Tech Startups May Shun HR, But It Hasn’t Stopped Investors From Funding Data-Driven HR Tech

At startups racing to hit board-level growth promises, investing in HR can fall behind other priorities, as it’s often viewed as a (sometimes unnecessary) cost center.

But playing fast and loose with sound management practices has had consequences for many startups. Indeed, it’s so common for startups to forego HR that it can take a public relations crisis or two for even the largest of startups to make proper investments in HR.

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Hope isn’t lost, however, for human resources managers across startup land. Datum is beginning to inform the decisions HR makes in regards to recruiting, hiring, and maintaining policy in the workplace. And, increasingly, startups and investors are coming together to help HR departments quantify those decisions in relation to the bottom line.

For employers, this could mean a more effective HR department. And for beleaguered HR personnel, it’s more ammo to justify continued investment in an otherwise underappreciated role.

So just how much are investors putting on the table for HR startups that focus on providing insight via data and analytics?

HR Doesn’t Just Attract Employees

Employers want to learn more about their employees and what they do on the company time. Notably, Microsoft Office, the default productivity suite for many companies, is dipping a toe into enabling HR departments to measure employee productivity with Workplace Analytics. But even with enterprises making data more accessible to HR (including directly to managers), there’s plenty of room for startups to compete.

According to Crunchbase data, interest in HR startups with data and analytics focus is a growing trend among investors. Importantly, this cohort of startups doesn’t just gather data. Rather, these startups turn data into actionable insights that may help quantify HR’s contributions to a company’s ROI.

It’s an idea that is taking off. To show that, we charted the key indicators of the sector, including total amounts raised and the number of deals struck since 2014:

Since 2014, startups categorized by Crunchbase as HR with a focus on data and analytics have raised over $267 million in total funds across 127 rounds.

The largest of those rounds was Visier’s $45 million Series D raised in March 2017. The company, which, according to its website, uses predictive analytics to help HR “reduce resignations,” “sharpen recruiting effectiveness,” and “ drive business outcomes,” is looking to use its bag of cash to expand its product internationally.

According to Ricky Pelletier, a partner at the Boston-based firm OpenView, startups deriving insights from HR-gathered data is attractive to investors due to ROI demands from the executive suite.

“I think the biggest impact data is having is actually allowing these companies, and specifically HR teams within them, to talk about real business outcomes,” Pelletier told Crunchbase News.

The investment cadence in HR startups with an analytics focus bears out this need, but there is wiggle room in the data.

Up And Down, But Mostly Up

While 2014 was a good year for investment in the space, with Visier leading the pack with its $25 million Series C, investment grows tepid as we head into 2015. According to Crunchbase data, startup investment within the sector is cut in half, dropping from nearly $49 million in 2014 to approximately $25 million in 2015. Additionally, round counts also dropped from 35 to 33 rounds during the same period.

This drop is likely attributable to the lack of follow on rounds made in 2015. According to Crunchbase, 40 percent of deals made in 2014 were invested in the seed stage. Meanwhile, 2015 experienced a sharp uptick in seed investment, with over 57 percent of recorded deals being seed stage. Why seed-stage investment increased is unclear. And, likely to the relief of founders, 2015’s down round of a year did not bear out a trend.

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In 2016, investment in data-focused HR startups tripled, with an additional eight rounds of funding to boot. Reflektive, a startup that provides employees with real-time performance reviews, walked away with a $13 million Series A. Following closely behind Reflektive is Hireology with its $12 million Series C, and Culture Ampwith a $10 million Series B.

2017 Raises The Bar (With Caveats)

The picture stays rosy as we look at 2017 to date.

Investment in the sector is set to double 2016’s funding haul, with current investment residing over $114 million.

But there is reason for cautious trepidation in regards to the numbers.

Much of 2017’s performance has been bolstered by large follow-on rounds into Visier, Reflektive, and Culture Amp, who have collectively raised over $90 million—accounting for 78% of this year’s total funding haul. Furthermore, round counts are down, with investment in seed-stage startups dipping slightly when compared to the previous year.

However, that does not explicitly mean funding will go up or down in the future.

“When fundraising, we had a lot of fun and had a lot of interest in what we were doing in HR,” Ashik Ahmed, CEO, CTO, and co-founder of Deputy, told Crunchbase News. For Deputy, a data-driven workforce management solution for HR, all that fun lead to a $25 million Series A led by OpenView.

However, according to Ahmed, there’s still “a lot of work to be done” in the field. So far, investors are showing increased interest in funding that work. For HR professionals, it is likely welcome news. And for founders who wish to innovate in the space, there’s a lot of room, and potentially a lot of money, to work with—barring any future blips in funding.

Illustration: Li-Anne Dias