Interest in HR tech is ramping up with talent shortages and the impact of the pandemic leading employers to up the ante when it comes to the value they place on employees.
As a result, we’re now seeing a huge amount of investment in this sector, following PwC’s 2020 finding that 74% of professionals surveyed see HR tech spend increasing.
But despite receiving numerous pitch decks from HR Tech companies throughout this year, and the fact we’ve invested in successful HR tech businesses before (Patchwork, Culture Shift), none have yet made it all the way through our investment process in 2021.
Why is this when the market is apparently so hot?
Firstly, we understand many businesses have HR-related problems that need fixing, but we also know there are many potential solutions out there, leading to market saturation.
Therefore, when we assess an opportunity, our bar is much higher, with extra thought given to momentum, revenue and who, outside of a founder’s black book, is a customer.
Secondly, there are very few one size fits all solutions, meaning companies often need several different HR platforms to address multiple needs – for example, compliance, appraisals, HR/payroll etc. – which leads to engagement being another big factor.
For instance, is a platform implemented and then never really used by a business’s employees? Could that platform’s customers therefore churn at the six monthly or annual review?
Finally, the budgets attributed to HR tech (if any!) have hardly kept up with the boom we’ve seen, meaning by the time a customer has paid for Teams, Zoom or Slack, additional spend is often limited, making an already big decision for a company harder.
That’s not to say success is limited in this sector. The rewards are evident for companies that can position themselves well and perfect the onboarding process, with PitchBook reporting there has been $9.2 billion in VC funding for HR tech this year – a 130% jump from 2020.
However, when it comes to a VC’s perspective, there are many factors to consider before we make that all-important investment – even if the demand appears greater than ever.
– Louise Chapman, Investment Director
Key Insight
- There has so far been $9.2bn in global VC funding for HR tech in 2021 (PitchBook)
- The number of HR apps that now use video has grown by 4,120% since 2020 (Agora)
- The HR tech market is expected to grow from $24.04bn this year to $35.68bn in 2028 (Fortune Business Insights)
