Deel CEO Alex Bouaziz was Forbes’ 2021 call for the 30 under 30 in finance list.
Mamadi Doumbouya/The Forbes Collection
Alex Bouaziz, co-founder and CEO of Deel, is armed with metrics that would be enviable for almost any software startup CEO. Deel, which sells HR software for hiring international employees, started 2021 with $4 million in annual recurring revenue. That number jumped to $295 million as of Jan. 1, he says. Forbes. Additionally, the company has been operating with gross margins above 85% and has been profitable, based on EBITDA measures, since September.
Deel is now officially announcing its latest funding at a $12 billion valuation, although it raised the money in the second quarter of 2022. The modest round, which consisted of $30 million in new primary equity and approximately $20 million dollars in secondary transactions from employees who held stock, was first reported by Axios in May. Bouaziz said the increase was made primarily for strategic incentives — primarily to bring Emerson Collective, Laurene Powell Jobs’ investment and philanthropic organization, to the cap table.
“If we can get external investors to validate the valuation, that helps us for a lot of things,” Bouaziz said. “Having a good stock valuation helps us make more and more acquisitions.” Deel has already used its new price to make multiple acquisitions, including an $83 million purchase of Australian payroll company PayGroup. Nonetheless, Bouaziz said he likely wouldn’t have made the deal without linking Emerson because he didn’t need the extra cash. Deel has more than $500 million remaining in the bank from previous funding from investors like Andreessen Horowitz and Spark Capital, he said. He declined to comment on how much Emerson had invested in the new fundraiser.
Bouaziz founded Deel in 2019 alongside Shuo Wang, who serves as the company’s chief revenue officer and oversees its sales and expansion in countries around the world. Deel operates as the “employer of record” for a company, hiring foreign employees through Deel Inc. and thereby assuming legal responsibility for those workers. In exchange, customers pay Deel $49 per month per contractor and hundreds per full-time employee.
The startup initially followed a playbook established by Israeli software company Papaya Global to create payroll and HR tools that allowed companies to hire globally without having to worry about compliance regulations in different countries. Bouaziz said his business took off after choosing to build the infrastructure to allow each country to hire its clients’ foreign employees in-house, instead of outsourcing those tasks.
We do very difficult things. Maybe we should also do the easier things instead of letting the Ripples of the world deal with it.
Bouaziz sees the hard part of HR software as figuring out how to operate legally in different countries. For example, he said the company spent two years in a bureaucratic quagmire before it could launch operations in Taiwan and the Philippines. But Bouaziz attributes the rapid rise in Deel’s income to achieving that ambition, which his father Philippe – the company’s chief financial officer – initially considered too daunting. “I had to do a lot of persuasion because he considered the idea of having over 100 entities and employing a lot of people on behalf of others, and told me I’m completely crazy” , did he declare.
In pursuit of this vision, Deel’s business has been boosted by the Covid-19 pandemic, which has created a lucrative market of companies willing to pay the high price for Deel to quickly build a global workforce at distance. Bouaziz appeared as the star on Forbes‘ List of 30 under 30 for finance in 2021. Deel more than quadrupled its annualized revenue during 2022, when it started at $57 million, even as the global economy shrank. It now employs more than 2,000 people and manages 120,000 people through Deel Inc.
Now Bouaziz feels poised to corner a wider segment of the HR market, where a slew of startups are increasingly jostling as they expand their product ambitions into offerings to justify lofty valuations. For starters, the $12 billion company is taking on Rippling ($11.3 billion) and Gusto ($10 billion) with new software to handle national payroll and other simple HR requests. Bouaziz expects the space to consolidate, with customers opting to pay one company for all of their HR needs – a prediction shared by Rippling’s Parker Conrad – and hopes Deel will lure customers by offering its new ones for free. tools. “If you’re looking at basic HR software, what you’re really paying for is a nice user interface on an Excel spreadsheet,” he explained. “It’s pure software, it’s not super complicated.”
Bouaziz is not taking any risks comparing Deel to his rivals. “Other companies in our space, like world papayas, are ahead of us in execution,” he said. Forbes. “We do things very difficult. Maybe we should also do the easier things instead of letting the Ripples of the world deal with it.
We increased all of our spins before to 100x. If I had looked at our earnings and increased our valuation, I would have been scared to death.
Bouaziz has ambitions to make Deel the “Apple of HR”, but will face stiff competition from other well-funded companies which, like him and Conrad, are expanding their range of offerings. Rivals could come include expense management providers like Brex ($12.3 billion valuation), Ramp ($8.1 billion) and TripActions ($9.2 billion).
Deel aims to double its revenue in 2023 and reach $1 billion within two to four years, Bouaziz said. He believes Emerson Collective can help him achieve these goals. Already, several other Emerson portfolio companies are using Deel’s product, and the organization has helped connect Deel to non-governmental organizations. “We were really interested in technology that could provide Silicon Valley-like work opportunities for very talented people who can’t come here,” said Sarah Pinto, venture capitalist for Emerson Collective.
Regarding the high valuation Emerson paid in the round, which came late in the company’s bull run, Pinto said looking back, she was relieved the company grew. as fast as she did. “The company has always been an outlier in terms of the pace of growth,” she said. “We think he deserved a premium in terms of [valuation] several to take this into account. Still, Deel’s multiple sits at around 40x its revenue, leaving it with more work to do to compare to fintechs in the public market, where the average price-to-sales ratio is 7.3x, according to the Global X FinTech ETF index.
“We increased all of our forward laps to 100x. If I had looked at our earnings and increased our valuation, I would have been scared to death,” Bouaziz said. “It wouldn’t be crazy to [get to] a multiple of 10x.