VC investments in HR Tech — 2020 Summary
In our last article, we covered the challenges that the HR sector stumbled across in a couple of recent months. Now, we will look at the major VC investments in 2020, and we will try to answer the questions if those investments matched the needs that the pandemic and the remote work brought to all of us.
One might think that pandemic would slow down the investment pace in the Venture Capital world. After all, the recession and lack of the ability to meet the founders in person sound like majors barriers that could severely affect the deal flow. Surprisingly, the exact opposite happened. According to LaRocque, 2020 was the second-largest year recorded for global HR Tech investment, with nearly USD $5 Billion invested across 262 deals.
However, we can clearly see the impact of the global pandemic, as the investment focus shifted from the Talent Acquisition sector more to HCM (Human Capital Management), primarily fueled by the wellness and work collaboration solutions. Amplified by the shift to remote work, investment in HCM nearly tripled in 2020.
In this article, we will look in more detail at the HR tech startups and the categories that attracted the biggest amount of capital in 2020.
Collaboration tools
As mentioned in our previous article, the new system of work requires different kinds of tools that improve teamwork and collaboration. Lack of face-to-face meetings creates huge difficulties, especially for teams that previously relied on creativity and brainstorming, such as marketing or design. To the rescue comes Mural, a digital workspace that lets teams improve their meetings by introducing a whiteboard-like digital environment that allows users to cooperate efficiently. The company was founded in 2011, and for quite some time they haven’t raised any external funding. But then, in a short span of time, they managed to close two rounds, one in 2019 and the second one in 2020. The latter, $118M Round B, was led by Insight Partners, along with a host of other capital vehicles, including Tiger Global, Slack’s corporate venture fund, and the World Innovation Lab. According to TechCrunch, Mural has tripled its annual recurring revenue (ARR) in the last year and has added “over a million” monthly active users (MAUs) in 2020.
Recently, at Market One Capital, we noticed that many companies struggle with managing the growing number of apps and tools across the teams. We also know the problem personally, having to constantly switch between Outlook/Teams/Slack/Notion/G-suite and many others. With the helping hand come start-ups that try to build the next “operational system” and to merge all the existing apps in one. We had a chance to talk to many interesting companies at early stages such as schema.team or reason.al. A similar approach to solve this problem has Click.Up that ties several products in one space, which allows users to decrease the number of tools they use. In December they hit 1 billion in valuation thanks to Canadian firm Georgian that led the investment of $100M. In their press release, they mentioned 2 million users and their revenue grew 9-fold just in the recent year.
Wellness — Mental health
When Prince Harry joins a startup executive team, you might be sure it’s a fascinating sector to look at. After over a year of lockdowns and work from home, people are feeling burned out, unmotivated, and are not in their best physical shape. YouGov studied how the coronavirus affected people’s personal lives; they found out that between 45% to 65% responded said their mental health has been negatively affected last year, based on the data from 14 different countries. Companies are willing to fight against it, as more than 80% of employers say they are planning to increase their health and wellness spending this year, according to Benefitnews.
VCs didn’t wait much longer to go with the flow. Investments in mental health companies boomed, especially in the second half of the year. Lyra health scored the unicorn status with a $110M Series D round led by Addition Capital. The company was on track to hit more than $100 million in revenue by the end of 2020 and currently serves about 2 million members, which is a twice-fold increase compared to the year before. When it comes to the pace of funding, an even more impressive example is Modern Health, which just recently raised another $74M. It is their 3rd round in the past 13 months. In 2020, the startup tripled its staff and doubled its customer base to more than 220 clients. Both of those startups offer all-in-one mental healthcare solutions, providing the client’s workforce with personalized treatment plans, therapists, and digital resources. The main difference is their target market, as Lyra is only available in the US, while the latter already operates in over 35 countries. Modern Health attributes much of that growth to new demand resulting from COVID-19; as a selling point to employers, it also highlights its engagement rates and positive outcomes.
We’ve been astonished by the number of companies that were born in the previous years and that tried to help people with their mental health. However, it took us some time to find the team that truly understands the user’s need, knows the complexity of the topic, and has a unique approach to solving the existing customers’ pain points. We finally made it, and decide to back Adam, Jakub, and Gosia in their journey to build Mindgram — a premium b2b mental health platform. They have enormous interest from corporations, who take employee mental health seriously, so we are very excited to see how they will grow in the upcoming months. Currently, they operate in Poland, and in a near future they plan to start expanding to other countries.
The above-mentioned solutions are all in the B2B2C business model, which in our opinion is a better one, given the high costs of mental healthcare. Nonetheless, there are many B2C solutions that achieve very successful traction. If you are a fan of meditation you probably heard about Headspace, an app that offers hundreds of guided meditations on different topics. They primarily served individual customers, but after closing the recent $93M USD round, they are also doubling down on the B2B sector, with over 600 businesses already providing the app to their employees. In the recent news, PwC announced that it has bought a 12-month subscription for all 22,000 staff across the UK business.
Learning? No-code? Is it still HR?
In recent years, a number of tools became available for the departments that deal with managing human capital. Their features extend well beyond just simple job boards, employee management, or payroll. For example, a substantial opportunity can be seen in the employee training and development sector. Start-ups that began operating in the B2C space, now move on to the B2B offering, with tools such as Skillshare.ForTeams or Coursera for Business. Both of those startups got funding in 2020, Skillshare closed a $66M round led by Omers Growth Equity and Coursera raised almost twice as a big amount of money — $120M to be exact. At the beginning of last year, Skillshare CEO Matt Cooper shared that the platform already had 9 million users. Given how the pandemic embraced the online learning model, I believe that there already could be over 10 million people enrolled in their courses.
Even companies from sectors such as no-code are tapping into the HR sector. In order to cut the costs and help businesses survive the difficult period of the pandemic, many companies had no choice, but to let go of a number of employees. At the same time, the demand for engineers and people with an IT background is not going down, which results in the increased popularity of tools that let people without technical knowledge build customs applications and tools. AirTable, an easy-to-use online platform for creating and sharing relational databases, states on its website that “Strategic HR teams use Airtable to create high performing organizations”. Their ability to target a wide range of sectors has not been overlooked by the world of investors. Thrive Capital, Benchmark, Coatue, Caffeinated Capital, CRV all doubled down on the company, pouring into it an additional $185M back in September. It seems like a reasonable move given their current traction — over 200,000 customers, and among them companies like Netflix, HBO, Condé Nast Entertainment, TIME, City of Los Angeles.
It looks like the venture capital world has been quick to identify the growing problems of the HR industry and poured a substantial amount of cash into the companies that try to ease out those pains. The challenges we established in our previous article were all addressed with technological solutions, and we are thrilled to see what there is yet to come in this exciting industry.
If you are building a startup in the HR tech space, do not hesitate to send us your pitch deck, or just drop an email if you’re also interested in that sector. You can get in touch at michal.gren@moc.vc
