Once upon a time, HR tech scene was as dull and vapid as getting ghosted by a recruiter in a slow job market. A handful of companies dominated the market, all them strong, pedestrian. But recent years have seen an explosion of interest in the global human resource (HR) technology market, particularly in North America. HR tech firms are flourishing as venture capitalists’ love affair with standard-setters in HR SaaS offering continue to grow. According to HRWins by LaRocque LLC, venture capitalists invested $1.741 billion in HR tech companies during the first quarter of 2019 and $1.448 billion in the second quarter.
The first quarter alone attracted more capital than any quarter in 2018, and $677 million more than we tracked in all of 2017,” according to LaRocque. According to the global HR tech VC report for Q1 2019, there’s significant rise in investing in HR technology market. Core HR software is projected to peak at a CAGR of 9.4% from 2017 to 2025, owing to extensive tech in managing employees across the world.
VCs See Rush in the HR Tech
The piqued investment interest in this space makes sense. Despite years of venture capital investment into promising HR technology companies, there are still a few challenges that yet remain unsolved, like:
- How can companies recruit talented candidates when unemployment rates are at an all-time low?
- Why does candidate experience remain dismal despite organization’s interactive approach towards hiring (e.g. YouTube recruiting channel, automated email response tools, etc.)?
- Can organizations hire freelancers (or gig workers) instead of full-time staff, where can do you find them?
- How are organizations supposed to reskill an entire workforce during challenging times such as the COVID-19 pandemic? And how do we figure out what skills of the future they are going to need?
Gold Rush in the HR Tech
These are important questions and venture capitalists are eager to support entrepreneurs who claim to have figured out the 21st century human resources management model particularly because the market is strong. A growing number of organizations have set aside significant budgets for the right HR SaaS tools and VCs believe that there is a lot of moolah to be spent.
According to HR Technology Market 2019: Disruption Ahead report, an average large company has continued to spend $310 per employee per year which is a 29% increase over the last year.
Employee experience remains on top of mind for leaders. In fact, 91 percent of SMB leaders consider HR tech to be a critical factor to their business outcomes.
For example, Jobcase, a social media recruiting platform for blue-collar workers, bagged $100 million. AllyO, an artificial intelligence conversation recruitment platform secured $45 million. Built In, a Chicago-based tech recruiting and media platform raised $22 million.
This spending spree even during the pandemic suggests funding and deal activity are to hit new highs as more organizations find themselves in need of HR tech.
Core HR software is projected to peak at a CAGR of 9.4% from 2017 to 2025, owing to extensive tech in managing employees across the world.
Startups offering hiring solutions are gaining quite the eyeballs. It has become a huge area of interest for VCs who believe organizations haven’t quite figured out how to manage the workforce. Sense, Jobble, and Instawork are some of these gig recruiting platforms that secured attractive VC deals in the past year.
Another area of interest is ‘skill development’ as organizations attempt to ready themselves for the “future of work.” Coursera stands as a testament to this trend as the online learning platform that offers degrees and certifications secured a hefty $103 million in April 2019 to reach its valuation past $1 billion. Following suit are other learning and development platforms that have proudly attracted the attention and investment from VCs who believe HRM is undergoing a philosophical shift in how we must build the future talent pipeline.
Is there any apprehension?
The uncertainties of the COVID-19 crisis aren’t stopping VCs from investing in HR tech firms. A lot of ‘hot’ deals may seem like investors throwing money at the next LinkedIn or edX. However, many investment deals have been made in firms offering MOOCs – massive online open courses – and microlearning formats. Investors are keen to find latch onto firms that provide new solutions.
Bigger investment deals shouldn’t be seen as proof that the solution these companies offer will stick. A majority of companies in the HR technology space are still only tackling the most basic human resources problems. Whether it is hiring gig workers in larger volumes or training apps for the next leadership pipeline, these tools don’t actually help organizations reinvent the workflow.
But entrepreneurs will soon nurture hot and disruptive ideas as VCs continue pouring big money across this space. And while not all of these investments may pay off, organizations aren’t quite afraid to take a chance and experiment. There’s no harm in testing new software to see if it fits your requirements.
It’s the need to diversify and innovate this space that is driving crazy money. Even pure VCs firms like Andreessen Horowitz and Acadian Ventures aren’t afraid of betting big. A significant number of enterprise software bigwigs, including OnDemand, Cornerstone, Randstad and Salesforce, are jumping into the game, investing the almighty dollar into promising startups to kick-start innovation.
Jason Corsello, founder and general partner of Acadian Ventures, says it’s an “’invest, watch and acquire later’ approach.” Let’s not forget that these are still VCs deal and not acquisitions. One VC firm may still invest in one, two or three HR tech firms with similar solutions to see figures out the real deal.
These VCs deals are auspicious news for companies seeking innovative solutions to address their human resources challenges. The piqued interest indicates there’s a lot of innovation happening under the surface and HR executives should be paying attention.