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.
Without a clear ask, your pitch deck is useless
You’ve brushed off your Keynote skills, you’re giddy that you’re finally going to be able to start paying yourself a living wage, and you are excited to start pitching your startup’s next round of funding to your investors. It’s heady times, for sure, but hit the other pedal there for a moment, friend — you may be forgetting something.
After working with hundreds of founders on raising money — including the fantastically popular Pitch Deck Teardown series here on TechCrunch+ — there’s one slide that almost every founder gets woefully wrong. The slide is often referred to as The Ask. Or, as one investor friend calls it, the “what is my $10 million going to buy me”? slide.
The Ask is a sensitive topic to a lot of inexperienced entrepreneurs, which makes sense. Trying to right-size a funding round can be a little overwhelming, and there are a thousand different ways of building a startup. If you were successful in raising $8 million, you can do things one way. If you raised $12 million, you could perhaps launch more features of your product a little faster, or experiment more, or go after an additional market earlier. You know that. Your senior staff knows that. Your investors know that. But regardless, you need a Plan A.
What do those key metrics need to look like in order to raise not this round of funding, but your next one?
What do you need to do?
A lot of founders will tell you that they are trying to raise enough money to survive for the next 18 months. That’s probably true, but that will be true regardless of how much money you raise. A better approach is to think about what you need to accomplish to raise your next round of funding, and then work backward from there. This is probably a combination of metrics and milestones.
Metrics are the measurable parts of your business that grow and evolve over time. One of the best metrics you have is revenue, but there could be many others: the number of sales, average order value (AOV), monthly or annual recurring revenue (MRR or ARR, respectively), customer acquisition cost (CAC), customer lifetime value (LTV), daily and monthly active users (DAU and MAU), retention rate (usually expressed by its inverse, churn rate) and much more. What do those key metrics need to look like in order to raise not this round of funding, but your next one?
Milestones are also measurable parts of the business, but instead of tracking them over time, they tend to be binary: You’ve either hit a milestone or you haven’t. For startups, this could be key hires; finding the perfect, experienced CFO that can help take your company public is one major milestone a lot of companies at some point need to hit. Product launches (coming out of beta), launches in particular markets (launching only in California) and localization (launching your app in Spanish and French, for example) are also important milestones. Financial milestones are also common; the first time you make a single dollar from any customer is a huge shift in the business. When a customer, on average, starts to make you more money than it costs you to acquire them is another. For earlier-stage companies, completing a customer validation phase by talking to, say, 100 potential customers is a milestone.
When you’re raising money, you will be mapping out a set of milestones that you need to hit in order to validate your company. In addition, you’ll set a number of trigger points for metrics — hitting $1 million ARR, having 5,000 daily active users or finding a combination of customer acquisition channels that means you can acquire customers at a reasonable blended CAC, for example.
So let’s examine how to put together a great “ask” slide by ascertaining what it takes to determine how much you need to raise, how to create a specific set of goals and how to bring it all together in a coherent whole.
Tech doesn’t get more full circle than this
Welcome to Startups Weekly, a fresh human-first take on this week’s startup news and trends. To get this in your inbox, subscribe here.
Tech innovation is a cycle, especially in the main character-driven world of early-stage venture capital and copycat nature of startups.
The latest proof? Y Combinator this week announced Launch YC, a platform where people can sort accelerator startups by industry, batch and launch date to discover new products. The famed accelerator, which has seeded the likes of Instacart, Coinbase, OpenSea and Dropbox, invites users to vote for newly launched startups “to help them climb up the leaderboard, try out product demos and learn about the founding team,” it said in a blog post.
If it sounds familiar, it’s because — in my perspective — Y Combinator is taking a not-so-subtle swipe at Product Hunt, a nearly decade-old platform that is synonymous with new startup launches and feature announcements.
Y Combinator doesn’t necessarily agree with this characterization: The accelerator’s head of communications, Lindsay Amos, told me over email that “we encourage YC founders to launch on many platforms — from the YC Directory to Product Hunt to Hacker News to Launch YC — in order to reach customers, investors and candidates.”
The overlap isn’t isolated. As Y Combinator makes a Product Hunt, Product Hunt is making an Andreessen Horowitz. Meanwhile, a16z is making its own Y Combinator. Not to mention Product Hunt has investment capital from a16z and formerly went through the Y Combinator accelerator.
