The coronavirus pandemic was by far the most devastating phenomenon to have hit humanity since the second world war. Millions of lives were lost, and the world at large virtually came to a standstill for months on end.
But in every adversity, there’s an opportunity, and this pandemic was no different. As countries across the world imposed national lockdowns, companies and governments alike were forced to work remotely.
This proved to be a blessing in disguise for the HR tech startups that offer full-stack human resource management solutions, as companies, both big and small, had to adapt to new ways of hiring, retaining, managing and most importantly, assessing their employees, sometimes in the thousands, spread across multiple geographic locations.
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As work went remote, big venture capital cheques began pouring into the HR tech sector. In 2021, global VC firms invested more than $12.3 billion into HR tech companies across the world, a figure roughly 3.5 times that of 2020, according to Pitchbook data.
The Startup deals
The Indian HR tech sector, too, saw startups raise big cheques over the past couple of years.
If one looks at the investment deals in the Indian HR tech space over the last two years, the scale of the hectic activity becomes apparent. Since the beginning of 2020, nearly 30 India-based or India-focussed HR tech companies or those that originated in the country, have snagged cheques in excess of $600 million, going by a conservative estimate.
India-based or India-focused HR tech firms that have raised money over the last two years include Apna.co, My Ally, Refyne, DarwinBox, Sense, Advantage Club and Protonn, to name just a few.
In fact, Apna.co and Darwinbox have gone on to enter the coveted unicorn club, as they managed to raise VC cheques at valuations north of the $1-billion mark. While Apna.co has been backed by the likes of Insight Partners, Tiger Global, Sequoia Capital, Lightspeed Venture Partners, Greenoaks and Rocketship VC, Darwinbox has received funding from Netflix backer TCV as well as Salesforce Ventures, Sequoia and Lightspeed.
Also read: HR Tech 2022: Understanding Employee Psychology To Restructure Virtual Workplaces
Interestingly, it is not just foreign VC firms that have been backing Indian HR tech startups. Indian investment firms such as WestBridge and Avataar have been investing in US-based HR tech startups like Phenom People and Sense that have a crossover presence in India.
But dealmaking in the HR tech space has not merely been limited to just big-ticket investments. At least nine Indian HR tech startups have been acquired by local and foreign companies over the last couple of years. These follow some marquee deals in the past.
For instance, four years ago HR consulting firm Mercer acquired Gurugram-based online skills assessment startup Mettl. Mettl, which was founded 12 years ago by Ketan Kapoor and Tonmoy Singhal, both with IIT-IIM pedigree, also paved the way for Mercer’s entry into what it termed as the rapidly-growing global talent assessment market.
Some of the recent deals include DoSelect and Greytip Software, which were both acquired by Naukri parent Info Edge (India) Ltd, and OustLabs, OLX People and Waah Jobs which were bought by BetterPlace.
The HR tech space has also attracted several well-known investors and entrepreneurs including Flipkart co-founder Binny Bansal, whose scaling solutions startup xto10x Technologies acquired Dockabl, and Kunal Shah, whose fintech CRED took over Happay.
What changed for the HR tech industry so suddenly?
The pandemic changed everything. It brought about a paradigm shift in the HR tech space globally as well as in India. Industry experts and analysts say that the HR tech industry has seen opportunities come about in two ways. While on the one end there is a trend toward formalisation of employment, on the other, the pace of digitisation too has hastened.
The demand for HR tech is largely being fuelled by small and medium enterprises that want to set up HR systems within their organisations. These companies prefer cloud-based and tech-focused offerings, giving HR tech startups a big fillip.
What has further helped the rise of the HR tech sector is the rise of the gig economy. This new trend and realignment are expected to lead to a rise in sub-sectors like upskilling and employee wellness, which could emerge as two new themes within the HR tech sector.
The pandemic has, in fact, completely altered how companies perform their HR functions—from hiring, induction, grooming, training, assessment and all other people-centric functions. This change has been exacerbated by the remote working models that companies have had to develop over the last two years.
In fact, before the pandemic, HR tech did not have a great use case and so, in a way the HR tech economy, at least in countries like India, was only built mostly in the wake of the pandemic.
What has further helped the rise of the HR tech sector is the rise of the gig economy. This new trend and realignment are expected to lead to a rise in sub-sectors like upskilling and employee wellness, which could emerge as two new themes within the HR tech sector.
But How Long Can HR Tech Boom Sustain?
But can this boom in the HR tech market sustain, especially now that most companies are going back to the office and that the economy has opened up to pre-pandemic levels?
While some analysts and industry experts do think that the HR tech sector has been pretty much in a bubble, investors now want companies to become profitable. This is akin to most other tech-based startup domains where VCs like Sequoia have asked their portfolio companies to tighten their belts and begin trimming costs to turn profitable.
Yet, the fact that the pandemic may have subsided does not mean that HR tech itself is going away anywhere. HR tech startups have helped equip companies with HR functions that are built on solutions built on artificial intelligence, deep learning, augmented analytics and more, and these phenomena are here to stay.
Such tools help companies take care of the complexities related to people management and offer better and actionable intelligence that helps enhance employee engagement, experience and well-being, support hybrid workforce and improve productivity.
Not only have these tools helped digitise the overall work-life balance, they have also helped diversify workplaces, and make them more equitable and more inclusive.
So, analysts feel that while in the short term, HR tech companies may have to navigate a tough funding environment, over the long term the future of the sector seems brighter than ever.
