HRTech Technology Industry Overview
Overview:
Human Resource technology is rapidly changing as the Covid-19 pandemic has shifted the traditional “workplace” forever. A geographically distributed workforce was brand new to most companies and there has not been adequate technology to support this drastic change for the long-term. This industry is growing and will continue to thrive. According to Talent Tech Labs (Figure 1), a well-respected research organization in the HR space, there are 13 overarching categories by which HR technology is organized. This includes individual career management, job advertising, peer-to-peer recruitment, social networks & search, online staffing, candidate engagement, employer branding, assessment tools, interview process, matching technology, recommendations & references, tracking systems, and platform tools.
Market Size & Growth Expectations:
The global human resource management market size was valued at $17.6bn in 2020. This is expected to grow to $43.3bn by 2028, registering a CAGR of 12.2%. In 2020, there was $5 billion in global HR tech investment. This was the second highest annual total in the last decade, despite the pandemic. The top three HR sub-categories invested in by VCs in 2020 completely displaced the top three in 2019. In 2020, these included collaboration and communication ($821mm), learning ($666mm), and wellness ($485mm). This compares to the top three in 2019: job board marketplaces ($1.1bn), payroll ($560mm), and benefits ($467mm). VC investment will continue to mimic and lead the changes in workplace needs as companies will need funding to scale operations and help shape the workplace of the future.
Key Metrics:
The most important metrics to monitor are quantitative and qualitative. One of the most prominent is a diversity and inclusion metric, and the following calculation is used to monitor this: People Group-specific Diversity Rate = Total Company Hires (within a timeframe) ÷ Categorized People Group Hires. This is important for many reasons including consideration of different perspectives, as well as maintaining a well-balanced team regarding gender, race, and religion. Other metrics include revenue per employee, cost per hire, employee productivity rate (Company revenue ÷ the number of employees on payroll) and training spend per employee. Training and growth are two of the biggest drivers of reduced turnover. Employees are equally if not more motivated by opportunities to learn and grow as they are to receive increased pay.
VC Funding & Acquisitions:
There has been an incredible amount of HR technology funding this past year. According to Crunchbase data, there has already been $3.6bn in venture funding across 260 deals this year. That figure already surpasses last year’s total funding of $2.2bn across 500 deals. These staggering numbers lead to the next question: who is investing in all these startups? Below is a chart (Figure 2) of the top lead investors (2019) in HR tech. Y Combinator leads in number of deals and Softbank leads in total dollar value of deals. Interestingly, according to Tracxn, half of the roughly $52bn total HR tech funding has been raised in the last three years alone (2018–2020).
In addition to VC funding, mergers and acquisitions are a major part of any industry lifecycle. Two recent M&A deals in the HR tech space include:
· AI-powered Recruiting Startup TopFunnel acquired Referral-Based Company Teamable for an undisclosed amount. The combined platform will help deliver better recruiting recommendations, and each product will also continue to be available on a standalone basis.
· Blackstone acquired a controlling stake in Simplilearn Solutions Pvt. Ltd., a leading online learning “bootcamp” based in India offering digital skills training and courses to working professionals all over the world. Online learning has become necessary as an alternative to traditional education. Blackstone’s scale will enable Simplilearn to expand rapidly to help consumers everywhere upskill online. This was also a key transaction as it was Blackstone’s first PE investment in Asia in a consumer tech company.
HR Tech Startup Investment Recommendation:
Background:
As an early-stage investor, one would be interested in an intriguing startup in the HR tech space called XOR, a leading automation chatbot in the recruiting space. They automate the recruitment process from the time the candidate shows interest in a position, up to the job offer: pre-screen filtering, answering frequently asked questions, scheduling interviews, and status updates. XOR closed an $8.4mm seed round in October 2019 led by SignalFire. The capital came on the heels of a year in which they tripled revenue, reaching $2mm of ARR and reaching 100 customers in 15 countries. The capital was used to expand the 50-person team and accelerate development of their premier product, designed to automate internal processes like onboarding, paperwork filing, estimating job satisfaction and churn. XOR’s offering lowers recruiting costs by 50%, helps customers recruit 33% faster, and boasts an impressive 99.3% candidate satisfaction rate across 2.5mm applicants.
Team:
XOR was co-founded by Aida Fazylova and Nikolay Manolov. Nikolay won an AI competition to convince Aida to start XOR with him. Aida is the CEO at XOR and previously worked as a talent acquisition practitioner. She also co-founded the biggest online data science community of ~40,000 called Open Data Science. Nikolay is a former rocket scientist turned AI expert who built XOR’s first platform and oversees product development.
Market Opportunity:
The chatbot market is expected to reach $1.3 billion by 2024, according to Intellectyx. Roughly 69% of consumers prefer chatbots for quick communication with brands, according to a recent Salesforce survey. According to CareerBuilder, over 50% of applicants give up on a company if they haven’t received a response from them within two weeks of applying.
Competition:
Given this massive market opportunity, there’s undoubtedly competition flowing into the market (Figure 3):
XOR Weaknesses:
· While XOR has many integrations, it doesn’t have CRM, job posting, reference checking, background screening, interaction tracking, or resume parsing as part of their current product offering.
· XOR is best suited for large organizations. There are better solutions for lower and mid-market companies. This lowers the TAM considerably.
Conclusion:
The continued digitization in HR technology makes this a very interesting industry to monitor for investment. There are many market opportunities from the top of the candidate funnel all the way through to make processes more efficient, improve overall applicant experience, and automate repetitive processes. Early-stage investors can take advantage of the continued digitization and automation that will revolutionize the industry for years to come.