The strategy is more than a tongue twister, it’s a signal on what institutions think is important to offer these days (and why they’re starting to borrow more than sugar, or deal flow, from their neighbors).
For my full take, read my TechCrunch+ column, “YC makes a Product Hunt, Product Hunt makes an a16z, a16z makes a YC.”
In the rest of this newsletter, we’ll talk about Coalition, Backstage Capital and Africa’s temperature-fluctuating summer. As always, you can support me by forwarding this newsletter to a friend or following me on Twitter or subscribing to my blog.
Deal of the week
Coalition! Built by a quartet of women operators in venture, Coalition is a fund meets network that is trying to get more diverse decision-makers onto cap tables. The two-pronged approach of fund and network helps Coalition cover multiple fronts: Founders can turn to the firm for capital or the network for advice at no further dilution. Aspiring investors and advisers can turn to the firm to begin building out their portfolio, and LPs can put money into an operation that is committed to broadening diversity on cap tables, known to have economic benefits.
Here’s why it’s important: Coalition co-founder Ashley Mayer, the former VP of communications for Glossier, explained a little about the building philosophy behind the new company.
Mayer explained that she and her three co-founders saw the value of taking a “portfolio approach” to careers, basically going deep on their respective operator roles while also angel investing and eventually scout investing. Three of them previously worked in venture but left it because they missed the experience of operating. Now, they’re trying to scale a way for people to keep their day jobs and build beyond it. Coalition co-founder and Cityblock Health founder Toyin Ajayi said that “as one of few women of color leading a venture-backed company, I feel a deep obligation to hold the door open for others.”
When do layoffs matter? Trick question — always
This week on Equity, we spoke about Backstage Capital laying off a majority of its staff, weeks after pausing any investments in new startups. The workforce reduction, which impacted nine of Backstage Capital’s 12-person staff, was due to a lack of capital from limited partners, per fund founder Arlan Hamilton.
Here’s why it’s important: Backstage Capital has invested in over 200 startups built by historically overlooked entrepreneurs, while Hamllton herself has invested in more than two dozen venture capital funds. Despite having impact, no single firm can be immune from the difficulties of venture (or growing in an environment full of macroeconomic and cultural hurdles). Below is an excerpt of my story.
Without more support, it becomes difficult to close shop on new investments, bring more assets under management and bring more follow-on investments, Hamilton said.
“Somebody asked me, ‘why don’t you have more under management?’” she said during the podcast. “You gotta ask these LPs, you gotta ask these family offices, you gotta ask these people who ask me, ‘how can I be helpful,’ and I say ‘invest in our fund,’ and I never hear from them again.”
Africa charts its own course
TC’s Dominic-Madori Davis and Tage Kene-Okafor wrote a story about how the downturn is playing out in Africa, essentially answering why we should all be tuning into the continent’s activity this summer.
Here’s why it matters: Africa’s venture capital totals weren’t too shabby in the first quarter, but investors think that it may just be a reporting delay. If most of the deals were finalized before high interest rates, the war and inflation, experts say, we may see an economic downturn soon start affecting developing markets. The story doesn’t stop there; I’d read more to see what Tiger Global tells us and how August is shaping up to be a key month of movement.
Across the week
Seen on TechCrunch
Seen on TechCrunch+
Until next time,
Google will start erasing location data for abortion clinic visits
In the aftermath of the Supreme Court’s decision to strip federal abortion rights in the U.S., many people are questioning how the apps they use every day might suddenly be turned against them.
As concerns mount over the endless well of data that tech companies built an entire industry around, Google is taking at least one step to mitigate some potential harm related to location tracking.
The company announced Friday in a blog post that it would remove location history data about some “particularly personal” places from a Google account shortly after someone visits. Locations that will have their data deleted include “medical facilities like counseling centers, domestic violence shelters, abortion clinics, fertility centers, addiction treatment facilities, weight loss clinics, cosmetic surgery clinics, and others,” according to the blog.
Google also noted that Fitbit users who use the device’s companion software as a period tracker currently must delete those entries one by one, but an easier way to “delete multiple logs at once” is on the way.
The change to location history will go into effect in the next few weeks, emptying one potential bucket of data that law enforcement could demand from the company. Google notes that its location history feature is off by default for people who use its services, but if you’re not sure about that, it’s always worth double-checking what personal information you’re actively sharing with tech’s data brokers — particularly now.
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