Venture funding in HR technology startups has fallen to less than $3.3 billion over the last four quarters. It’s a notable change since 2021, when venture funding in the HR space skyrocketed to $10.5 billion through more than 800 deals, according to Crunchbase data. Between 2022’s second and third quarters, funding to VC-backed HR tech startups dropped by $2.7 billion, from $3.6 billion to less than $1 billion.
HR tech startups did well in 2022, raising more than $8 billion across 700 deals. Now, investment data shows the most recent second quarter to be the slowest for HR tech venture funding in three years. In addition, Crunchbase said, only two rounds worth more than $100 million have closed.
Even those numbers were slightly inflated by Rippling’s $500 million Series E round in March. Other big rounds this year included June’s $164 million round for Belgium-based Odoo, which offers an integrated suite of open-source business apps, and an $80 million round in March for mentoring software firm MentorcliQ.
“It really doesn’t surprise me,” Anna Barber, a partner at venture firm M13, told Crunchbase. “Rounds are smaller and it’s taking longer to raise money in all the industries. However, I do think there is something specific to HR tech right now.”
Barber believes issues specific to HR tech include the massive amount of innovation shouldered by the sector as remote work dramatically increased during Covid-19. “I think there was such innovation then, there is less investment now,” she said.
AI’s Influence on Money
The funding drop might also be related to artificial intelligence, Crunchbase said. Nowadays, investors are likely to focus on solutions built around AI, which have been weighted toward business and work tools that increase productivity by helping with writing and creating, Barber said.
That isn’t to say HR technology vendors aren’t building AI applications. Already, AI is recognized as being useful in talent acquisition and compliance, as well as the creation of learning programs and case management. And Simpplr, whose platform aims to improve employee engagement by personalizing experiences, closed a $70 million funding round in May.
AI’s not the only technology getting investor’s attention, though. Employee benefits solutions are getting noticed, Barber said. Childcare platforms, for example, are drawing attention as more companies underwrite them and government funding becomes available.
Still, funding and dealmaking like M&A remains slow in HR. “I think right now there is a disconnect on price with buying and selling,” Barber said. “Multiples eventually will come down. … And I think you will see the secondary market pick up. That sets the price.”