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HR Tech: A 35 Billion USD Worth of Opportunities for Startups

HR tech

HR Tech startups that offer full-stack human resources services and management to businesses have gained traction among investors. Indian companies in the market like Apna.co, Refyne, My Ally, Advantage Club, Sense, DarwinBox, and Protonn raised more than 250 million USD between January and August 2021 (1).

“Opportunity in this industry has risen because of two major factors, formalizations of all major sectors and hastened pace for digitalization. The market opportunity is huge with multi-million dollars,” stated Nirmit Parikh, co-founder of Apna.co (2).

According to a report on HR Tech funding by Crunchbase News (3), VC money is flooding the HR tech space as employers seek new ways to hire, recruit, and retain their talent.

The data from Crunchbase suggest that HR technologies have seen over 3.6 billion USD in venture funding for 260 deals between January and July 2021, which had already surpassed all of last year, which witnessed about 2.2 billion USD invested across 500 funding deals.

HR Tech VC funding
Source: Crunchbase News

Another report from Fortune Business Insights (4) suggests that the HR tech market will increase from 24.04 billion USD last year to 35.68 billion USD in 2028 at a 5.8% CAGR. The report indicates that adopting new ways to cater to employees’ needs will be the major growth factor for the industry.

Rising Demand for HR Tech

These numbers demonstrate the action happening in the space, and experts believe that it would only intensify.

“We are seeing super competitive funding rounds in the HR tech space, which has gotten pretty hot in the past two years or so,” stated Adam Boutin, a partner at Capital One Growth Ventures (5).

Many trends that seem to be merging human resources operations with technologies appeal to investors. With the demand for talent increasing (6), the pandemic shifting the way we work, and more companies looking to upgrade their HR tech stacks, everything is screaming at a big investment moment.

“It is no surprise, demand for talent has never been this high, and the last year has only accelerated workforce changes. The work environment is completely upside down, and there is no script for it,” stated Job van der Voort, CEO of Remote, a startup that helps companies hire worldwide with handling payroll, work benefits, and compliance issues (7).

Everything is changing in the HR sector, at least partly because of the remote work world, from how we source talent, offer them training, and build a company culture where people no longer see each other in person, said Saad Siddiqui, a principal at Telstra Ventures (8).

Siddiqui explained that it all creates challenges, and one of the biggest challenges companies are trying to solve keeping their culture in the new remote-work world. Hence, we are likely to see more investment in this direction.

“Everyone has spent the last 16 to 18 months working remotely, and not everyone enjoys it. Hence, the question is about making it more enjoyable,” said Siddiqui.

Read Also: The Booming $500 Billion Business of Low-Cost Online Courses

Future of HR is an Emerging Opportunity for Startups

As we mentioned, the HR industry faces several challenges and is also among the most dynamic business fields over the past years.

As a result, HR departments worldwide are facing perhaps their biggest transformation in history. And the upcoming disruption with HR tech is set to make significant impacts on the workforce. Experts suggest that the role of HR will also evolve far more from being interdisciplinary (9).

The switch from traditional HR operations and systems to a cloud-based SaaS model has helped businesses consolidate, centralize, and store their HR data. This technological boom with the emerging HR tech space is visible worldwide, including in India.

According to Tracxn data (10), HR Tech is among the most active sectors for investors, with overall funding of 51.5 billion USD in more than 5k companies. Also, it is interesting to note that half of these have been raised between 2018 and 2020.

“There is unmet demand from small and medium-sized enterprises that want to establish HR solutions within their organizations. These companies prefer cloud-based offerings, leading to high traction in the HR tech industry,” stated Mohan Kumar, founder of Avataar Ventures (11).

“The space had not seen any significant disruption over the past few decades and was dominated by a few big companies. However, now startups have started to bring value and fill gaps in addressing the need for temporary and gig workers. Overall, there is a huge addressable market,” he added.

The hybrid working model has transformed the role of the HR department, and it is giving a push to HR technology which had mostly remained untapped but is now witnessing a lot of investment.

“HR tech is an area where there were hardly any use cases until the coronavirus pandemic forced a widespread adoption of WFH. The economy around HR tech was made amid the pandemic and is set to see more innovation in the coming days. The opportunity in this industry is here to stay.” stated Anshuman Das, CEO of CareerNet (12).

Experts also believe that the rise of the gig economy will further move the trend, which would lead to more funding. Employee upskilling and wellness have also emerged within the HR tech industry (13).

“Since HR-based startups help businesses bring talent and skill, they are garnering interest. In a rapidly changing work environment, cloud-based HR solutions will define a new working world,” stated Ankur Pahwa, a partner at EY India (14).

