I won’t bury the lede: Through the middle of 2014, more money has been invested in human capital technology than in all of 2013 (at that point, an all time high for investment).
That’s according to a report released this month from CB Insights. Again, remember that 2014’s numbers only stretch through the end of June:
In all, HR Technology has attracted over $2.3 billion in private investment since 2009. That’s a lot of cash coming into the industry.
Obviously, it’s a great time to be in enterprise technology and HCM specifically, but there’s three reasons why we think the love fest between investors and HR tech companies will continue:
1. HR technology is ripe for disruption
Let’s face it: automating the manual processes of the last 50 years is not enough to make a compelling software play anymore. Yet, many of the legacy systems in organizations do only that. Organizations that make the report like Salesforce and Google Ventures have a vested interest in that disruption while HCM organizations like Cornerstone OnDemand and Randstad are making targetted investments in early-stage startups to stay ahead of the game. Progressive HR practices are driving disruptive, new technologies for organizations.
2. There’s still compliance pain in HR
Many of the innovative ways companies in HCM are addressing the talent management challenges of our day are exciting to us. But on the top of many HR buyers minds are the foundational compliance issues that are driven by laws like the Affordable Care Act and increased globalization pressure, even for the SMB sector. It’s why we aren’t surprised to see companies like Zenefits, Businessolver, and CloudPay on the top of the most well-funded companies list. Add in Elance, which might be able to help companies avoid the headache of compliance all together, and you have a trend that isn’t going away soon. Compliance can, and does, drive major purchase decisions.
3. Investors are getting their money back
Maybe I should’ve led with this one? Through August of this year, there have been 82 HCM exits, primarily trough mergers and acquisitions. That’s approaching the combined number of exits in 2012 and 2013 (97 over those two years). No matter how hot or important a sector may be, if companies aren’t moving through investment cycles, it can make investors less likely to make big plays. Given hefty activity from big players like the trendy 500 Startups and Andreessen Horowitz, this should be no surprise.
HR technology may not be the sexiest technology to invest in, but we certainly think there’s even more potential to grow. 2015 is going to be another big year for investment, merger & acquisition activity, and sector growth. Count on it.