HR Tech Funding Explodes As Corporations Grapple With Remodeling Workforce – Crunchbase Information

Venture capital money is flooding the human resources space as employers seek new ways to recruit, hire and retain their workforces.

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Human resource technologies — which can run the gamut from background checks to benefits and everything in between — already has seen nearly $3.6 billion in venture funding for 260 deals this year, according to Crunchbase data. That dollar amount already surpasses all of last year, which witnessed not even $2.2 billion invested in 500 funding deals.

This month alone has seen 17 funding rounds in the HR tech space announced in the first two-plus weeks, including New York-based Remote — which helps companies hire anywhere in the world by handling payroll, benefits and compliance issues — raising a $150 million Series B at a valuation of more than $1 billion.

“You are just seeing super competitive rounds,” said Adam Boutin, a partner at Capital One Growth Ventures. “HR tech the last two years or so has gotten pretty hot.”

A perfect storm

A variety of trends seem to be merging to make human resources technologies appealing to investors right now, according to those in the industry.

With demand for talent only increasing, employees also want more from their jobs — making them harder to retain. Throw on top of that a pandemic that has completely shifted how we work and companies looking to upgrade from earlier generations of HR tech stacks, and everything just seems to come together right for a big investment moment.

“I’m not surprised,” said Remote co-founder and CEO Job van der Voort, who’s recent round was led by Accel. “Demand for talent has never been higher and the last year has only accelerated changes to the workforce. Work is completely upside down and there is no script for this.”

Saad Siddiqui, a principal at Telstra Ventures, said everything in human resources is changing — at least in part due to the remote work world we now live in — from how talent is being sourced to training to trying to build a company culture where people no longer see each other in-person.

“This all creates challenges,” said Siddiqui, whose firm took part in the recent funding of Canada-based applicant screening company Certn.

Siddiqui said one of the biggest challenges facing companies in HR tech is trying to help solve how companies can keep their “culture” in the new remote-work world.

“You will definitely see more investment here,” he said. “Everyone has spent the last 16 or 18 months working (remotely) but no one really enjoys it. So the question is how do you make it more enjoyable.”

More money, bigger rounds

This summer alone has witnessed three venture funding rounds top $200 million in the HR tech sector. Austin-based energy labor platform Workrise raised $300 million in June, while Santa Clara, California-based AI talent management platform Eightfold and Brazil-based Gympass both closed $220 million Series Es last month.

Boutin — whose firm also participated in the Eightfold raise and is an investor in San Francisco-based automated skills-based assessment platform CodeSignal — said the introduction of machine learning and AI has been a huge game changer for HR tech in recruiting, retention and performance management.

That’s especially true as companies realize the value of employees more now than likely in the past.

“Companies always looked at HR as a cost center,” he said. “It didn’t drive sales, therefore they didn’t want to spend there. But more people are realizing people are their advantage.”

To get that “people advantage,” Boutin said companies are trying to figure out how to “fish for talent in different ponds” — using technology to help figure out what candidates may be a good fit for jobs based on their skill set instead of just the job they may have applied for through an overly simplistic online search.

The emerging desire for increased diversity and inclusion also is challenging companies to find new ways to look for and connect with talent, he said.

Looking ahead

With those trends in mind, Boutin said he sees technologies around recruiting, internal mobility, culture building and employee services — like San Francisco-based Cleo — all remaining attractive to investors as the second half moves forward.

Certain areas of benefits like 401(k) and health savings account management — where startups like San Francisco-based Lively have sprouted up — also likely are areas related to HR that will see more investment, Siddiqui said.

In the end, HR departments will be looking for technologies that streamline processes for the remote — or fluid — workforce.

“In this fluid workforce, the onus is to make things a lot easier,” he said. “The onus is on the HR department to make this work in this new environment.”

More to come

Both Siddiqui and Boutin can see even more investment coming into the sector as its companies exit through either dealmaking or the public markets.

Companies like San Francisco-based Gusto — a cloud-based human resource management solution that reached a $3.8 billion valuation in 2019 — and Utah-based BambooHR — a SaaS HR software solution for small and medium-sized enterprises — are pointed at as potential candidates for the public market in the next year or so.

“I think you could have a wave of companies in this space go public in the next 24 months,” Boutin said.

Large human resources information systems such as Workday and even older payroll and benefit providers like ADP could eye acquisitions in the space to help keep their technology stacks fresh in an increasingly competitive market.

Regardless of what exits companies take, more M&A and IPOs will bring even more investor interest to the space.

“As investors start to see returns, it makes it easier to double down and valuations just rise,” Siddiqui said.

Illustration: Dom Guzman


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