Cowboy Ventures
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Cowboy Ventures

Where We’re Investing: Software to Power Modern Teamwork

The way people will work in the future has evolved beyond existing HR software

By: Aileen Lee

For years at Cowboy Ventures, we’ve been investing in what we call “life 2.0” companies — early-stage software startups that make our work and personal lives more efficient, accessible, and /or delightful. We are passionate about the power of software to work and learn in the background to support people.

In addition to being excited about software, we care a lot about people. We love working in the trenches with early-stage founders, many of whom need to raise seed to build and ship their product, versus already having ‘traction’ at seed.

Being a part of their and their teams’ personal growth journeys, as well as helping them plan, interview, recruit, develop and grow their teams are some of the most rewarding parts of our jobs.

In our work, we’ve discovered a lot of inefficiencies when it comes to people-related processes and the traditional HR software stack. There is a lot of manual and repetitive work, wasted spend, disconnected paper and doc-based processes, software with slow and antiquated UX, unengaging content, lack of transparency, bias, rigidity, and latency in today’s people-related processes and systems.

This has made us excited to make more investments in what we call modern teamwork software — software that helps plan for, recruit, engage and communicate with, compensate, and develop all kinds of modern workers. Over the past decade, we’ve backed a number of emerging leaders in the category including ChartHop, Contra, enrich, Guild Education, Homebase, Hone, Textio, Wednesday Talent, and a few more yet to be announced. And we’re excited to back more teams building in this category.

For some of our portfolio companies, the buyer or decision-maker is the Chief People Officer, a VP of HR, or a functional leader like a VP Eng or CMO. For others, it’s the CEO, a store manager, a job seeker, or a working professional.

What they all have in common is these companies all build software that makes finding or doing great work with others more efficient, delightful, and effective. We believe these companies are part of the reinvention of the traditional HR software stack that every company, every manager, and every employee will need to thrive in the future.

In VC speak, this area has been called HR Tech¹ — a space that has been historically avoided by many investors. A thesis to invest in a prior HR tech startup was likely similar to other software — there’s a big opportunity to replace antiquated, inefficient software (or a pen & paper process) in a large market.

But post-investment, a startup selling to HR departments or job seekers endured headwind after headwind. HR teams have historically been spread thin on budget, time and resources, and often didn’t have much internal influence. Pricing benchmarks were low and competition included cheap or free products. ROI was hard to measure. Account management and requests for customization were painful. Plus, follow-on financings could be a slog without lots of investors chasing the space. If the company didn’t achieve great fundamentals, there were only a handful of not-so-aggressive potential acquirers. Fun stuff for leadership teams and VCs (not!).

BUT, we believe that outdated perspective on HR tech no longer fits given the future of modern work. It’s time for a new set of large-scale, global VC-backed companies to be built in the category.

Some points on the “why now”:

  • Covid has accelerated changes to our working world that will not revert to the way things were²
  • Chief People Officers and functional hiring managers (engineering, marketing, product, etc.) have new energy, attention, budget, and urgency around solutions to support the redesign of a company’s workforce, workspaces, and people-related processes³
  • Intense competition for talent (especially in engineering and data science) and in certain geographies has eased former constraints in geography, workstyle, recruiting and evaluation tactics, internal vs external staffing, upskilling and more⁴
  • Companies and employees know diversity drives better outcomes and healthier cultures. They need new tools and processes to attract, recruit, develop and measure a more diverse workforce⁵
  • TAMs are bigger than ever. Addressable markets are increasingly global, plus there’s growing budget for HR, IT and People Ops⁶
  • Cultural & demographic trends have changed expectations when it comes to where and how to work, and comfort with technology. Research shows increased flexibility impacts performance and attracts high performers. When employees have some choice over where, when, and how much they work, teams see nearly 2x “high performance” from employees⁷
  • Hugely valuable segments of our economy like frontline, essential and hourly workers, as well as vertical industries have historically been neglected by traditional HR tech⁸
  • Many tech-savvy folks have suffered the human cost of poor management, low career mobility, and unhealthy cultures, and are inspired to start or join companies who will make things better for future talent

