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Venture Capital in HR Tech Is Exploding

Discover the opportunity, benefits, and why of the boom in HR Tech venture capitalism...

Phil Strazzulla
HR Tech Expert, Harvard MBA, Software Enthusiast
July 23, 2021
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I used to work in venture capital at a firm that would invest in just about any type of company globally.  Former colleagues and connections ask me all the time - where are the most interesting places to invest in HR Tech?

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For a long time, I would say "I'm not sure there are any.  There are a lot of tombstones in this graveyard, and very few big or even moderate winners."

Sure, you had LinkedIn, Indeed, WorkDay, or UKG.  But, you had thousands of companies that just didn't make it.  Even in core verticals like ATS, there were very few companies that got to >$250 mm in enterprise value without raising capital that made their common stock worthless.

To illustrate, look at the winners in marketing automation (Hubspot, Pardot, Marketo, the list goes on and on) versus the state of Recruitment CRMs where there will be winners but not anywhere close to the scale of a similar solution in marketing...

Relative to other enterprise verticals, HR Tech just wasn't all that interesting if you wanted to make a good return with your investment.

VC in HR Tech has changed, a lot

The last 18 months have totally changed my mind about HR Tech investing.  There aren't just a small handful of companies who look like they'll be good exits, there are dozens - including a few legit unicorns.

Take a look at the employee mental health landscape.  You've got multiple extremely interesting businesses with ModernHealth, Ginger, Lyra and Spring.  I'm 100% sure there are others nipping at their heels as well.

That's just one vertical, and let's face it - not every company is prioritizing mental health!  This implies really good things for the core HR solutions like payroll, HRIS, and ATS, along with employee recognition, engagement, AI applications in HR/TA, etc.

Even somewhat newer trends like remote work have massive companies like Papaya Global, Remote.com, and several employers of record who are either growing >500% YoY or at a very large scale.

Take a look at the venture capital influx HR Tech has seen in the past few quarters:

Venture capitalism in HR Tech

As George Larocque points out, the trend is increasing.  In fact, just yesterday there were three mega-rounds announced from an LMS, an ATS, and an HRIS collectively raising hundreds of millions.

This investment is the result of massive growth in these vendors (ok, and really low interest rates that are inflating asset prices!).  This vendor growth is the result of HR teams investing in new tech, and reaping the benefits.

Why this matters to HR

This is all great news for basically everyone on the planet who works. Better HR Tech means:

  • Better recruitment processes for job seekers
  • More engaged workforces
  • More productive companies
  • More equitable playing fields for talent
  • A more interesting and powerful role for PeopleOps

This last point is really important.  The right tools means PeopleOps teams can have a bigger impact.

They can now spend less time on sourcing talent due to the right tools, and more time on TA strategy.  They can now spend less time onboarding new employees, and more time working with hiring managers to solve their hardest problems through people strategy.

HR Tech has historically been an industry that few entrepreneurs wanted to get into, and fewer VCs wanted to invest in.  It was no doubt going down the path of slow industries getting slower.

Now, it's becoming the opposite.  Rapid tech adoption by more advanced PeopleOps teams and more budget to HR is kicking off a virtuous cycle.

More tech adoption means HR Tech vendors thrive, which means VCs want to invest.  This leads to more innovation in HR Tech, which leads to more tech adoption, and more investment.

Everyone benefits when this flywheel is kicked off: VCs, entrepreneurs, employees, and yes - HR teams!

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Phil Strazzulla

Phil is the founder of SelectSoftware Reviews, a website dedicated to helping HR and Recruiting teams find and buy the right software through in-depth, expert advice. He has bought over $1 million worth of HR and Recruiting tools. Additionally, as of 2022, nearly 3 million HR professionals have relied on his advice to determine which business software they should buy.

Phil studied finance at New York University and started his career working in venture capital before getting his MBA from Harvard Business School. His in-depth understanding of the Saas landscape, especially HR Tech, stems from nearly a decade of researching and working with these tools as a computer programmer, user, and entrepreneur.

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