French startup PayFit has just announced the closing of a new $ 289 million (€ 254 million) Series E cycle before the holidays. At the end of this round, the startup reached a post-money valuation of $ 2.1 billion (1.82 billion euros).

The company has implemented a software platform as a payroll and HR service for small and medium 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, Bpifrance’s Large Venture fund and Accel.

The startup is on a roll because it lifted a round of series D in March 2021. I asked about the evaluation of PayFit and its evolution since the series D.

“It is true that we had never communicated on our valuation before. We only shared the size of our rounds, ”co-founder and CEO Firmin Zocchetto told me. “I can only tell you that our assessment has increased significantly. “

He listed two reasons why PayFit had little problem increasing to a higher valuation. First, the business is doing well in terms of revenue. The startup’s annual recurring revenue increased by 70% in 2021.

Second, there is a lot of money flowing for top 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 take a closer look at PayFit’s activities 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 because you don’t have to be an expert and work for an accounting firm to generate the payroll. The startup makes sure you stay compliant and hides the complexity. For example, if there are regulatory changes, PayFit will update the logic of its application.

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The company also has a great market opportunity. Every business needs a payroll solution and it’s incredibly difficult to switch between solutions – it’s the perfect Venn diagram for a software product as a service.

Currently, 6000 companies use PayFit. About 80% of them are based in France. Other customers are located in Spain, Germany or the United Kingdom. More importantly, when someone starts a business from scratch, a lot of them choose PayFit and stick with it.

When you think about it, 150,000 employees paid via PayFit, it’s not that much. There are tens of millions of employees in France, UK, Spain and Germany. Before opening a branch in new countries, PayFit wants to gain more market share in these four markets.

Labor laws vary from country to country, which means that there may be different geographic leaders 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, UK, Germany and Spain.

Finally, once PayFit owns the relationship with the client company’s HR or administrative specialist, it can provide additional services. “We started with payroll, but what we’re really interested in is the employer-employee relationship,” Zocchetto said.

PayFit offers different tools to manage vacations, facilitate onboarding, manage timesheets and track employee expenses. Soon the company will also offer a way to manage annual performance reviews in PayFit.

Essentially, PayFit is part of a cohort of startups that are reinventing the admin stack. The founder of PayFit names Qonto and Alan as two companies that are also working on redesigning back-end tools. Qonto offers bank accounts for SMEs while Alan offers health insurance products for 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 “give small businesses the same benefits you would get from working for large companies,” Zocchetto said.