More on our investment in Linc

Into the face of the young man who sat on the terrace of the Hotel Magnifique at Cannes there had crept a look of furtive shame, the shifty hangdog look which announces that an Englishman is about to speak French.

This is from my favourite author, P.G.Wodehouse.

We have a theory at Acadian Ventures. Global payroll is a myth.

Payroll is not just a calculation routine, it is an articulation in code and service of the society’s norms, values, culture, political system and more. The rules and laws build up over decades. Payroll is a mirror of the society.

The complexity in payroll is often not in the gross to net engine, but in the build to gross, or in the post payroll run processing (what I call distribution), or in the process layer that holds it altogether.

There are many successful payroll vendors. A very small number of vendors have been very successful in one country, and then also successful in several others. No one is the market leader in more than one country. The market leader for payroll in every country in the world is a local provider. Almost all the vendors that say they have a global payroll partner with a local payroll vendor underneath.

There is an long list of famous American vendors who have failed dismally and expensively to build a German payroll. Even the Germans find building a German payroll hard, ask Personio.

Payroll is a bit like a nuclear powerstation. Building it takes longer than you imagined it would, but running it is really hard. And shutting it down is really painful.

The complexity in the French payroll is largely the in the collective agreement layer. Every French employer is bound not just by the Code du travail but by a sector-specific Convention Collective Nationale that sets its own minimum wage grids, bonuses, and working-time rules, and there are roughly 700+ of these in force at any given time, with the list constantly shifting as branches merge. Some of these are relatively simple, like IT, others are complex, for instance in the automotive industry. Saying you have a french payroll but you haven’t done the CCN is like leaving the flour out of the cake. The code layer for the CCN is often bigger than that for national components.

French payroll is so complex that almost all companies except the very largest ones outsource the payroll to bureaux. These bureaux tend themselves to be specialized by CCN or by cluster of CCN, and sometimes region.

They are hampered by venerable payroll software and low levels of automation, and an aging pool of payroll experts. Incumbent payroll vendors are able to extract high rents out of the bureaux because of the lack of competition and high levels of risk aversion. Payroll engines are profoundly sticky.

A decade or so ago Payfit burst onto the French market, promising to automate and abstract away the need for the bureaux. They invented a (for the time) nifty payroll scripting language that made payroll easy to set up without deep programming skills. When I first saw it I was amazed.

While they have some significant success, they weren’t able to penetrate large swathes of the CCN, and they were distracted by a misguided attempt to build a German payroll.

At the risk of over simplification, they tried to automate away the bureaux, while underestimating the the value of the bureaux’s trust bond with the customers. Bringing payroll responsibility in-house simply isn’t on the bingo card of most French corporations, no matter how cool the tech may be.

Towards the end of last year, Audrey got wind of a French stealth payroll start up called Linc. (Audrey speaks several languages, including French, and she is tuned into the Paris start up scene). We also got a call from the ‘Paris’ Jonathan at the VC fund Headline. We have a joint investment with the ‘Hamburg’ Jonathan in AG5, and we talk often. Turns out they were investing in Linc, and wanted us to have a look too.

Audrey, Jason and I met Baptiste. After several calls and some deep DD with him, the team and early customers, we were convinced that they were onto something. Baptiste seemed to actually read my blog on payroll, and spoke to some of our portfolio companies too, so we felt there was a good mutual fit.

1. The tech stack to build a payroll has improved more in the last 2 years than in the 20 years before that. I’ve written extensively about this, but it is high time I refreshed this. Whether it is coding the payroll engine itself, or analysing the CCN regulations, a lot has changed. Some of these changes will be hard for the incumbents to adopt or adapt too.

2. Being former Payfit employees, they know what Payfit got right and wrong.

3. The payroll bureaux have a high level of dissatisfaction with the dominant incumbent, who aggressively raises prices but hasn’t really innovated the product much.

4. Pennylane has, at one level, proven the model with financial accounting and bookkeeping. French Accountants and SME have embraced change when the solution and business model is compelling. Linc has a growing relationship with Pennylane.

5. It aligns well with our investment thesis about local payrolls and payroll related technologies. See our investments in Worky, Workpay, Brio, Palm HR and datascalehr.

Here’s our deal announcement.

I attended our first board meeting last week in Paris, and it is great to see the progress Baptiste, Thomas, Felix and the team have made in a short period of time (I forgot to do the selfie thing). Baptiste’s pre-reading and board follow-up was top notch.

One of our co-investors, Max from Cleo, had this to say about the founders.

Baptiste joined Payfit as one of its first sales hires and went on to become France Sales Director. Former colleagues referred him to me as a “Payfit legend”: a natural leader with a fierce competitive streak. Thomas led payroll support in France and understands payroll's complexity better than almost anyone. Felix was a tech leader at Swan and knows how to build reliable products and infrastructures in a regulated industry.

They are building trust with the bureaux, CCN by CCN.

Great to be investing with Resonance, Headline, Founders Future, Adnexus, 50 Partners Capital, Cleo, Motier Ventures, 199 Ventures, Aonia Ventures, Better Angle and Clover.

We need a tune or two of course. Top notch French music.

and when your french payroll runs perfectly with Linc, it will be like this.