There are also large, highly valued companies in the category which could be acquirers and training grounds for the next generation of founders, like:

  • Workday, the leading system of record for people information has a $67bn market cap, generates ~$5Bn in revenue and trades at an 83x forward P/E
  • Recruit Holdings (RCRRF), a Japan-based global network of HR-related companies (including Indeed and Glassdoor) has a $100bn+ market cap
  • Oracle’s large Human Capital Resource Management (HCRM) suite includes acquisitions of PeopleSoft ($10bn) and Taleo ($1.9bn). They recently announced “Oracle Journeys”⁹ to focus on the employee experience journey
  • Microsoft acquired LinkedIn for $26bn, and LI recently announced they crossed the $10bn revenue milestone¹⁰

Pre-covid, most companies were beehives centered around physical offices. People who worked in HQ got the best access — the best software, more development, and networking opportunities, and perks that seemed to matter like free lunch, plus cashew and flavored oat milk :). Remote team members or field staff might have felt at times like second-class citizens.

Distributed team members will be the new normal for many companies in the future. The “Gig Economy” already started us on this new way of working. This shift has been pushed harder and faster by the Covid crisis. Great software and new features will help companies and people thrive in this new way of working.

We know that wherever they are, people do their best work when they feel safe, supported, challenged, and optimistic about their future¹¹. The next generation of workforce software will be built around these values. It will support a broader diversity of people in terms of geography, skill set, access, cultural sensitivity, tech-savvy, language, work style, currency, business process, and more.

It’s an incredible time for all kinds of businesses to gain access to new talent and grow market share if their employee offerings are re-tooled to meet the needs and expectations of the modern future workforce.

Source: Josh Bersin HR Tech 2021

We’re excited to already be working with companies who partner with employers and talent on this mission. But there is much, much more to be built. We’re excited to meet with and invest in more companies building new modern workforce tech. If you’re a founder building in this area, please find us at hello@cowboy.vc.

If you’d like to learn of more companies powering the modern workforce, a list of companies we’re proud to work with:

  • ChartHop delivers people analytics, visualized. They bring disparate sources of people data together in a dynamic, visual, & actionable People Analytics platform
  • Contra is a professional community for independent workers, giving users the freedom and opportunity to work independently
  • enrich is a private professional network for leading senior functional leaders to share knowledge with a curated group of trusted peers
  • Guild Education partners with employers to offer a lifelong learning platform with classes, programs, and degrees for working adults
  • Homebase helps the busiest businesses manage employee scheduling, time clocks, payroll, communication, and more
  • Hone provides live, digitally-powered cohort-based management and leadership training and other classes that learners and employers love
  • Textio brings the world’s most advanced language insights into hiring and employer brand content, every time you write
  • Wednesday Talent helps growing companies engage and convert candidates by delivering a more human candidate recruitment experience at scale

Footnotes:

¹A market map of many HR tech software startups can be found at CB Insights

²https://buildremote.co/companies/companies-going-remote-permanently/

³Gartner post-covid HR trends here and here; Mckinsey POV on post-covid workforce here

This post cites 1.4M unfilled computer science roles in the US alone; another study cites 3.6m computer-related roles will be open by 2029

McKinsey’s research on workplace DEI finds companies with greater racial and gender diversity are more likely to financially outperform peers

⁶Sapient Research State of HR Tech report

⁷Gartner study here and here

⁸In a 2018 Microsoft commissioned survey, only 23% of frontline workers find they have the technology tools they need to be productive

⁹Josh Bersin oracle note here

¹⁰Linkedin $10B news here

¹¹Top-performing teams at Google have 5 dynamics that set them apart from other teams: psychological safety, dependability, structure and clarity, meaningful work, and impactful work. Source: https://rework.withgoogle.com/blog/five-keys-to-a-successful-google-team/ (2015)

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