… who are building products for HR and why we decided to organize a panel on investing in them.
Venture Capital firms love to invest in startups that can scale quickly and evolve into something big, usually because they solve real problems with new technologies and killer design. Yet scaling quickly requires a large pool of early adopters or group of people who just can’t live without the product. Startups that want funding need to be in the fast lane, car pooling with their users.
Problem is, the people who work in Human Resources are on the shoulder, watching traffic fly by and enjoying every minute of it. They have no exploratory budgets and shrinking allocated budgets. Not to mention, the workforce landscape is shifting rapidly to a contingent and distributed place… Which leads us to the question, why on Earth would a VC invest in anything related to HR?
Sequoia Capital makes the case against investing in startups building products for HR very clear in their “Elements of Sustainable Companies” manifesto: startups must have “Rich Customers: Target customers who will move fast and pay a premium for a unique offering.” HR departments don’t move fast, don’t pay premiums, and wouldn’t recognize a unique offering even if Steve Jobs showed up in-person waving a mind-reading iPhone 16 in front of their eyes.
HR needs a higher business purpose, but entrepreneurs must also find business models that fit this space or shift budgets from current line items. And the catapult responsible for the shift can only be technology.
The outlook is grim. In a recent rap up of #TChat, Kevin W. Grossman noted that many organizations are still using spreadsheets as the primary decision-making tool for workforce analytics. Or just back in December, at GigaOm’s Net:Work conference, fascinating presentations and dialogues flushed out exciting advances in collaboration and new ways of working. Yet, when the conversation turned towards recruiting/HR, the problems being solved where still basic issues like moving away from paper trails. When we hit HR/recruiting, the conversation dropped to 1.0!
Yet, late last year, HR & Tech SF held it’s first demo night, showcasing startups fixing talent related problems. At first, we weren’t even sure we could find enough startups. Turns out, we could. And we sold out. And we’re going to do it again… stay tuned for exciting news about iTalent 2. These startups are looking for VC funding to build products and scale. Some of those at iTalent 1 did just that. So the question is, what scales these days in recruiting and HR that makes some VC feel a bit of love for this deserted market?
Steven Hunt provided an interesting historical perspective of HR technology last week on TLNT. He sees the rise in cloud computing as a driving force behind the transformation of the HR function to a business execution role. Like in other fields, cloud computing is freeing data to be used to make vital workforce productivity decisions. Hunt posits that HR is entering its own data/cloud revolution. Any by the looks of the startup landscape, he might be right.
A few of the ongoing debates in this space. How do you find the right people? How do you determine who the right people even are in the first place? Which technologies are going to die? Job boards are usually attacked first, but could Facebook take down LinkedIn? How about performance measurement? Especially as companies transition to meritocracies.
What technology is turning into a commodity and where is the value from HR technology coming from? Most importantly, is there money to be made here for startups and VC? Are there huge exists ahead of us in this space? Will LinkedIn’s upcoming IPO change the perception about this space?
Here in San Francisco, we definitely see a host of talent focused startups grappling with these questions. Which is why we decided to talk about investing in them next week at our panel discussion with special guests Saad Khan, Partner at CMEA, Jeff Stump, Partner at Andreesen Horowitz and Jerôme Ternynck, who sold Mr. Ted to Stepstone in August 2010 and now heads SmartRecruiters.
The event is sold out. But we will provide the highlights and analysis here afterwards.