Payroll startup PayFit is France’s latest unicorn as it raises $289 million

French startup PayFit just announced that it closed a new $289 million Series E round (€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 been building a payroll and HR software-as-a-service platform for small and medium companies. It is operating in a handful of European countries — around 150,000 people currently get paid through PayFit.

General Atlantic is leading the round, while some of PayFit’s existing investors are participating once again, such as Eurazeo, Bpifrance’s Large Venture fund and Accel.

The startup has been on a roll as it raised a Series D round in March 2021. I asked about PayFit’s valuation and how it has changed since the 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 greatly increased.”

He listed two reasons why PayFit has had little issues raising at 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, there’s a lot of money floating around for the best performing tech companies. He said that 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 bit 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 compared to other solutions as you don’t need to be an expert and work for an accounting firm to generate payroll. The startup makes sure you remain compliant and hides the complexity. For instance, if there are regulatory changes, PayFit will update the logic of its application.

The company also has a big market opportunity. Every company needs a payroll solution and it’s incredibly hard 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. Around 80% of them are based in France. Other customers are located in Spain, Germany or the U.K. Most importantly, when someone creates a company from scratch, many of them choose PayFit and stick with it.

When you think about it, 150,000 employees getting paid through PayFit is not that much. There are tens of millions of employees in France, the U.K., Spain and Germany. Before opening a branch in new countries, PayFit wants to capture more market share in these four markets.

Labor laws vary from one country to another, which means that there could be different geographical leaders as there’s a natural barrier to entry. For instance, Gusto and Justworks are doing well in the U.S. but they don’t operate in other markets. It’s going to be important to see if PayFit has what it takes to become the clear market leader in France, the U.K., 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 different tools to manage vacation, facilitate onboarding, manage time sheets and track employee expenses. Soon, the company will also offer a way to handle annual performance reviews in PayFit.

Essentially, PayFit is part of a cohort of startups that are reinventing the admin stack. PayFit’s founder names Qonto and Alan as two companies that are also working on overhauling back-end tools. Qonto offers bank accounts for SMBs while Alan offers health insurance products for companies.

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 companies the same perks that you would get by working for big companies,” Zocchetto said.