The boom in HR tech investment could dramatically change how HR functions

Venture capitalists have the ability to place bets on the titans of tomorrow, and as they have done for companies most often associated with Big Tech—think social networks and e-commerce giants—they’re reaching into their pockets to fund startups that hope to reinvent HR for the future of work.

Historically, the technology used by the HR industry hasn’t seen the sky-high levels of financial investment lavished on industries like biotech.

The technical nuts and bolts of HR—payroll, compliance, onboarding—have not really been associated with great innovation, Jason Corsello, the founder and general partner of Acadian Ventures, an early-stage venture-capital fund focused on companies attempting to help workplace tech evolve, told HR Brew.

“HR tends to be not necessarily on the bleeding edge of leveraging emerging tech,” he said. That may be changing, however, as VCs, like Corsello, pour money into companies that are attempting to revolutionize HR tech—a trend that began prior to the pandemic, but accelerated as remote work became normalized and companies scrambled to continue business under radically new circumstances, George LaRocque, the founder and principal analyst of WorkTech, which analyzes investment trends across the industry, told HR Brew.

LaRocque said HR’s heightened emphasis on DE&I initiatives and the growing demands of hybrid work have “increased the amount of money looking for a home” around HR tech.

The influx is also indicative of a changing tide in the HR profession, Corsello said, one that he likened to the rise of software as a service (SaaS) 15 years ago. Except now, he said, “in the last three to five years, a lot of these tools have gotten way smarter,” referencing machine learning.

LaRocque hinted at “another wave” of startups that could be a glimpse of HR tech’s future, coming from the “Web3, metaverse, blockchain world…I think that’s the next explosion.” But he and other experts warned that the development of these tools is still nascent.

All 👀 on HR. VCs have been steadily dumping more of their money into workplace technology startups since 2017, according to data provided by Corsello and reviewed by HR Brew, but 2021 was a banner year for the future-of-work industry, with $16.8 billion invested worldwide. In 2019, by comparison, VCs threw $4.4 billion at similar companies, Corsello’s data shows. At the time, that was considered a “record year,” according to LaRocque. But 2019’s relative windfall has already been outpaced by the first quarter of 2022, which has netted over $4.5 billion. (In 2020, when the global economy was rocked by the pandemic, future-of-work tech investment rose slightly to $4.7 billion, according to Corsello’s data).

There has “been this growth in companies that have been funded to help with globalization, in terms of hiring employees,” EJ Lawless, who hosts the podcast HR Tech GTM, told HR Brew.

Overall, the HR tech space is generating intense interest from VCs, according to LaRocque. “For a long time, we used to…talk about HR struggling to get its seat at the table. And then overnight, it was like, ‘You’re not only at the table, but the spotlight’s on [us]. How do we navigate this?’” LaRocque said.

The old guard New wave. Corsello said that older, “traditional companies” such as LinkedIn and ADP are “ripe for disruption, because we’re moving to this more open, decentralized world.” As he and LaRocque explained, HR could fit conveniently into the new world of Web3—which, according to Gavin Wood, who’s credited with coining the term, hinges on decentralization, in which companies will build their enterprises on blockchain technology, ostensibly allowing everyday users the opportunity to obtain ownership in the products and services they consume.

For example, Corsello said, some HR tech could look to Web3 to revamp the way it handles employee credentialing. Where a LinkedIn endorsement or institutional certificate just sits idly on a user’s profile or resume, a company could hypothetically provide some sort of verification of those accomplishments “live on some third-party blockchain, or some open blockchain versus LinkedIn, where they’re not verifiable.”

LaRocque called this the “portability of data,” which could conceivably encompass things like background checks—when a worker passes one, it’s logged on a digital ledger for any future employer’s review. LaRocque also believes that metaverse technologies could become more common in HR in the future. “How can we connect with employers differently in this new distributed world? And I think there’s going to be another wave of big funding and innovation happening there.”

“What’s fascinating is that..six months ago, or even three months ago, you didn’t see a whole lot of Web3 projects, or Web3 ideas around this future of work area. And now I’m probably seeing one or two every week,” Corsello explained.

Still the new wave is merely forming, and not yet flooding the HR field. Examining the emerging technology in HR is like “looking at an iceberg. And today, we’re seeing only a few technologies as the tip of the iceberg,” John Kostoulas, a VP analyst focused on human capital management technology and services at Gartner, told HR Brew.

“It’s really early across the board” for the emerging slate of new tech in the field, LaRocque said. Still, he’s hopeful the near future will see the HR industry more firmly enmeshed in tech’s cutting edge, rather than playing catch-up. “I feel like there’s a lot of promise with that newer technology,” he said. “And I think it’s going to be interesting.”—SB

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