and Alan as two companies that are also working on overhauling back-end tools. Qonto offers bank accounts to SMEs, while Alan offers health insurance products to businesses.
With 700 employees in Paris, Berlin, Barcelona and London, PayFit now wants 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 that you would get by working for large companies,” Zocchetto said.