Once companies crack their local market, there is room for similar growth for overseas markets, including the Middle East, Southeast Asia, and North Africa.

Read Also: Gig Economy: How this could be India’s solution to the unemployment crisis

ChatBots as an HR Tool

Many companies are already using chatbots as part of their recruitment and onboarding process to answer basic questions and offer real-time information.

Since there have been many advances in chatbot technology, they are also becoming smarter, useful, and more engaging with human-like conversations. It can expand its use cases as low-cost and high-impact tools.

A well-programmed chatbot can answer common questions and offer basic information about everything from workplace policies to company holidays. There is also an opportunity to use them to provide a step-by-step guide during the enrollment process, offer instant feedback and insights from surveys and performance reviews.

Wellness in HR Tech

As discussed in Business Lessons and Opportunities From 2021 Trends (Part 2), during the epidemic, mental health and wellness have received more attention than ever before. The health and wellbeing of their employees will be a top priority for companies, and that’s why we see tremendous opportunity to build an HR tech product focused on wellness (15).

Some ideas we found include:

  • An app that encourages employees to take a periodic deep-breathing break
  • Fitness and step trackers encouraging employees to build exercise in their workdays
  • Timers that remind employees to move around
  • An app that offers a variety of movements and stretches employees can do during audio calls

A Workforce Planning Tool

With the rise of remote work culture, the next logical step would be to allow employees to schedule their work as per their preferences and other responsibilities. However, the issue is for companies to schedule and manage it for all of their employees. While many organizations have come up with their own programs, there seems to be a lack of a comprehensive SaaS option.

We see great opportunities for a comprehensive, customizable SaaS system that companies can configure based on their need regardless of their industries. You can also take it a step forward by offering solutions for other complicated issues like government contracts, protocols, and cross-border taxes. And continue to incorporate features and all aspects of human resources into it.

While it is not an easy task, developers who build an engaging and impactful tool that helps companies with their business objectives are set to win big in the upcoming years.

Read Also: Rising Cases of Data Breach as India Grapples to Safeguard Data

HR Tech for Cybersecurity

With more employees working remotely, there has also been a rise in cybersecurity concerns. Over the past year, more than 55% of people working remotely have experienced a cybersecurity issue, with malware and phishing being the most common threats (16).

HR professionals working from home often handle confidential employee data, making them a thrilling target for hackers. Developers that can offer cybersecurity solutions focused on HR tech like role-based access controls will have a tremendous opportunity in the upcoming years (17). There is also room for businesses to educate HR professionals and employees about best practices to prevent any security breach (Suggested Reading: How to Build a Business with Ethical Hacking and Cybersecurity).

Enhancing Recruitment Experiences

HR is becoming all about the experience for employees and candidates, with technology transforming the entire employee lifecycle from recruitment to retention (18).

The emergence of tools that enhance the overall recruitment process is mitigating one of the biggest issues for companies today, recruitment.

It is getting difficult for companies to find qualified candidates for available positions and even more difficult to keep valuable employees. And that’s where such tools and platforms can offer countless benefits.

HR tech focused on allowing HR teams to tap new solutions and resources to improve their reach worldwide and cater to the particular needs of their employees to create an overall positive experience will be in demand as we go ahead.

Read Also: Forget the 9-to-5 and Get Ready For The New Workforce Trend

Summary

The pandemic finally brought the much-maligned HR function in companies into the limelight. There is now a significant emphasis on leveraging technology in all HR processes.

Most importantly, businesses started to realize the need for HR to be more agile and dynamic.

With hybrid working arrangements becoming the norm, it has put an additional burden on HR managers since they will need to support employees working across multiple locations.

Here’s where HR tech startups can step up with cloud-based HR tools becoming more valuable than ever. In addition, new-age performance management systems that use a range of metrics to evaluate an employee’s performance will ensure that no remote working employees are unfairly penalized.

Also, it is important for our HR friends to note that HR Tech startups will not replace or disintermediate professionals. They will give you tools to effectively manage a larger dispersed workforce that seemed to have developed a greater expectation from their employers. And investors seem to agree too.

HR Tech has become a sunrise sector for startups amid the pandemic. Companies are nothing without their people, and HR Tech platforms that make employees feel more valued, involved, and engaged are set to win big in 2022 and beyond.

Although the HR tech industry seems overcrowded and overwhelmed with all sorts of apps, there is still plenty of room for progress and new business ideas (19, 20).

Everything we have discussed so far points to a consolidating and expanding market for HR Tech startups.

HR Tech startups in specialized niches based on region, market, job, skill type, industry, or any combination of above that can bridge the gap between human resources and technology are poised to emerge as one of the most powerful tools for corporations.

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