In conversation with Josh Bersin
There’s a lot of money floating around the HR tech start-up scene currently, as you will hear if you tune into a recent podcast I joined—the Joshbersin.com podcast from internationally-recognized analyst, educator, and thought leader in the global talent market, Josh Bersin.
The valuation environment and the size of investments in the category has heated up considerably. The workplace is arguably one of the biggest tech markets of them all—we’re talking about two billion people who go to work every day and who need to be engaged, assessed, challenged, nurtured, and developed. That means the potential for systems to support them and the people leaders in the organization, and to help automate processes, as well as glean insights from data.
TCV has a strong track record in the space, having invested in HR tech leaders like LinkedIn, HireVue, and Perceptyx, as well as The Pracuj Group, the largest job board in Poland. Over the last two years with the pandemic and several other sociological flashpoint events occurring, there’s been a lot for employers, employees, and chief people officers/CHROs to handle. Simultaneously, there have been substantial advances in relevant technology and software. I was looking forward to sharing our perspectives on the booming and continuously evolving HR technology sector, and the role and direction of current investment in it.
There’s a lot of money and a lot of enthusiasm. There is about $2 trillion of dry powder in private equity and venture and crossover fund coffers out there, so a lot of risk capital is looking for a home. Investment activity in the HR tech sector has exploded, particularly over the last few years, and we don’t see the round sizes shrinking anytime soon. Indeed, as noted in a recent Pitchbook analysis, global HR tech funding has ballooned to $9.2 billion so far this year which is 130% greater than the total for 2020:
That enthusiasm has a definite ebullience factor in terms of what it contributes to valuations and round sizes—seed series, A, B, C, D, pre-IPO, all rounds are higher than they were years ago, and you see companies with significant capital war chests. We expect more acquisitions of smaller companies by larger companies that have raised significant capital as a little bit of economic Darwinism takes place. The firms that have raised massive rounds will clean up and consolidate some of their smaller competitors, in addition to investing in organic growth.
“Focus is the focus” is a good long-term philosophy. Our discussion moved on to the importance of having the right people in place for each phase of a company’s evolution. Challenges may multiply as a company grows bigger, but there are more resources available to employ a greater calibre of talent. Being clear about the goal is paramount. Human capital technology category leaders find success focusing on their core strengths and extending into adjacencies versus too dramatically expanding their offerings into unrelated avenues. TCV portfolio company HireVue is a great example with its core lineage in pre-hire video interviewing, but added capabilities in interview scheduling, psychometric assessments, coding challenges, and recruiter assistant/candidate engagement SaaS.
Our experience tends to be that the best companies do a few things extremely well, and there is merit to “focus” being the focus. On the path from eight figures in revenue to nine figures in revenue, what a company says “no” to can be as important as what it says “yes” to. Part of our job as investors is to help entrepreneurs with some of those lessons learned and pattern recognition from other companies’ evolutions.
The HR software ecosystem is growing. Looking ahead to the “hot spaces” in the HR tech sector, I highlighted the expanding role of Chief HR Officers (CHROs). Over the last two years (and pre-pandemic), the CHRO role has become far more strategic and operational versus perhaps more historically administrative, and compliance oriented in nature. This is creating significant new opportunities for technology. For instance, growing transience in the employee base has a bearing on the role of pre-hire technology. Upskilling and reskilling is surging in importance, as the workplace changes, and employers take stock of the key skills required for their organizations as well as employees taking stock of how they want their careers to progress.
Employee experience (EX) is another area of significant emphasis particularly given some of the changes that the last two years have brought. Josh and I concur about the huge potential around EX, noting we can expect all sorts of tools, platforms and systems coming onto the market with vendors like TCV portfolio company Perceptyx leading the way. I was struck by his observation that the new companies are more AI-enabled, more skills based, and better able to accommodate the emerging creator economy. This is based on the concept of a creator platform for HR, where employees build content for each other, and HR and managers build content for employees. As Josh says, “I believe there’s a ‘TikTok of HR’ space out there.”
Josh predicts a rising generation of vendors that are going to be platform and data vendors that are equally savvy about the external job market or skills or industry data, and their systems are going to be faster and better than less data-rich HR software tools.
Josh and I agreed that the HR software ecosystem is growing, becoming more robust, and that the runway is very long given the size of the total talent market and the opportunities and challenges of the present and future. What a great conversation with a genuine HR tech guru—I really enjoyed it!
To learn more, tune into HR Technology: The Investor’s Perspective. Conversation w/Nari Ansari